Atanu Dey On India's Development

A Tale of Two Countries

| 46 Comments

Singapore and India. Here are some numbers. In 1965, the exchange rate between Singaporean dollar and US$ was 3 (that is 3 S$ = 1 US$). By 2009, S$ had appreciate to 1.45 — more than doubling in value relative to the US$. How did India do? Against the US$ it went from 4 Rs to the US$ to 48 Rs per US$. In other words, relative to the US$, the Indian rupee dropped to one-twelfth its value during the same period that the S$ appreciated against the US$. What a contrast.

India not only could not keep its position, it actually fell even further behind in the race. You could buy 1 S$ for Rs 1.55. In 2009, you needed Rs 33 to buy one S$. The strength of a country’s currency is an indication of how robust the economy is, and it appreciates if the growth trend is positive. India decelerated relative to pretty much all major economies.

Within one lifetime, Singapore transitioned from third world to first world status. India, during the same time, moved from being a state with great promise to . . . a state with great promise. Lee Kuan Yew said not too long ago, speaking for Singapore’s leaders (himself being the most important), “We did not become rich, but Singapore became rich.” Flip the statement around, substitute India in there, and you will have the equivalent statement which any Congress leader can make, “India did not become rich, but we became rich.” Exhibit #6397 the CWG loot. (Subramanium Swamy alleges that someone called Raul Vinci got a rather large chunk of it.)

Let’s recall that economic policies matter. They determine to a very large extent whether an economy prospers or not. For nearly all its existence as an independent state, the Congress party (nearly always with a Nehru-Gandhi clan member at its helm) has made economic policies. And the outcome? Well, we just did the numbers. They speak volumes if only we are willing to listen.

Mrs Gandhi introduced the word “socialism” in the Indian Constitution. She presided over the nationalization of banks. She intensified the disastrous policies that her fabian-socialist father, Mr Nehru, had initiated. The license-quota-permit-control raj that the Congress instituted resulted in India’s descent into ever deepening poverty. India’s poverty beats the poverty of sub-Saharan Africa hands down.

The unfortunate fact is that if the Congress continues to rule India, and if the Congress continues to be controlled by the Nehru-Gandhi dynasty (they put the “nasty” in the word “dynasty”), as far as economic policies go, it will be more of the same disastrous socialistic insanity. They cannot change course because to do so will be tantamount to repudiating the failed policies of their ancestors. Their creed appears to be “The FAMILY before the COUNTRY” — they would sacrifice the country for enriching themselves.

India must have some terribly bad karma, and is paying for it by being ruled by the Congress. How many more hundreds of millions of Indians have to live lives of utter destitution before that karma is wiped clean?

It’s all karma, neh?

PS: One of the main reasons why I chose Singapore to compare with India is that invariably someone is going to say, “Yaabutt, Singapore is a small country of 4 million and India is 1,200 million. You cannot compare the two.” Only then will I explain why that objection is a pile of hooey. Thank you.

PPS: Major thanks go out to Nitin Pai for providing the numbers on which I did arithmetic to get the exchange rates. This post is also made possible by contributions from viewers like you.

{Read Part 2 of this post.}

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  • varun

    I had one doubt,
    if the currency is such a major indicator, what about Japan?

  • http://atinbhattacharya.blogspot.com Atin Bhattacharya

    First.

    Yaabutt, Singapore is a small country of 4 million and India is 1,200 million. You cannot compare the two.

    • http://www.deeshaa.org Atanu Dey

      Alright, it did not take too long for the “Yaabutt, Singapore . . . ” to appear. So I will keep my end of the deal. But in the meanwhile, feel free to explain why that argument does not hold water. Go on, give it a try. There are no penalties for wrong answers.

  • Ram

    Yaabutt, Singapore small India big

  • http://choultry.blogspot.com Ludwig

    Yaabutt, Singapore is a small country of 4 million and India is 1,200 million. You cannot compare the two.

    • http://www.deeshaa.org Atanu Dey

      Now try to figure out what is wrong with that argument. You get points for trying.

  • Vadu Manga

    Yaabutt, Singapore is a small country of 4 million and India is 1,200 million. You cannot compare the two.

    • http://www.deeshaa.org Atanu Dey

      Size definitely matters. Does it help or hinder? More specifically, in which things does size help and in which does it not? Think about it.

  • Karunakaran

    Yaabutt, Singapore is a small country of 4 million and India is 1,200 million. You cannot compare the two.

    There. I said it, though only to have the joy of reading your rebuttal to that objection. Pease please, pretty please!

    • http://www.deeshaa.org Atanu Dey

      Ok, now that you said “pretty please”, I will examine that argument and prove it absurd. But there’s a wait involved because important things take time.

  • http://prashantb1984.wordpress.com Prashant Bh

    @Varun — Atanu has quoted the relative change in the values of the two currencies (forex ratio ) between 2009 and 1965 — And not absolute currency numbers .

  • larissa

    Even compare to China. I have some American friends who are old who remember that they used to collect money to send to China way back, not to India and it was China that had a population problem not India. If a nation cannot get out of its slave mentality why blame the people that rule it? The mentality of Indians allows for the kinds of politicians it has. Such folk deserve to be ruled as slaves.

  • HS

    Yaabuttt….

  • Mohit

    maybe you are just considering the case of china and its success?

  • Oldtimer

    I think back in the 70′s the exchange rate of rupee was being administered by the governement. Black/hawala market reflected the truer value. This does not however change the substance of your argument.

    Since yabutt guyS exhibited some urgency, like their butt was on fire, they shouldn’t have to wait too long. My take is that good policy is an essential prerequisite for economic progress regardless of the scale of implementation, but the smaller the scale the higher the odds of successful outcome.

  • sivaram

    It is difficult to exert control on the people like the way it happened in singapore.The country population and economic condition does not allow fancy solutions like stopping people from spitting on streets,land reform etc..zit is better to allow people to live on a dirty or filthy place rather than make them homeless

  • larissa

    I find it interesting Chinese attitudes towards India, they view India as a backward place and say that it is not a place to gain any kind of educational expertise. Interesting is it not? Just think fifty years ago, there were worse off than India.
    Even foreigners think, India is just India, it will never change, not that their opinion matters, but still it is interesting to hear what people think of India.
    I think India will have a rude awakening when there is political insbatiliby in China, and they attack India as a means to divert issues. This is a likely scenario in about ten years. Then Indians will be caught unprepared, and the military with no equipment to fight. The Indian military has completely outdated weapons and will be caught unprepared as it was in the sixties. It will be a rude awakening, and as humiliating as what happened in the sixties, but I think this is the only thing that might jerk the nation into awakening, but then again since it is India, you never know, they might just go on placidly existing as before and shrink even more in size…

  • http://prashant-b.spaces.live.com/ Prashant Bh

    Okay here’s my shot at the argument ( small vs big ) –
    In my opinion , big would actually be a lesser problem than small . One might argue that if the “starting state” for the big guy is a problematic one , we have a tougher problem at hand . Counter – argument to that is , why did the bigger zone end up in such a crappy starting state to begin with .

    Advantages for a country the size of India ( over a small country like Singapore )
    1) Ideally we should be able to produce almost everything we need for – as far as the natural resources are concerned ; long coastline – more ports , damns etc . No desperate need to export raw materials and all .
    2) Plenty of area for setting up a manufacturing base ( if we want to , that is)
    3) Some industries need a critical mass (number) of engineers/skilled workers – in thousands , or tens of thousands . A big country could have a number of such industries functioning , whereas a small country like Singapore might be somewhat resource (human resource) constrained to incubate anything more than a couple of such industries . ( Auto industry of Michigan , Mobile phone speciality of Finland etc )
    4) Different cities ( depending on local factors , weather conditions , skillset and culture in the population ) often become centres of different kinds of development in different fields . NYC Finance , Silicon Valley – HiTech , Bangalore – computers , Some other regions – Manufacturing . We have enough area to develop our own hubs of excellence ( again , if we want ) .

    Disadvantages of being so big
    1) Too many different cultures , languages ; feelings of regionalism . Any problem which is out of control is very much uncontrolled thanks to the millions of people effected by it ( be it disease , poverty , illiteracy ) . But then again , if we let the problems grow to this scale its inability rather than our size which is our main problem . As someone on this blog suggested sometime back , maybe a somewhat authoritarian mode of governance is required .

    2) Umm … maybe some areas have really harsh terrain or weather conditions and tougher to fix . But then again , since we are a large country resources could be transferred from another part .

    Actually , maybe India was actually at an advantage to start off with and maybe we should be embarassed about it . A city like Singapore needs a constant focus on trade for survival since ( I guess ) they don’t even have enough space to grow their own food and absolutely need cash reserves to import stuff all the time .
    Somethings which we Indians got wrong is an obsession for aggregate benchmarks instead of looking at things on a per capita basis . We use these aggregate benchmarks for our self-congratulatory-ness about the economy , world’s largest democracy , etc ; we also use these aggregate measures for excusing our way out of self-created problems . Larger population could also have meant larger , skilled , workforce ( I don’t mean large to the tune of a billion plus though ) .

  • larissa

    Well if anything, Singapore shows what proper leadership can do; Singapore is just a city state with no resources, but good leadership has turned the place around. Even Japan with no resources is doing well, it is run on the brains of its people and good leadership again which seeks benefit of the nation, its emperor had a vision for its people and initiated a policy of modernization without losing the national identity identity; this is different from a fake system as in India adopted willy-nilly from British masters without much thought of the consequences or how it can be adapted to suit the needs of India. If India can see beyond itself, copying others (i.e. the West in everything) is seen as progress, regardless of whether the ways of “others” are suitable for it….
    Singapore is not democratic, neither is Japan. Only a fool adopts a system without thinking how it is to be applied to him. As in everything, India only copies what others do even as far as governance goes, because it has lost the capacity to think out for itself the proper form of governance suited to its needs. Hence what is India known for today? Cheap Bollywood, the cricket arena and computer technicians and for Indians who have made something of themselves in systems of governance other than their own. A deracinated nation is that which cannot think for itself what is good for it and needs to copy others in everything and needs the approval of others.

  • larissa

    As an aside, the news from India is generally so depressing that one realizes sometimes the only outlet to really be able to vent is satire…
    There is a debate in Britain whether to allow convicts to vote. It is interesting, a clear criminal record does not even prevent people from becoming politicians in India! Crazy.

    Sometimes, Faking News has funny things on it. The piece about Obama being lost as to where to go in India as Rahul Gandhi had told him “There are two Indias” was hilarious….

    http://www.fakingnews.com/

    Also check out the six year old being taken to court for a microloan default…

  • Amit S

    The principle of divide and conquer that is applied in many fields can be applied here as well to divide India into several (say 200) administrative units that surpass Singapore in development.

    Each such unit will be a city-state with its own surrounding hinterland (for agriculture, protected forest, mining, manufacturing etc.) and would be administratively independent and responsible for its own development through economic production, services and trade. Certain principles (freedom of expression, liberty of economic activity, protection of rights of the individual etc.) and limitations (e.g. territorial integrity, common defense, anti-protectionism, some part of foreign policy being common) enshrined in (a theoretical) constitution could apply to these city-states. Through mutual trade and trade with foreign countries, such city-states could specialize in different industries organically, the way central planners cannot even dream of.

    But this requires the political will to let go of the centralized power and let decentralization (& liberty) increase the overall pie.

    I miss my old friend TiredProf among the YaaButters :) Where are you? We need some debate here!

  • TiredProf

    No Yaabutt from me. See, the point is not only to diagnose “why Singapore could do it and we could not”—that is the easy part. We are allowed to analyze the past, but not change it. Given we can only act this moment onward, it is obvious why India cannot change fast although it badly needs much more positive change, while Singapore can easily implement a “no more than two honks per car within 20m of a school on Saturday afternoon between 1 and 3pm” by just posting it on a government Web site. So everything depends on what you define as “initial” in “initial conditions”.

  • Prashant

    Yabutt … :) As there are no penalties for wrong answers, here is my try. My reasoning is based on why small organization/companies are better than the big ones.

    Small organization are better at execution. Why it is like that:
    1. Due to small size, problems are identified quite early and small chain of decision makers results in quick decisions.
    2. Inefficiency is easily identified in small set of people and is unlikely to be tolerated it threatens the survival [that is, the negative effects are visible in very short frame of time]
    3. People are more committed because they know and can see that free lunches for any one in not possible. Also, hard-work has immediate pay-offs in a small group and playing victim all the time does not help.

    The problem is any big organization can destroy you any day :(

  • Amit S

    @Prashant

    You are right. Size matters for effective changes. That is why India needs decentralization of power. Local authorities (we can define what local means, but evidence suggests that is should definitely be smaller than the whole country, even smaller than states) should be given more power and local accountability.

    The Center and the States have way too much power in India. Cities have very little power. The implications are is clearly seen even within India. Because Delhi is not encumbered by a surrounding state, its transportation infrastructure is developing more rapidly than Mumbai’s or Bangluru’s. On the other hand, Mumbai’s or Bangluru’s mayors’ powers are so much less compared to Delhi CM’s power. And Maharashtra or Karnataka CM has a whole lot more constituents to worry about that are competing for attention with Mumbaikars or Banglorians. Even though these cities are fairly cosmopolitan, for example, the CM’s have to keep regional interests in mind, not only that, they stoke regionalism from time to time for mere electoral advantage.

  • http://vardhman.blogspot.com Vardhman

    Sir, you got it totally wrong.

    I would have agreed with your assertions few month back before I read about India’s economic policy. As much as I hate congress for some of its backward policy you have clearly missed so many points in directly comparing the value of currency of two countries to see the rate of economic development/growth etc.

    First thing to realize is where India started in 1950s, lowest literacy, lowest per capita income, worst health related numbers, terrible division of people based on caste and what not. Since then so much has improved and though it may be difficult to perceive because other countries weren’t sitting idle and were developing too but we developed a economic and social framework where continued growth is possible in foreseeable future.

    Economists have good reasons to believe lot of our problems with poverty and per capita are solvable in next 10 or so years if we maintain the current growth rate of 8%.

    India was on a wrong path for a very long 30 years or so in terms of economic development, becoming a more restricted economy, not improving technology, decreasing exports and imports and pretty illogical taxation laws, but these have changed visible from 1991 but may be starting from 1980s.

    The fact that India was able to remain a country all this while and improve in so many criteria is indeed a wonderful feat.

  • pankaj

    cannot but agree with this post and larissa,but it would be unwise to blame congress for all evils as people get the govt they deserve,and unfortunately we the people are also not bright, and highly indifferent aren’t we ?

  • pankaj

    india is a nation of stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid, stupid people, that why we are messed up.

  • kaushik.g

    hey i think u guys r getting the “politician-economics” of it wrong. Accepted that in the case of congress the dy”nasty” rules but at the same time in today’s world ruled by economics it is not correct to think that the congress wont let the economics rule. You see the congress nasties will have money only if the corporates give it to them Its more or less like when it comes to policy formation it is the business that rules, these politico bums have not the brains to formulate policies. So as far as the policies of economic growth go they r going to get it right to a good extent, but at the same time it would be good futuristic thinking to get inclusivity into action because India will need a robust domestic market for sustained growth, and we do luckily have the young blood and the right numbers for it, unlike china which is inevitably dependent on global market to support its huge economy. We should get the domestic market right.

  • kaushik.g

    @pankaj, brother i think we should be constructively critical, we ain’t that stupid. After all Indian economy was the largest economy in the world from 1AD-1700s, i.e., till the colonial rule.if we could get it right in those days i’m sure we can get it right now. If we are resilient enough and keep the faith we can do it again. We have the dna for success brother. Do not give up, stay and fight…!!!

  • http://avidullu.wordpress.com Avi

    Nicely written.

    Not to mention the debt each one of us (*PROUD* Indians) owe to the World Bank. Thanx to the Congress.

  • Loknath

    A learned Business Management professor on another thread on linkedin says its a travesty to compare taiwan, singapore and south korea with india’s economy and our needs are “different”. He sounded like someone blessed by nehru himself. My take on this again borrowed from Atanu-your other posts is value of a currency should appreciate much faster in large economies, not necessarily per capita but overall size of the economy. By that measure Indian rupee with all its growth rate of the recent 10 years should have appreciated against US $ atleast at the same rate SGD caught up with USD in these 10 years. but it didnt. The value more or less remained the same in the past 10 years..range being 40 to 50 rupees. The reason at the fundamental level seems to no one takes india and its achievements seriously as its dismal statistics of health, education and infrastructure is something that the world has always known and truly so the measures are still woeful…worse than sub-saharan africa as Atanu rightly puts it. Unless we change our policies and sound liberal and daring enough for free trade nothing can change india.. in relative terms it will still trail US by 60 years even 100 years down the line

  • anup

    Hi Atanu, Happy Birthday:)

  • Mohit

    Pankaj needs a reality check!

  • sane

    Since when did the exchange rate by itself become a measure of the economic foundation and progress of a country? For all you know, China (i.e. the Chinese government) vehemently pursues an economic policy to keep its exchange rate _tied_ to the USD, amongst other reasons to make sure that the deficit US owes it does not reduce in value. The exchange rate of the Yen, just as well is better for Japan if it is weaker compared to the USD. What matters is whether the economy is “export-based” or “import-based”.
    In case of India, (a free-market economy) a pared ruppee spells disaster for all the tech giants like Infosys, Wipro, TCS, etc, as is the situation currently as we write here. While that does mean that market is lucrative for investment, it is so largely for the FIIs, not necessarily for local investors. The ‘decline’ of rupee that you seem to allude to in fact indicates that the Indian economy has gradually moved from being heavily import-based to export-based.(eg-over 90% of diamond in the world is exported from India. Not to mention the thriving BPO model where profitability is linked to a skewed exchange rate.)
    Just for the record, I am neither a BJP or Congress (or AIADMK, etc) patronizer. While its not surprising that you have associated India’s problems with existence of the AICC, it is plain wrong to say that because the exchange rate is skewed, we are a decelerating economy.

    P.S.: Why does it feel like listening to Glenn Beck (http://en.wikipedia.org/wiki/Glenn_Beck) while reading your blog?

  • http://www.deeshaa.org Atanu Dey

    Sane asks, “Since when did the exchange rate by itself become a measure of the economic foundation and progress of a country?”

    I don’t know. You tell me. I wrote, “. . .exchange rate is an indicator . . .” and not “the” or “the chief indicator.” I really cannot be held responsible for your biases.

    Anyhow, there are lots of easy to understand references online which will explain why a depreciating currency can mean a worsening economy. Without going into details, let me put it very simply. The exchange rate is like the “price” of a currency. Price is determined through the interaction of demand and supply of something. If the demand for the currency increases relative to supply, the price goes up, and vice versa.

    The more a country exports relative to imports, the greater the demand for the currency. If the supply remains the same, and the demand increases (demand shift), then the price increases. Simple supply and demand.

    A country exports what it produces. More exports means more production, all else remaining the same. If the increased production is the result of increased productivity (and not just a result of more inputs to production, then the demand for the currency increases.

    Singapore and India had similar productivities in the 1960s. (The technical term is “total factor productivity”.) With time, Singapore’s productivity — the amount produced by each unit of labor — had increased by an order of magnitude relative to India by 2000.

    I have no reason to believe that Singaporeans are genetically more gifted that Indians that their productivity is so high relative to Indians. Indians are poor because they are trapped in a system that does not allow them economic freedom. Productivity is closely bound to economic freedom. Economic freedom is a matter of economic policy. Economic policy is made by policymakers. The main policymakers in India have been the blessed Congress led by the Nehru-Gandhi clan.

    I don’t delude myself into thinking that my explanation would make the slightest difference to Mr or Ms Sane, and he or she would continue to be in thrall of Mr Nehru and his clan’s socialistic policies that have condemned India to poverty.

    Good luck, Mr or Ms Sane. (An ironic name, surely.)

  • larissa

    Guys please read this Friedman article and the comment. Seriously, what is Friedman smoking sometimes? One of those rosy optimistic articles with little depth as to ground realities, the rosy kind you often read in the Indian media.

    One of the interesting comments said that much of the newly created billionaire wealth in India is connected to Real Estate, Minerals and Land which requires being close to government (and we all know what this means) and little of it is innovative as in information technology. Now this is interesting. As much as private entrepreneurs can address that which government ignores, when the business and government often go hand in hand with no checks as in India, the combo can be scary indeed!
    One just prays for India, something has to give or snap eventually at this rate…
    http://www.nytimes.com/2010/11/03/opinion/03friedman.html?ref=thomaslfriedman

  • larissa

    Productivity is closely bound to economic freedom. Economic freedom is a matter of economic policy. Economic policy is made by policymakers. The main policymakers in India have been the blessed Congress led by the Nehru-Gandhi clan.

    I wonder if these clan members have the capacity to digest minimal economic theory? If India were simply to have two rules such as you need qualifications in terms of literacy to lead India and make economic decisions affecting the lives of millions of people such as a degree from a respectable institution of higher education, and people with criminal records cannot be in government, such two simple rules would disqualify a lot of nasty politicians.

  • http://yayaver.blogspot.com/ yayaver

    Hi all, I am not qualified enough to speak confidently on such complex issue due to lack of my knowledge on economics. Still, I will put forward my points and doubts to Atanu and respective commentators.

    Singapore, is an island country. Land is a scarce resource devoted to industrial and housing purposes, that is not case with India. Hence, Singapore was easily urbanized with western influence than India.Thus, rural mindset opposes any change in tradtion as they are not the centers of knowledge. And the rise of the service sector is quite new in India.

    Both of these countries have high population density. Most of the Food ingredients are coming from the sea in case of Singapore. The same can’t be made equivalent to India. Our BIMARU states are landlocked but holds more poverty due to higher population.

    Singapore is a major international port in Asia; And India has failed to develop such port on our Eastern and Western Ghats. I don’t know the reason behind lack of big number of ports in India. Can anybody please explain the reason behind it ?

    Singapore population consist of people from complete diverse cultures of China, Malaysia and India. Most of this Population are migrants while in the case of India migration of population is quite halted till many years due to its sheer size.

    English is the medium of instruction in all Singaporean schools. Our opposition of English as foreign language had hurt our chances of economic growth and assimilation in the world economy. And due to higher population density, the cost of schooling falls much below in this region. Densely populated region has better facilities in schooling if we look in the case of Kerala.

    One more positive aspect English language as it always bring availability of world literature that helps a person seeking knowledge to resist and figt the fallings due to local traditions. That is completely missing in India till now.

  • RC

    Great post.
    Commenter Sane said:
    pared ruppee spells disaster for all the tech giants like Infosys, Wipro, TCS,
    Well, currency arbitrage is the ENTIRE business model of the software and BPO firms of India. As Warren Buffet said, any arbitrage is short lived.

    Here’s how having low Rs hurts India.
    - It means paying more to import machinery and technology that India desperately needs.
    - Why does India need machines, so that per unit labor output increases.
    - As our host pointed out (classic Adam Smith) that increase in productivity results in wealth creation.

    I totally agree with our esteemed host, Atanu, that it is the Congress economic policies that is keeping India poor.
    - For example the NREGA. It is like paying money to people for non productive work. Whats amazing that people are surprised that there is rampant inflation :-) Giving out free money is called devaluation of currency !!!
    - Milton Friedman once said in China that “Why are these people digging ditches with pick axes and shovels ?? … Chinese official answered that it is to create jobs. Friedman replied, then why dont you give them spoons to do it. That will create more jobs”

  • Sane

    Once again, for the record, I am no patronizer of _a_ political party or another, and hence I take Mr Dey’s comments: “…and he or she would continue to be in thrall of Mr Nehru and his clan’s socialistic policies that have condemned India to poverty. ” to be in very poor taste. (Am I surprised?)

    @RC: Of course, low Rs rate hurts imports just as high rate hurts the exports. What matters is which of the two contribute more towards generation of wealth. For eg: A skewed xchange rate makes importing oil very costly, and this directly impacts the production activity as well as domestic market. We all know how important and long overdue the Kirti Parikh report is, in this regard. In the same breath, diamond industry is jeopardized when the ruppee appreciates.

    Now, Atanu has mentioned in some other post how the ‘size argument’ should in fact favor India, than preclude its development. That is a very valid argument, from all the different PoVs that he has mentioned. Yes, a big ship, or a big corp. can progress faster because it is a highly synchronized growth. In fact, more than growth, I would say that it is safer to say that size reduces the possibility of failure. (Caution: Too big to fail is a myth.). But he misses one important (according to me) factor: diversity. Its more like sheperding a herd of elephants than just an elephant. If each elephant walks at his own pace, the progress can be only so fast. India is like a pack of countries within a bigger country. Its a multi-party system with different parties in power at the local level and each of which have their vested interests. We are also talking about a land of villages. Given that ~70% human resource lives in the rural hinterland, it is imperative to reach out to them by building infrastructure and communication and roads to increase productivity. Add to it corruption. (I leave it to you to argue how corruption is a legacy singularly attributable to Nehru and Co.) Another point is that India is an aggragrian economy, S’pore is more of a services based economy. Comparing the profit margins of these business models is like comparing apples and oranges. So its more like a huge flotilla, where the lead ship drags the rest of the fleet, which consists of ships of different sizes, speeds and unevenly distributed.
    So, fragmentation overrides size when it comes to pace of economic progress.

    My complaint is that what is missing or is not evident to me from this post is the context — and by context I mean rates of change of different parameters.
    Now lets look at some real data: http://www.bit.ly/bxj65w This is a brilliant tool called gapminder, which pools data from authentic sources like UN. (Read more about it on wikipedia) and uses the 2d plot to display upto 5 dimensions. It shows how the per capita income has increased with rising exports. Now, increased exports imply goods of a basic standard quality and surplus production. The difference in the curves of S’pore and India/China is striking. Also, India and China seem to rise as fast, except obviously China has outrun India. (and that is different story altogether.) Surely, the economic policies of both India and China cannot be screwed up.

    Talking about exports, it is important to remember that an export based economy (China/Japan) is more exposed to the external uncertainties. This could not have been better demonstrated than in the recent recession. The spectacular interest shown by FIIs in the last few months in Indian markets is a testament to the sound basics of the economy that has weathered itself after the economic downturn. After all, politicians can be changed overnight, but not economy. This leads to the concept of trade balances. Look at this plot: http://www.bit.ly/cDieYM . Note the oppositely directed trajectories of China and S’pore on one hand and India on other hand towards the end. It is no surprise or secret that India was relatively more insulated from the recession than was China. Now, of course it is always desirable to have a positive trade balance, but then who said the picture was all rosy. I am not an economist, but I am sure that there are capable and much more qualified guys there who bother with the fine details. Now, to believe that the RBI (unlike CBI) is manhandled by a single family for their selfish benefit in a country of a billion, even if it means abject poverty for the rest, is simply delusional, and maybe even lame.

    Besides this, there are other things which affect the exchange rate: like difference in the inflation of the two countries, and difference in the interest rates. Again, I am not smart enough to understand these details, but for a start google “International Fisher Effect”.

    You began the post by quoting some numbers for the exchange rates w.r.t USD. There are already voices calling for reducing the dependence on the greenback as the reference. A big reason for why the recession started in US, not in any other country was the mind-numbingly consumerist model pursued in the US. Also, you say “Within one lifetime, Singapore transitioned from third world to first world status.” All you need to do is read the 1st paragrapgh about S’pore on Wikipedia: “Before independence in 1965, Singapore was a vibrant trading port with a GDP per capita of $511, the third highest in East Asia then.[19] After independence, foreign direct investment and a state-led drive for industrialization based on plans by former Deputy Prime Minister Dr. Goh Keng Swee created a modern economy.[20]“. Am I the only one who misses the reference to S’pore being a third world country? India and S’pore began from different baselines. Its a good idea to back your arguments with reliable references or facts before you start driveling about finding someone to put the blame upon. Otherwise, it makes you no different than Glenn Beck, which I hope is a horrible comparison, given your credentials from your “About” page.

    The bottomline is that exchange rate is a _relative_ price of a currency, not its _absolute_ price (is there such a thing?!).For an economy of the size of India’s a cautious but deliberate approach better in the long run. Since data can be massaged to say what you want, I encourage you to explore the gapminder tool for yourself, to get the bigger picture. At the very least, do watch the TED video of Hans Rossling if you haven’t already, your morning coffee will taste much better, indeed!

    Peace.

  • RC

    Sane,
    Your long winded comment makes several excuses but where is a rebuttal to Dr Dey’s central argument that Big is actually good not Bad when it comes to countries.

    You also state :
    “The spectacular interest shown by FIIs in the last few months in Indian markets is a testament to the sound basics of the economy that has weathered itself after the economic downturn.”

    The spectacular interest shown by FII is because in the US and West general has ZIRP (Zero Interest rate policy) by the Fed. This is FORCING money managers to find yield outside. When domestic economies in the US and West turn and interest rate starts climbing, the FII hot money will start chasing that. Watch out.
    Thats about all free investing advise I can give out on internet chat boards !!!
    I wish best to everyone and may the money and resource is properly allocated. (It serves the society well)

  • RC

    Sane,
    And yeah, you are the one comparing Dr.Dey to Glenn Beck. Glenn has a total of 1 semester worth of undergraduate college education. He is an artist not a thinker. So you are not living up to your internet name.

  • Sane

    RC,
    This particular blog-post draws its conclusions (largely) based on the exchange rate scenario between India and S’pore over the years. Neither me not Atanu talks about the ‘size’ argument. (Though he does talk about it in some other related post.)

    “Your long winded comment makes several excuses but where is a rebuttal to Dr Dey’s central argument that Big is actually good not Bad when it comes to countries.”
    Read the 3rd paragraph in my comment. It seems far too many scholars’ these days have lost their 20/20 vision. Talking of size, here’s more: http://www.bit.ly/9Tyu4f This plot contains US, Russia and China, apart from India and S’pore. Go figure.

    ZIRP is a important factor contributing to exchange rate. Loosely speaking, a skewed relative interest rate translates into higher demand for the currency of the country with a higher interest rate. Since such has been the situation between interest rates in India and US for quite a while now, the reason the Re has not kept appreciating consistently, but stayed within the 40-50 band is because RBI passively steps in to correct or preempt wild swings in the exchange rate.

    Using data from accepted sources such as Wikipedia or the many UN agencies is called sound argument in my dictionary, it is not called “excuses”. If you are truly concerned about the state of affairs, it takes a little more than simply typing away at the keyboard to address the issues of a billion+ people. For start, let me suggest ‘perusing carefully’. I am not a scholar, politician or a social reformer, but at least I do not feign to be one.

    Before these back and forth comments quickly reduce to “You said, I said” kind of unending drivel, rather than anything constructive, I would like to have my final word by saying this:
    If the source of all of India’s dire problems has a foregone conclusion of being due to Mr. X (in this case, a guy called nehru and his clan), then it is no different from saying that “If the only tool you’ve got is a hammer, you tend to see all problems as nails.”
    You must have a lot of spare time if you actually dug through Glenn Beck’s educational qualification.
    I will say no more.

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