India: Muddling Through Won’t Do



By John Richardson

Indian friends of the blog, many of whom work in the country’s chemicals industry, have long expressed their view that their country will always muddle through.

Their trust in government to solve long-standing infrastructure and logistics problems has always been low.

Through a great deal of hard work, and enormous amounts of ingenuity, they have therefore managed to prosper.

They were not taken in by the widespread euphoria which greeted the Congress Party’s re-election in 2009.

And they are, equally, not that downbeat about the growing pessimism over India’s short term, and possibly even long term, economic prospects.

This group of big and small companies, and an army of sole traders and one-man-band entrepreneurs, are likely to continue to do well, even if India fails to tackle its difficulties.

But failure to deal with chronically bad infrastructure, corruption, dysfunctional politics and the huge divide between the rich and the rest of India, would be nothing short of a human, as well as an economic, tragedy.

All the above problems have been around for a long time.

What has changed over the last year or so includes:

*Major new corruption scandals that have drained the credibility of the government, involving first of all telecoms and now the coal-mining sector.

*A sharp decline in domestic and foreign investor investment in India. This is a result of the government being paralysed by the corruption scandals, and by the belief that it is unwilling or unable to push-through further economic reforms. Last week’s budget could further weaken foreign investment.

*An increasing bad-debt problem at state-owned banks. 

*High inflation and interest rates.

Chemicals demand growth has, a result, slowed down.

Talk of big new integrated petrochemicals complexes, attracting lots more foreign investment, is also likely to remain just talk. The blog first heard about the idea of these complexes back in 2000, and nothing substantive has happened since then.

The blog sincerely hopes that India does a lot more than just muddle through.

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