Yesterday’s Failures are Today’s Successes

#24 Harimau : I have never heard about a company called ``Bharat Dynamics`` which was started by Mrs. Gandhi`s efforts as per your note. Could write few lines about this company. I know major companies from India. I have never heard about company even once. Kindly throw some information about this company.

nasah sahab

Bahut khoob. Aapne mere shayari ke jnan (knowledge) mein thoda aur izaafa kar diya. HaalaNki mujhe sher ka majmoon samajh aa gaya hai par in do shabdon kaa arth to bataiye:

bakheeli?
razzaqi?

waisay mujhe aapka bataya hua pichlaa sher `` ...khushi se mar na jaate `gar aitbaar hota`` abhee bhee yaad hai...


PS Pardon my pathetic knowledge of Urdu.

Pankaj,
re. `trickle down economies`

It is my understanding that trickle down economics works best a manufacturing-heavy economy, and least in knowledge based service industries. While there is little doubt that the protectionism of the earlier Indian goverments had a negative effect on growth, it could be argued that the socialist measures taken during that period (say `70-`90) were in fact the launching pad needed for India from which to catch the winds of this latest storm of globalization.

You Indians want non-socialist, small-government, laizzez fair economics? Look immediately West and be caredul what you wish for!

(For those jumping to claim that Pakistan is in fact a welfare state, my I direct you to the nearest USMC HQ?)

The global policy network gives the detailed macroeconomic analysis of Indian economy between 1970-2000. It is an excellent source of authentic economic data replete with figures that give an overall picture of Indian economic development.

http://www.gpn.org/data/india/india-analysis.doc

Following is a quote from the above link:

``Poverty has declined in the combined poverty ratio from 54.9% in 1973-74 to 36.0% in 1993-94 and a further 10 percentage points in the period after 1993-94 to reach 26.1% in 1999-00. While the proportion of poor in the rural areas declined from 56.4% in 1973-74 to 27.1% in 1999-00, the decline in urban areas has been from 49% to 23.6% during this period. In absolute terms, the number of poor declined to 260 million in 1999-00, with 75% in rural areas. ``

Thus while it took almost 23 years for the poverty arte to decline by 19% points from 55 to 36, it took barely 7 years after the initiation of economic reform for the poverty to decline by another 10%. It must also be kept in mind that the latest 10% decline is based on a larger population, hence the absolute number of poors lifted above poverty line makes for even a more dramatic shift.

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saxena sahib -- how did yu get that beautigul color cover on the chowk -- would tell us your secret?

maray dost Pankaj sahib -- ah that trickle down business! -- QatroN se pyas bujhane ki baat -- we will talk volumes about it -- meanwhile as Iqbal would say:

samandar se milay pyase ko shubnum
Bakheeli hai yeh razzaqi nahee hai.......

What is HBS Report ? Can any body throw light? thanks

As is often the case, one of the best posts on this board comes from ahmed madani. Very incisive summary of the socio-economic factors behind Indian resurgence.

nasah ji

``in order to keep the economically contributing classes of Chiefs comfortable -- and able to continue to contribute -- the Indians (the consumers) have to be kept on some form of life support system``

Not really. This is where ``trickle down`` effect comes handy. A part of the profits that a company earns go towards increased bonus to the employees. The remaining part is reinvested resulting in creation of new jobs. If the rate of investment is high such that new jobs are created at a faster rate than the labor availability, the wage rate increases. All these are primarily the ways by which the wealth trickles down to the commoners increasing their purchasing power which has a cascading effect on the aggregate demand. I agreee that I am trying to give a simple(simplistic?) picture of what arguably is a complicated process. Basically, in most of the cases, the market mechanisms automatically take care of the wealth distribution.


Dost-Mittar
``Here, I would disagree with you. In my observation of the working of the capitalist societies, the private enterprise does as poor a job of the distribution of wealth as the government sector does in creation of wealth. So, while the govt. should let the private sector do the job of running businesses, it must use its powers of taxation and spending to create a safety net for those who are left behind in the competitive process to ensure a caring and just society. ``

Let`s agree to disagree :-). Higher govt. taxation translates into reduced availability of capital to the private sector as any basic economic theory will tell you. Using a fundamental yardstick that private capital gives higher returns than govt. capital, this would be an inefficient process as far as gross wealth generation of a country is concerned. But I do agree that private sector may not be willing to invest money into the projects with long term marginal returns like building infrastructure or medicare etc. which have a salubrious impact on the society as a whole. This is where govt cpmes into picture. So while I agree with the concept of govt collecting taxes to invest in social safety net, I would prefer to err on the side of lower taxation. In fact, I would prefer that govt generates financial incentives for the private sector in form of lower taxation if they invest in medicare etc instead of govt. charging higher tax and using the money itself. To summarize, all my efforts would be directed towards as low taxation as possible and luring private sector into creating social security net. I suspect this is not what you imply. You perhaps prefer the semi socialist Scandinavian welfare state to American one. If my reasoning is correct, in not so long term, the crypto-socialistic policies of Scandinavian countries will sap out the economic vitality of those countries as the vibrancy of American capitalism surpasses them. As I have argued before, any form of socialist policy, however mild it may be, will always lose to the efficiency of a capitalist system.

Dear Dost-Mitter:

``I am most interested in what the HBS studies` conclusions were wrt the different educational models pursued by Korea and India. BTW as of now, except for the IITs, I think that Korea has more educational institutes of excellence in learning than does India.``

This case study was done in 80s. I will try to get a copy, and permission to post it as it is. This case study was very criticial of Indian emphasis on higher education so early in its development. It wondered if Indian emphasis on higher education triggered a brain drain from a developing economy into developed economy. China was still closed in those days. Korea had already joined the league of asian miracle.

``Nehru`s vision of independent line and coexistence of private and public sector had its flaws but it uses the capital more efficiently than say China or Japan at the similar stage of the game.``

I have personal experience of making significant investment there. Any way, you can see the length of time and amount of FDI, China took to reach growth rates it achieved, and compare it with India. Apparently there is a private body in Mumbai, its name slips my mind, which monitor`s Indian economy (CMIE ??). Investment bankers in Singapore who have dealt in China and in India openly say the same thing. Although, they do predicate that when you pay in China the work is done, but when you pay in India, you are not sure until the work is done. Enron is case in point.

Singer`s Indian subsidiary was its most profitable. India never stopped any repatriation of profits ever. Singer while divesting, sold their real-estate holdings and got capital gains repatriated as well, because they had come into India way before foreign exchange control regime.

Industrial Development Bank of India (IDBI) freely quoted these as late as 1997, the last time I was in India.

In my experience, Indian domestic markets, were hugely (and still are) profitable. Although with the integration of its economy with the global economy, things are chaning. In the absence of needed equity, and poorer capital markets, substantial investments came in the form of debt in depcreciating ruppee due to inflationary pressures. Thus on paper many projects, gave great return on equity through asset appreciation, on the basis of restated balance sheet to reflect the value of built up assets. Even 20 year old ambassador car could be sold for higher than it was bought. Debt-Equity ratio of 10:1 was the norm (better than, a family must put down to buy a home in Canada). On a simple spreadsheet, you can calculate what double digit inflation will do to the rebuilding of assets, debt carried and its service, and hence what would happen to the return on equity.

No doubt, a very strong case can be made against Nehru`s socialism. However, I make my case on the grounds, that he squandered a generation on aping Soviet model. I also say that India won political freedom with the help of British trained Indian lawyers. India will now get its economic freedom, through its entreprenuers.

My point regarding Nehru`e industrial policies, or interference of ``policies`` with the market, be it in Canada too, was contemporaneous. There was not sufficient FDI going around to uplift 250-million Indian at the time of its political independence.

``From what I know, India should have gone for industries which were labour intensive where its cheap labour was an advantage and spent its mopped-up resources in developing the infrastructure which would facilitate the growth of such industries. Instead, we went into capital intensive industries, and that too in the wasteful public sector, which took our most precious capital resources without providing jobs for the jobless.``

Developmental Economics, as I studied has stages, labor intensive jobs with limited or no capital, I doubt would have got India even closer to North Korea.

JRD Tata, Indian economic visionary saw it, and set up the first Indian Steel Plant much much before Nehru got the power. Today`s phenomena in IT should not be confused with 50`s need for jobs and economic growth. A few years ago, I had read an article in National Geographic, that how in matter of 50 years, Indian entreprenuers (weavers) had almost shut down the textile mills of Manchester.

Thank you.
ANIL

PM

``It is beyond dispute that the rich in India are getting richer, and even that the not-so-rich are getting nouveau riche. But is it true that the poor are getting out of poverty and if so, at comparable rate as their more fortunate compatriots.

Also, if the poor are indeed climbing out of poverty, to what particular soico-economics policies is this attributable? In what way is capitalism, per se, playing a part in this process``


The poverty rate in India in 1990 before economic liberalization stood at approximately 40%. In just over a decade, the poverty rate in India now stands at about 25% according to the latest data. In short, India almost managed to pull out an entire Pakistan over poverty line in a decade. This is nothing short of dramatic when you compare the rate of poverty decrease in any other decade in the entire Indian post independence history. I believe the ``trickle down effect`` is at work here.

re. PunjabiZulu #23:

``And while [the Socialists] moan, whinge and whine, more Indians are being pulled out of poverty and aspiration is transforming the possibilities of lives across India.``

It is beyond dispute that the rich in India are getting richer, and even that the not-so-rich are getting nouveau riche. But is it true that the poor are getting out of poverty and if so, at comparable rate as their more fortunate compatriots.

Also, if the poor are indeed climbing out of poverty, to what particular soico-economics policies is this attributable? In what way is capitalism, per se, playing a part in this process? And equally important, what are the prospects for sustainable growth/development in this area?

(And why is noone asking what critreon for poverty is being applied? Are we using the sustenance-level critereon?)

Answers from any takers would be much appreciated.

rgds,
PM

The latest BusinessWeek cover:



http://www.businessweek.com/magazine/content/03_49/b3861001_mz001.htm

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Thanks for looking at development of India. It is good thing for world India is improving and improving fast.
Mr. Nehru helped to stabilize democracy ( local democracy was well established under british crown). It always wonders me two mentors two countries two ways and two results.
Gandhi an defiaent law breaker and revolutionary- he made revolution in revolution , jail bird his legacy resulting in worlds largest stable democracy instead of all lawlessness. Jinnah a lawyer ( lawyer King - Q azam), reformist in given british system, followed basic lawful ways for most of time legacy most unstable nondemocratic a country still trying to find how to transfer power. Many times logic defies reason. Differences are stark in some sense- every election is called fraud by looser in pakistan in India they accept defeat angrily but no body say fraud as it is to regularised election. Nobody asks army to come down and throw out bunch of ``corroupt`` politicians.

Did nehru made magic ? Yes he may be partly responsible as he was so omnipotent that he could have declared as Badshah of poors. He did contributed healthy doses in democracy. Real credit goes to ethos of Indian people. I want to give due where it rests as leaders are marginal in effectiveness and long term effects. It is credit to Indian masses that they threw out ( kicked) Mrs. Ganghi when she was trying to deny democratic right and they STRUGGLED very strongly against suspension of democracy.

It is greatness of Indian masses and their civilan behaviour gave good name to Nehru.

IITs and other great institutions of learning are great contribution by indian academic community and general appreciation of education, reverence for education. If nehru ( I do not know what happened in india- was born in 1948)started is then it is one one of thing which will definitely outlasting him. Indian ethos is very great in this matter as Indian want education for educatuion. They are not practical in this matter compared to pakistanies. Overall effect is good on country as education brings potential benefits in several areas of life. Today these students from medical colleges, engg colleges , arts and science colleges are dominating world scene. They are not at mercy of anybody but they are writing their tickets. Indian engineer from IITis prized employee is more significant. Most indian or Pakistanis who are loosers and ellitist will find all problems with this. But think of Cambridge took 500 years, Harward , MIT college took over 200 years ( ? i do not know) to give prestige. The Indian education institutes took only about 30 to 35 years to start from scratch in dirt poor country without any infrastructure. I consider is great acknowledgement of Indian academic success their students are considered at par with any great engg institutions. ( I suspect many who could not get admissions will defame due to jelousy envey and greed). It is great thing a IIT boy or girl is better than most institutions in world. They say its visa to usa.
I think insread of spending 30 to 40 thousand dallars in usa/ per year and getting triavial degrees of no significance even in american market may be we pakistanis can think of going to IIT than little colleges in UK ( they run most colleges to pick up and steal pakistani`s hard earned money) or community colleges in usa. IIT college may be costing 500 dollars per year ? ( I read on govt of india web sites they have seats for foreign students reserved). When I went to middle east(gulf) there was different attitude.
Arab criteria
top most employee is american educated prof registration, then european, then arab educated, indian pak- they have no concept of IIT . ( whiter gets more salary as browns are stupid enough to be brown is thinking) Many indian engneers draw lesser salary than american draftsman. Even its hard for arab to tolerate american companies paying american salary to brown desi. Its still great things there. So there are places iit has no value. I have been to middle east one looks at their Arab mentality then you believe in miracles as only miracle can improve mental state

Nehru was Fabian socialist and influenced by soviet models and impressed by prof Laski and Manyard Keynes model of economic theories which were vougue in Europe at time in academic circles. More on central planning and pouring money at industrial plants and printing rupee bills.
He was greatly responsible for backwardness of India. He was very afraid of foreign domination and lost the sense and followed policies as if he was fighting British East India (of 1700 )Company in 1950. He wanted to do good but never understood problem. He was ( and his successors) were thoughtless that they were putting 80% of capitalization in Public Sector which was basically a job employment scheme at extremely high cost making sure private productive capital producers were paying extreme high rates of interest. Having lost competitive edge they only looked at captive indian as slaves to offer junk and they brought junk. After addition inflation and interest the companies were loosing capital. One has to say he was not vicious man and he thought he was doing good for poors of india but it ever entered his mind poors were only getting shaft in this deal. The indian spirit ( enterprising)which even in british time flourished was imprisoned, famed bengal Tiger was caged in Jungle to save him from jungle dangers. Worst thing was great developmen of Corrouption ( I read from indian sources) and corrouption became part of life.

Other great stupidty was reserving of small scale industry for small business. So these major goods used by poor indians were destined to be too costly. The economics of great scale never benifited this sector at all. It is toady also still reservation is there. This is sector where china producing giants economies of scale is selling great amounts to world and Indian govt is shooting itself by keeping restricted sector to small scale industries.

Indian infrastructure is very weak today, nehru policy- its joke. It takes 6 days to travel truch from delhi to Deep south for trucks( average). Most of Indian ports are bottlenecked and great dummages are paid. Export storage places are flooding as they can not move stuff. I am pakistani and do not say i am lafanga its in Indian trade journals.

Fortunately for india Vajpaie is good man and adminster. Its difficult duty in such large democratic country to slowly move direction of economy affecting billion people. He understand POLITICS and ECONOMICS and PRACTICAL difficulties.
It is to his credit he is slowly breaking through all this in every small way. Building of Quadrangle is goos way start. There is great development in port area specially in private sector along Gujrat cost. Several small to medium harbors are build and operating along Gujrat cost. It is amazing to read the amonut transcated through thesre posrts even exceed bombay port. ( They import and export bulk products like petrolium products and grains etc).

It is ironic Vaajpai who greatly respects Nehru (and nehru use to like him )has to do important work of demolishing nehruian economic models and for prosperity of of INDIA may be Nehru may thank Vajpai for dismantling his dreamy ideas.

It is my feeling Vajpai will me missed by indian people just like nehru for his pioneering work for dismantling nehru economic made slowy and gently with out too much destruction and privation. In long term Nehru and wajpai will be consider as continuation of change.(all others except MRs Gandhi werre forth to fith rate primeministers) One hope President general will be remembered but like General A. Y to Z but chances are that nobody will miss any ruler or militaty ruler except Jinnah.