"Economic Tiger" in a pit of public debt
If you make a call to an American and English customer service center, like at American Express, General Electric or British Rail, you are likely to speak with a young female or male Indian operator. And they take your call from India.
Management of incoming first-contact and information calls, as is usually the case in service sectors, is one of the major impetuses behind the booming Indian economy, making it the third largest in the world after United States and China and ahead of France, Germany and Japan.
The Indian economy, in fact, is going through a golden period, boasting an 8% annual rate of growth one of the highest in the world. And the recent news released by the Moody's debt rating agency has improved the outlook of Indian debt, leading to a reduction in interest rates (extra benefit to the country).
It is precisely this healthy and robust economy which likely inspired the Hindu nationalist coalition, headed by Janata, to call for early elections (normally scheduled for October) upon dissolution of Parliament.
A bright future
The Indian economy's incredible growth inspired Goldman Sachs International to perform a study. The report was released at the World Economic Forum in Davos. The report forecasts that India will play a leading role in the world's future economy, due in very large part to its service sectors. Hence if China, the world's number 2 international labor force is the future "office" of the world, then India seems destined to perform the calmer role of the planet's "virtual office".
Such a sector, thanks to "outsourcing", consists in handing over to external firms the execution of processes and extra services (traditionally done internally). It is in this very sector where India shows the greatest dynamism. Two thirds of the country's increase in GDP was created in the service sector, the industry which has contributed to nearly a quarter of India's economic growth (24.1%). Meanwhile agriculture, which employs roughly 60% of the country's manual labor force, contributed to a mere tenth (11.7%) of new business intake.
Moreover, in this period, India has assumed a preeminent role not solely in the data entry sector, but also in the database software and IT industry in general. So much so that by 2008 the country should produce around 50 billion dollars in such sales and business services.
Another service sector, that should be an important source of economic growth, is that of research and development. Since 2001 well over 230 high-tech multinationals set up offices in Bangalore.
The deficit projected for next year is expected to diminish from 4.8% to 4.4% with respect to the country's gross domestic product. Economic growth during the 5-year period between 1992-97 was sustained at an average of 7%. India is expected to maintain its world-leading rate through next year.
Currency reserves, which in the early 1990s were reduced to just over a 1 billion dollars, were over 100 billion at the end of 2003.
The reason for the booming economy is simple. Indians speak English and earn little. Major multinationals pay workers with university degrees a mere 10,000 rupies (200 euro) a month. To earn such salaries workers toil at desks and behind machines ceaselessly for long hours. Their efficiency is based on how much they produce without any consideration for their family, personal or health problems. These are harsh conditions, indeed, yet India has at least been able to partially avoid the "dirty" development of industrial plants. One must bear in mind that for its neighboring rival country of China such development has sparked problems of pollution and shortages of necessary raw materials.
Now, if confirmed by the elections, the government will be able to carry out its program to privatize state businesses, slash subsidies, reduce bureaucracy and increase foreign investment. It was precisely in view of elections that duty and consumer taxes were reduced to give urban classes a financial boost. Tax exemptions were also extended to electrical production projects, as such energy is critically needed across the subcontinent.
Bureaucracy and Public Debt
However there are various unknown factors which will weigh heavily upon the country's future, starting with a bureaucratic system born during British imperial times. Even more worrisome is the bureaucratic mentality that spread during the years of Indian socialism. And taxes are high. A third of all income is taxed this is no little amount for an emerging country.
A similar bureaucratic context is experienced in politics, which is officially free and regular marked by generally elections. Government is filled will a myriad of micro-parities and micro-powers. The cost of balancing such a system, which is curiously similar to the country's polytheistic religion, has its ill affect not such much on intolerable efficiency but more so on how it stifles the economy and all of society.
Under such a context corruption is not a disease but rather support pillar that is half immersed within the system, acting almost like a release valve and corrector of daily irrationality. Completing the picture is mismanagement of fiscal administration at local and federal levels, in addition to endemic strikes and shortages of capital invested in businesses.
On the macroeconomic level balancing the political pantheon has its price, too, as seen in the central and local government's combined deficit equal to 9% of India's GDP.
And such debt is due to current spending, that is, expenses resulting from the covering up of errors of myriad powers and bureaucracies through legislative measures and specific interventions made by the executive powers in government, while aiming to satisfy a specific pressure group. The Indian abnormality is that public debt, which sometimes reaches 64% of the country's GDP, rains hard upon foreign returns in the service sector and is notoriously difficulty to verify.
Consider that such a value is underestimated, since in public debt are included the expenses of restructuring and recapitalizing, countably hidden in the losses of the financial system and state businesses and for tax commitments linked to the public retirement system of benefits (when life expectancy is now longer than ever).
Lastly there is the hidden debt of local administrations. Underestimating public debt is but one common case among many other Asian countries. Some Asian economic analysts say that another 30% of the country's GDP must be added to calculate an adequate public debt figure. Using such a calculation, India's public debt could therefore be equal to 94% of it GDP.
The ironic conclusion is this: behind one of one the fastest growing economies in the world, in India we also find one the highest public deficits and debt, 14 percentage points higher than the maximum level considered sustainable. As a consequence, the country runs a high risk in the case of extreme circumstances, for example, in the case of political and natural catastrophe, not to mention problems with national energy supplies. Any sudden change on such levels will surely burst Indian's euphoric economic bubble, sending the country into major crisis.
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