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HindustanTimes Tue,21 Oct 2014

‘Can’t take India story for granted’

Gautam Chikermane, Hindustan Times   April 27, 2012
First Published: 18:26 IST(27/4/2012) | Last Updated: 18:26 IST(27/4/2012)
Breakout Nations: In Pursuit of the Next Economic Miracles

Ruchir Sharma

Penguin India

Rs 599 pp 292

It’s not easy to define a financial book as breezy. But after Peter Lynch (One Up on Wall Street) and Michael Lewis (The Big Short) if there’s a new writer on the economic block who can carry off this label, Ruchir Sharma it is. While Lynch’s masterpiece focussed on buying equities and Lewis’s stunner exposed the economic crisis, Sharma’s book takes us on a journey through investment fads, country groupings and the half-lives of GDP growth to show how the past decade apart, it is virtually impossible to predict which countries will become ‘Breakout Nations’ and for how long they will grow.

“No one can pinpoint the precise mix of reasons why nations grow, or fail to grow,” writes Sharma, a Morgan Stanley executive, in this gripping 292-page economic travelogue. “There is no magic formula, only a long list of known ingredients: allow the free-market flow of goods, money and people; encourage savings and make sure banks are funnelling the money into productive savings; impose the rule of law and protect property rights,” and so on. He describes them as “cliches that are true” but without any insights.

Sharma’s book paints a colourful picture of countries, an advantage he captures from his hugely-enviable job, where he spends one week a month in an emerging market. For instance, the hubris India collectively harbours, is best illustrated by the reaction of the spoilt rich kid Sharma met at a Delhi farmhouse who, when introduced as an investor told Sharma: “Where else will the money go?” This, he tells me, raised red flags for him.

The book is about getting us to re-examine the labels that countries are packaged under. Referring to BRICS, G20 and so on, he says “Grouping countries together is a big mistake — these countries have nothing in common. It is a game of snakes and ladders in which the odds are against you.”

The last decade was a Black Swan. “Over the course of any decade since 1950, on average only one-third of emerging markets have been able to grow at an annual rate of 5% or more. Less than one-fourth have kept that pace for two decades and one-tenth for three decades. Just six countries have maintained this rate of growth for four decades and two (South Korea and Taiwan) have done so for five decades.” He is pessimistic about Brazil and Russia and upbeat about Turkey, Indonesia, Philippines, Poland, Czech Republic, Nigeria and Sri Lanka.

The chances of India becoming a breakout nation, he says are fifty-fifty. In a game of expectations management, India is slowing down on the frontiers of growth as well as perception. “You can’t take the India growth story for granted,” he said. “The demographic dividend was just a decade ago being termed as a demographic time bomb.”

Political system has no relevance to growth, he says, an argument I find a little difficult to swallow even against the grain of data. The rule of law comes packaged in the Indian system compared to China’s, leading global investors to expect greater adherence and react sharply to the anomalies dogging the Indian system. Do these have no impact on economic growth? If you map the harsh reaction to India’s retrospective tax against China’s regularity of such breaches, I’m sure capital will skew towards the elephant rather than the dragon. Besides, I find it naïve — and offensive — that global capital expects countries to behave as per its norms, rather than the other way round.

Sharma’s understanding of India’s complex politics is surprisingly accurate for a ‘finance type’ individual. He is able to marry the rising State power and waning central politics with varying growth rates in different states with ease. This book should be a wake up call for the big boys of finance in Bombay as well as policymakers in Delhi with a single mantra for both — eschew hubris, lest we fall by the wayside.


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