Some simple rules of the road, rather than some sweeping theory about institutions or geography, will determine India’s economic success over the visible time horizon.

Why do Nations Rise and Fall

This is the question which draws a lot of attention not only from academic point of view, but also for the stakeholders related to a nation. Stakeholders may be businessmen, corporate houses, policy makers, international relations, etc. At times we come across people talking a lot about single key to economic success. In such cases we find that they focus mainly on investment, geography, demographics, culture or fashionably of late on institutions. These theories are often called as the one-dimensional theories which are often based on historical records going back decades and looking forward for equally-long periods.

This process of looking backward only to project the future development results in missing what is going to happen over the next few years. We see that after the implementation of open economy policy by majority of the nation the global growth is slowing, and so is growth in emerging nations, with wider gaps between winners and losers. Rich are getting richer and poor are becoming poorer thus widening the gap between the two sectors of the society.

If we start spotting a winner in this era, we will be required to look at numerous factors. Apart from this we need to travel only to observe the ground level development taking place instead of relying on theory or numbers alone.

India to become a Breakout Nation

If we talk about the Indian economy becoming one of the break-out nations we see:

• Boom of the last decade fed an illusion that fast growth is easy and normal, but it is not. History shows itself that only a third of all emerging nations are likely to grow fast in any decade which then fades in the subsequent decades as the time passes by.
• It is also proved that longer a boom lasts; the less likely it is to continue.
• Emerging markets are not ‘catching up’ with the rich, as many think. The average income level is somehow at par to the rich nation incomes
• Incase of India, the countries strong growth in the 2000s reduced the likelihood of a second good decade, and it is slowing

A popular argument stating China’s growth is possible only because it’s authoritarian system which can push tough reforms more easily as compared to India. However the fact remains different altogether. A close look at the countries posting high economic growth over the last three decades showed that over 52% were democracies.

Read on GWI

Importance of Economic Reforms & Political Leadership in a Nation’s Growth

For growth of a nation, the system (be it democratic or capitalist) does not matter much, what matters is whether the political leaders understand economic reforms and are eager to work for the same. In case of Indian economy, this is something which is of mixed color owing to the fact of faltering leadership at the national level is balanced by the rise of dynamic state leaders.

• The longer a regime lasts, the less likely it is to take smart steps to promote economic growth. It is found that the leaders seem to run out of ideas and go stale as an economic force after about eight years in power. In case of Indian economy too, from the first term of Congress coalition to the second, economic growth has slowed and inflation and deficit on the contrary are up.
• The nations that sustain growth for decades have a sense of urgency that generates reforms even in good times, whereas on the contrary most of the nations are seen implementing reforms only under pressure. So it is important for us to look for the countries seeking tougher reform rather than soft bailouts in period of crisis. In case of India too the country faced sever crisis in early years of every decade since 1980 which led to tougher reforms which is being followed even today when we see weakening rupee leads to the downgrading of debt by rating agencies.

From the above it can be said that for India, the strong growth for a period of over a decade might not sustain in time to come and the country might not be able to retain its position in the International market.

Read on GWI Reasons why we think India will be the Best Performing BRIC Country in 2013.