India and the World in 2012

These are two columns reflecting on what went wrong in India in 2011, what I hope will change for the good, and what the global and domestic threats are for the continuance of India's growth story.


Making 2012 a Better Year for India

A year ago, I offered an optimistic and hopeful view of India’s possibilities in 2011. As it turned out, things were much less rosy than I had guessed they might be. I had gone with the then-popular growth forecast of 9%. Growth has been much lower. Part of the problem was the ongoing European crisis, and the US’s slow recovery. Much of the difference came from what has been happening within India.

A year ago, I remarked that the private sector in India has done well despite poor governance. This has remained true, but not to the extent that I had hoped. The general poor quality of governance was compounded in 2011 by uncertain handling of corruption, which surfaced as a major issue for India’s citizens. My view is that India’s ruling coterie is currently weak in its leadership and its vision. Too many of those who rule are focused on short-term personal advantage, rather than leading the country well. Will this improve in 2012? It is hard to say what will happen at the national level. However, one can hope for more progress in governance quality in some of the states.

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Thousand Rupee Notes on the Pavement

The past year has driven home the fact of globalization, even for countries like India that are relatively less integrated with the global economy. For example, India’s ratio of exports of goods and services to GDP is only about two-thirds of China’s (despite excluding Hong Kong and Macao). But it has still felt the wind from global storms. The European crisis, in particular, has heightened risk perceptions, slowing global growth, and leading to a flight to safety of global capital. What are the potential global threats for India in 2012?

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Diaspora, Development and Democracy

The title of this column is the title of a new book by Devesh Kapur, head of the Center for the Advanced Study of India at the University of Pennsylvania. The book is about how Indians who have emigrated have influenced the country they left behind. It is a fascinating study, broad in scope and full of new insights. Kapur argues that the economic, political, social and cultural consequences of international migration imply a richer framework for thinking about globalisation and related ideas such as ‘openness’, than just focusing on movements of goods and capital. He asks, “Is a country with substantial trade, but with few citizens who move around the world, really more ‘open’ in a broader … sense than a country where trade is more limited but whose citizens live and travel internationally, thus remitting foreign exchange and ideas to a much greater extent?”

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What Do Investors Know?

Globalization has flattened the world in some ways, but not in others. Many years ago, economists Martin Feldstein and Charles Horioka observed that national savings and investment rates are highly correlated, indicating that investors tended to keep their money at home, rather than diversify globally, even without restrictions on capital flows. Subsequently, other economists documented this ‘home bias’ for portfolios of shares—investors tilt toward holding shares of their own country’s companies.

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