Manmohan Singh, India's Economy and Free Trade

Posted by: Mehul Srivastava on November 9, 2009

After a long hibernation from the lecture circuit, India’s soft-spoken and carefully scripted Prime Minister, Manmohan Singh, stepped onto a dais and promised more of the same.

Well, not exactly, but pretty much.

At the India Economic Summit Nov. 8, one of the many speak-a-thons that mushroom in New Delhi once the weather improves, Singh came out for a little bit of applause, a little bit of politics and little bit of wishful thinking.

The state of the Indian economy? “The worst is behind us.”

The future of the Indian economy? “With a normal monsoon next year, we hope to achieve a growth rate of over 7 percent…Our medium term objective continues to achieve a growth rate of 9 per cent per annum.”

Eradication of poverty, hunger and disease? ” I am happy to say that we have delivered substantially on that promise. But the task is by no means (sic) unfinished.” (I think he meant finished )

But there is news in between the platitudes. For instance, India’s fiscal stimulus package, which measured anywhere between $50 and $80 billion, depending on how you count it, will be rolled back starting early next year. By most measures though, it was money well spent - government spending kept India’s economy afloat when the private sector all but retreated last year. The effort almost broke the bank, though, and as the deficit climbed to 12% of India’s $1.2. trillion GDP, it was clear there was no more where that came from.

Speaking of billions of dollars, Singh had just had a tete-a-tete with the Chairman of Wal-Mart’s board, S. Robson Walton, and India’s Commerce Minister, Anand Sharma, brought up Walton’s enthusiasm for India as he totaled up foreign investment (some $35 billion for the twelve months ending March 2010, he estimated). Wal-Mart runs one store in India in a tie-up with Bharti, where it is allowed to sell only to shop-owners, not to customers. But when I visited that store earlier this year, in Amritsar in North India, not far from the Pakistan border, the lines ran out the door, the shoppers ooh-ed and aaah-ed at the prices, and the cash registers, literally, jingled. And even though organized retail is a puny little part of India’s $450 billion retail industry, Wal-Mart has been lobbying India’s government to open up foreign investment rules so that it can sell directly to customers.

Sharma is the shyer and less boisterous heir to Kamal Nath, who was India’s last Commerce Minister, and is now relegated to drumming up foreign and state investment to build roads. It’s an interesting study in contrasts - Nath made his name by holding up the last set of the Doha round of talks for a WTO-led global free trade pact, questioning the true intent of western investors. Now he flies around the world asking the same investors, if they will, please, help build a road in rural India.

Sharma, meanwhile, is the new face of Indian trade politics - reticent to speak his mind, even when egged on by reporters - and his appearance this week on the coat-tails of the Prime Minister underscores how closely Singh is monitoring the informal talks that continue non-stop. India’s already signed a free trade agreement with South Korea, and with it’s neighbors in the ASEAN region. By 2010, it might sign one with the European Union. That’s a lot of ink in just a few months on the job.

But Singh speaks so rarely in public (the three public appearances in the last week notwithstanding) that any sense of direction from India’s perpetually smiling economist-in-chief is helpful guidance for the over-eager markets, at least. The benchmark 30-stock sensex was up 300 points for the day, almost 2%. Bonds fell, and given the headlines in Monday’s newspapers, Singh’s stock rose.

Reader Comments

Venki

November 9, 2009 10:56 AM

India is moving in the right direction. But its crucial to restrict like walmart, tesco's and other big retailers to manufacture all the product they sell in India only. If they don't restrict the manufacture in India they will be imported from China and that will have a huge impact on manufacturing like it did in US.

All the small local manufacturing companies in India will be wiped out due to cheap labor in China and also China will have another major economy in its control like US, which is not good.

It will be a test for India to see how it handles dumping of goods into India from China. But it has one advantage though the labor costs in some sectors is comparably to China...lets see how it works out..

Sunil

November 9, 2009 1:23 PM

We need to make sure that US corporations are not allowed in. They may purchase from Indian companies but they should not be allowed to sell. I agree that we should not follow the same mistakes the United States did. The United States is going to have a total economy collapse.

Aj

November 9, 2009 1:33 PM

"But the task is by no means unfinished" - I hope you meant - But the task is by no means finished.

Mark

November 9, 2009 1:41 PM

Venki, India is a poor county compared to China. How come the labor in Inida is more expensive than in China? Apparently you have no idea why Chinese products are a lot more competetive than Indian's. It comes down to the productivity. Wake up, pal.

Venki

November 9, 2009 2:04 PM

Think differently Mark, India is free market and China is socialist economy where do you think the productive and labor are going to be expensive or say fair . Guess you forgot the US and USSR days of productivity my friend...Who is prospering now US or Russia what happened to your productivity argument.

Sanjay

November 9, 2009 2:04 PM

@Mark...YOU need to wake up,Pal...You say Chinese products are competitive???Their cheap cell phones can burst anytime...Not even a single product they manufacture have go good quality,its just CHEAP...That;s i...

Rahul

November 9, 2009 2:24 PM

@Mark...India is competitive in terms of productivity with China..It manufactures most of the products it consumes and many Indian companies are strong enough to buy out foreign companies...Its time which will prove which can produce better quality. My bet is on India which has a more vibrant democracy and a Huge Huge Huge growing market...

NatureFriend

November 9, 2009 3:12 PM

But the task is by no means (sic) unfinished.” (I think he meant finished )

- What Manmohan Singh said is right, Unfinished, Distinguished Dphil Oxford Grad will not make this mistake.. but it seems to me like this poor author doesn't understand context..

Mike

November 9, 2009 6:21 PM

Another reason why Chinese products are "competitive" is that the Chinese government artificially undervalues the Yuan against the US dollar so that its exports are cheaper.
Again this just adds to the free-market argument.

jcage

November 9, 2009 7:01 PM

Listening to Hindu nationalist talk as if India were an advance European countries as if average India has the income to buy expensive European products! Cheap Chinese product that is all you can afford buddy at most for the average Indian and let's not talk about the slum dweller!!

Free trader

November 9, 2009 9:01 PM

It's obvious from all the Indian comments here that Indians have the most isolationist and protectionist mentality in the world. Yeah, let's stop US Corporations from penetratign India and stop Chinese goods from entering India. Since Indians are totally against free and fair trade, the US and China should bar Indian companies from operating in their countries and stop all outsourcing work from going to India!

XY

November 9, 2009 9:31 PM

Democracy sucks. Anyone who thinks democracy is the most important facotr in growing an economy is a brainwashed dunderhead. Taiwan was not a democracy when it grew the fatest. South Korea was not a democracy when it grew by leaps and bounds. Japan was not a democracy as such, for it was under US occupation and one chosen party ruled for years during which its economy was one of the strongest in the world. Singapore was not a democracy, and still is not while its economy cliped annual growth rates of 8-9%. Hong Kong was not a democracy when it was on the fast track. Russia became a democracy of sort when ite economy contracted most in its history. All the so-called developed countries of today were not a democracy when they plundered the world and grew their economies. India's per capita GDP is one-4th of China's. (2009 GDP $1.2 trillion vs 5 trillion). Facts speak volumes. Democracy? Democracy without toilets in your houses? Democracy with the largest gender gap in the world? Democracy with one of the highest mortality rates in the world? Democracy without drinkable water? India sucks!

Mohit

November 10, 2009 12:25 AM

Well at this time when recession has begun to fade slowly economies are rising again and India which remained resilient during the toughest time is one of the major economies which have bounced back at the quickest.This is the time we need to cash on this opportunity to attract foreign investors to come and pour their money into India. Indian Economic Summit is a clear gesture into this regard where CEOs and chairmen of world's leading organization have registered their presence.At the same time we need to improve our infrastructure and should set up such policies which bound investors to come and invest in India.It is the infrastructure which has led china to become a exporting hub of world. No doubt India is and will be on rise but to speed up that uplifting spree we need to strengthen our pillars.cheers to India. JAI HIND

2Bob

November 10, 2009 12:40 AM

Sunil you are an idiot - "We need to make sure that US corporations are not allowed in" Then pray tell me why should US let Infosys etc. trade in the US?

Sccc

November 10, 2009 1:06 AM

Steve Bangalore

November 10, 2009 3:28 AM

I am sure Walmart very diplomatically noted to the PM that Walmart buys billions and billions of dollars worth of goods from 100s nad 100s of Indian Suppliers (as does Tesco, Carrafour, Target) and that Walmart has many very large outsourcing contracts with the Indian IT / BPOs majors. What Walmart giveth, Walmart can taketh away. Free trade is a two way street. Walmart may have also mentioned the large number of consumer oriented Walmarts in China, Thailand, the Philippines and especially Mexico who are India's competitors.

VP

November 10, 2009 3:40 AM

Recent survery has shown that dollar output per worker is higher in case of Chinese workers than their Indian counterparts. But, this is not an apple to apple comparison. In democracies like India, workers are allowed to form an union, have a right to minimum pay, & other benefits whereas in an socialist economy these rights may not be given to workers. Add to that the artificially low exchange rate of Yuan vs. the dollar, and the net effect is that Chinese products are cheaper than Indian products. While Chinese products should be allowed in India, the government should ensure that there is no huge trade surplus in favor of China as in the case of US-China trade.

Business Nguyen

November 10, 2009 7:59 AM

Worker wage in India in textile industry is even pretty lower than Vietnam, whose workers earn roughly a half or a third of Chinese workers as far as I know. Indian like to speak about "cheap Chinese laborer" as if their hundreds of millions of dirty, uneducated labours can not be hired at only a fraction of Chinese cost. Such disgusting.

Prashanth

November 10, 2009 9:04 AM

There are a lot of comments against democracy in India. There is also a comment against blocking American companies from doing business in India. Both are wrong. This comments space is just turning into bashing one country after another.
There are demerits if american companies are allowed to sell 'cheap chinese low quality' products here. But they cannot be barred from doing business here. Somebody said Indians are poor and dirty so they are inexpensive labour. This is the comment we get by keeping our country open for others to dissect. The chinese keep all dirty secret to themselves and the world thinks china is clean. maybe china is more productive, but India with its big democracy is not far behind and that itself is good achievement. Yes somethings are lacking in India but India is on the right path......morally, socially, economically etc. Thanks to the illegal currency manipulations and other 'dirty' economic policies, china has money today, but it will soon eat its own dust. India will not make the same mistake the US made regarding china.

Ben

November 13, 2009 3:06 PM

I agree, Prashnath.

Unlike China, India is at least trying to go about it in a more open, honest view. We are free to comment or critique India, unlike the more (secretly) restrictive China. That is one huge advantage India has.

I hope India can overcome their issues and continue to grow into the largest, most robust democratic nation on earth. I do hope they remove some of their protectionist ideas, as the free flow of outside competition will help, not hurt, India. It will also seek to further embolden these global companies to look to India for more solutions.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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