Industry leaders reflect on Cambodia’s real estate growth

Sorn Seap, Founder and CEO of Key Real Estate, said many factors have contributed to Cambodia’s miraculous transformation. “In 10 years, I have witnessed the rapid growth of the Cambodian real estate industry. A strong economy, political stability, and improved infrastructure are the reasons for this success,” he stressed

Raghuram Rajan says India has a long way to go to become a global growth engine but Narendra Modi says it will be done in 5-10 years. Who is right?

People in power speak of “possibilities”, while intellectuals speak “truth to power

In this sense, both Modi and Rajan are doing exactly what they are supposed to do. There is a lot of difference between what political leaders promise and ground reality and this has nothing to do with the current PM.

If anyone is under the impression that India bypassing China is a given, then they are morons of the first order. The only path to such a scenario is premised on a Chinese economic hard landing. And no one has any idea of Chinese ground reality, lest of all people who are outside the higher echelons of the CCP (Chinese Communist Party).

Prediction of PricewaterhouseCoopers (PwC) for world economy in 2050. Caveats →

  • Such linear projections rarely hold for they cannot factor in black swan events like Global Meltdown of 2008, wars, economic and political instability et al
  • Also Satyam’s auditing firm was PricewaterhouseCoopers, so make your own inferences.

Positives for China → India needs to learn

  • Economy → China has an economy of roughly five times India’s. China has a severe problem of infrastructure and real estate over-heating. Western media keeps highlighting the ghost cities in China and cities bursting at the seams in India. As a result, China is building infrastructure across Asia, Africa et al. Contrast that with India where basic infrastructure is in severe short supply. If only we could allow China to built infrastructure in India (without Chinese labor), instead of rejigging newer versions of PPP (EPC to Hybrid models)
  • Business →
    • China has progressed on the back of labor slavery aka sweatshops (not very different from British industrial revolution). India also has progressed by exploitation of the vulnerable section, though democracy and independent institutions ensure that exploitation cannot be carried out at the same level as China. Even Bangladesh does a better job than India at this exploitation game. Bangladesh produces no cotton and has worse infrastructure than India and yet has a thriving textile industry that rivals India’s.
    • The Ease of doing Business rankings are bad due to a jammed judiciary (in World Bank lingo → Enforcing contracts) and remnants of license, quota & permit Raj along-with government corruption (in World Bank lingo → Construction Permits). Judiciary is a much larger issue than merely a business problem and policy makers are not serious towards a faster and cheaper judiciary (partly because a jammed judiciary helps political and business elite to remain outside jail as cases chug along the very slow judicial pipeline. Even Saharashri is in jail due to the efforts of two institutions [SEBI & Supreme Court] as no political party could try their own financers). Construction permits is resolvable via IT, empowered citizens via RTI and good governance norms.
    • Crony Capitalism → Despite the hard times that Saharashri and Mallya have fallen on, they are but reflective of the larger malaise that afflicts Indian business viz. crony capitalism. The meteoric rise of certain industrial houses on the back of government largesse has been a facet of Indian system since forever. (In short, India always had a version of Adani)
  • Lack of strategic foresight → Chinese strategic designs like String of Pearl are facilitated by Indian ineptitude. Sri Lanka had given the Hambantota port to India for development but India could not be up for the challenge. Can India cry foul after China was given the project later? Will similar projects not flow directly to China today?

India does better in the following spheres →

  • Leadership → despite the criticism that Indian political elite is usually subjected to, I believe they are a not really a bad reflection of the moral quagmire, that represents the larger society. And the fact that they can be thrown out (and are in fact thrown out) repeatedly ensures that a certain feedback mechanism exists for the system to be receptive to societal change. Same cannot be said of the “elites” that rule other developing nations. China is blessed with a capable dictatorship which is a rare commodity. But we see instances of purges (Bo Xilai), selective fight against corruption (the different treatment meted to Wen Jiabao and Guo Boxiong) and nepotism (rise of princelings). China is identical to totalitarian states like Saudi Arabia where citizens barter freedom and servility to rulers for economic incentives. The problem will arise when the growth engine starts slowing (has it started slowing?). Can the Chinese leadership manage the expectations of a huge middle class? JFK’s words are prescient “Those who make peaceful revolution impossible will make violent revolution inevitable.
  • Information war helps India. Despite India lacking a CCTV (or AL Jazeera, Press TV, RT etc.) the Indian state receives a comfortable reporting due to the fig leaf of (procedural) democracy and soft power of Bollywood. (Sam Pitroda committee had recommended a CCTV like arm of Doordarshan way back to no avail). On top of that, Chinese official media is bereft of diplomatic norms as it is primarily directed for inward consumption. Western perception of India is helpful due to democracy and concern for human rights. Democracy also ensures local dissent and spurs debate & change.
  • Electoral reforms → Criminalisation of politics and crony capitalism are reinforced via a loophole in the section 29c of Representation of People’s Act, 1951. This loophole allows political parties to get unaccounted money for campaigning, which leads to a dangerous quid-pro-quo. Election Commission of India has tried hard to plug this loophole but all parties are opposed to this reform. But at-least India has elections which ensure that ruling elite is sensitive towards ground concerns.
  • India needs bureaucrats, who are unafraid to speak the truth as sycophancy is the job of party leaders. As per Amartya Sen, Chinese bureaucrats were too afraid of Mao to report him of the deaths during the tumultuous times of the cultural revolution. It is precisely this stupidy that entails bureaucrats to fudge data. Consider the statistics of farmer deaths and how reclassification helps to present a prettier picture. Bureaucracy should not bend or crawl in the face of political pressures. This aspect can go either way, since we are unaware of the corrosion in the “steel frame”.

Crucial element for India’s performance

  • No nation in the world has progressed without trade. All empires (from Roman to British to possibly Chinese) are premised on transfer of wealth via the trade surplus. Most nations have exploited this transfer of wealth via geology (oil, minerals), geography (tourism, trade revenues like Suez) or “jeans” (low cost manufacturing) [courtesy Arvind Subramanian’s Economic Survey]. The natural advantage for India is via low cost manufacturing (the jeans model)
  • Issues with manufacturing in India →
    • India has destroyed the base manufacturing ecosystem in multiple treaties India signed since 1991, that favored services over trade. India had manufacturing in the 1990’s (like Tata’s TV sets) in many fields but we allowed invasion of products from East Asia without protection for domestic nascent manufacturing, that led to demise of electronic manufacturing. Is it any surprise that we still have no superconductor fab, when they are present in Vietnam, Philippines to most East Asian nations. While Indian IT prowess may be projected as delivered due to entrepreneurial ingenuity, in-fact it was driven by policy initiates of the government that preferred services (read IT/ITES) over low cost manufacturing. Whether it is the National Manufacturing Policy 2011 or the Make-in-India initiative, the structural issues with Indian manufacturing have not been sorted out yet.
    • Most nascent industries need protection in early years to be competitive and the raft of regional trade agreements ensure that we cannot really protect domestic manufacturing industry. While sale of Tata Steel’s British assets provokes concern, what is problematic is that while India can place restrictions on Chinese steel the same cannot be done on steel from South Korea and Japan due to CEPA/CECA (trade agreements)
    • Indian model of growth is based on access to Indian professionals abroad, who will send remittances. From the slave labour in “Gulf” to the IT professional in “West”, all Indian trade deals are based on better access to these professionals (GATS in WTO lingo). In exchange, India loses out on domestic protection to manufacturing. Hence, it is very tough to be competitive in domestic manufacturing without government handouts. In fact make-in-India dovetails into assemble-in-India as most products are manufactured abroad and merely assembled India be it the Xiomi phones or the LCA Tejas.
    • India remaining outside TTP, TTIP will lead to much trade diversion. Also even as China moves up the value chain of hi-tech manufacturing and design, most of the low cost manufacturing will move towards nations like Vietnam. The Nanning Singapore Economic Corridor may unleash manufacturing to move from China to Vietnam (maybe even Laos & Cambodia). The Delhi Mumbai industrial corridor and NMIZ can be utlized to manufacture in India but it will require substantial government incentives. Also essential will be liberalization of labor and land laws. This will lead to institutionalization of the slave & child labor. Instead of working in small dhabas and middle class homes, such labor will work in industrial sweat shops. The moral argument is that it is still better than farmers committing suicides. There are no easy answers here………

So who is right ?

  • While Modi may be politically right, there is not question that Rajan is the over-cautious pragmatist in this case. India will take decades to catch China (if at all) primarily because the Chinese economic miracle has no parallel in recorded history. In fact, if at all India actually catches up to China, it will probably be due to Chinese slippages rather than Indian ingenuity.

Whom to believe — politicians or intellectuals?

  • In reality intellectuals are easy to manipulate and mould. Every politician can bring in intellectuals who are sycophants. But very few intellectuals have the courage to speak the uncomfortable truths and expose the possible fault-lines. As Rajan is unafraid to speak his mind, his analysis is better than most intellectuals.
  • Sardar Patel insisted that civil servants serving under him give him “independent advice without hesitation, even if they knew it to be contrary to his views.” What Rajan is doing is precisely the same. And since Rajan is head of an autonomous independent institution, he is perfectly positioned to play this role. What Rajan is foretelling is not to sit on our (pretty mediocre) laurels and keep pushing hard.
  • Whether India overtakes China is totally irrelevant. India must keep moving in the current trajectory without much disturbance. Ultimately, India is in competition with itself and cannot impose things on citizens in a democratic framework. China’s growth is an economic miracle and a source of inspiration and learning, knowing fully well that emulation is neither feasible nor desirable.
  • Ultimately both Modi and Rajan have identical end goals. We can question the time-lines but ultimately what matters is whether India reaches the goal at all or remains trapped in the middle-income trap that most nations have fallen prey to.
  • I repeat, the destination matters, not merely the speed. The ultimate destination is irrespective of the trajectory of any other nation. The historic RE-awakening of Chindia should ensure that the predictions of an Asian century are realized.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s