Monday, January 16, 2017

Change resistant society

As India copes with demonetization - a minor perturbation to a cash dominated society - it is clear that its long history and comparatively low diversity may be contributing to significant resistance to change - any change. A democratic system, largely driven by a few personalities since independence, has been trying to break out for ever but India remains to be a "country with unrealized but great potential." In spite of the legend, not many tortoises win races as they succumb to watching laggards zoom past them. To propel the country to the next level, it has to substantially change its attitude, and it is unlikely with the current generation, steeped in pride, history and an unwavering ability to cling to the status-quo.

Even though it is one of the largest economies on a purchasing power parity basis, it is highly insular thanks to "strategic policies," pursued by its non-capitalist leaders from inception. It does not figure in the top 100 countries on exports or imports as measured as a percent of GDP. It is also symptomatic of its lack of understanding as to how economies grow. Specializing in its own comparative advantages and freely trading with others who do other things better, is a simple economic principle, something the leaders in India never seem to have understood. No country is good at everything, India included, but this could be anathematic to the Indian diaspora, let alone its leaders.

Blindly following what seems to be successful elsewhere is an equally dangerous proposition, especially if they are pushed by policy makers enamoured by what they see on trips abroad. And, India's leaders appear to be very prone to this disease. The wisdom of a few has never been shown to be effective in understanding and implementing optimal policies. What India needs is globalization not transplantation - and the confidence to free trade and implement free markets. If so, there appears to be no stopping it but it is a tall order.