Saturday, 30 August 2008

The State of the West address

India and China need to grow at 10% GDP growth rates for the next 25 years if we want the average citizen to have a reasonable standard of living.

If will happen, only if we believe it can happen.

This note is for various global “think tanks”. The Economist Intelligence Unit/ Global Insight …and many others. I was at a seminar yesterday, and it got me thinking.

Ritu and I have been fortunate. We have lived all our lives in India. We studied in India and began our careers here. But we have had the opportunity of working and living in Western Europe for the last six years.

Some time last year, we both developed a strong urge to return. No matter what, we realized, our professional aspirations could only be achieved where 1 billion people were beginning to grow their GDP at 9%. These are amazing facts. Western Europe (all of it) is about half the size in population and one third in growth.

For most (if not all) people in the work force in Western Europe, 9% growth rates never happened in their lifetimes. This is key to understand how they view high growth in populous countries like India and China. Western Europe continues to be focused on the growth rates in China and India. They are judging whether such high growth rates as sustainable. They are not focusing on the current quality of life in India and how much the growth has to be sustained for living standards to rise to Western European levels.

The “Hindu” rate of growth is no longer relevant. We Indians are already looking beyond that. But the “Christian” acceptance of “sustainable” growth levels is beginning to drive global investment sentiment in India-China. And we need to be very very cautious.

What am I seeing:
- The west is enamored by China’s consistent growth rates over the past 10 years. It has accorded China much respect. It believes China will take its place among the industrial powers of the World.

o However, look at any long term growth forecast for China, and the average growth over the next 25 years (2008-2035) will always be predicted at between 6 and 6.5%. WHY?

How can we decide that 6% is the long term sustainable growth rate? Who has decided this? Were these people predicting China’s decade of 10% average growth?

- The West is equally enamored by the rise of India. 9% GDP growth rate over the past 5 years is wonderful.

o However, look at any long term growth forecast for India, and the average growth over the next 25 years (2008-2035) will always be predicted at between 6 and 6.5%. WHY?

How can we decide that 6% is the long term sustainable growth rate? Who has decided this? Who predicted India’s resurgent growth rates?

Since I do not believe in economic predictions, I will not make one.

In a Q2, 2008 report, the Global Insight suggested the folloing numbers:

India : nominal per capita GDP (USD) of 975$ growing to 8,027$ by 2035. Implying a growth rate of 6%.

China : 2,483$ growing to 25,623$. A growth rate of 6.20%.

Australia: 43,709$ growing to 129,203 $. A growth rate of 3%.

The average Indian is 20 times poorer than the Australian. If India grows at 6% for another 25 years, the average Indian will remain 15 times poorer than an Australian.

This is not particular to Global Insight. I saw similar numbers from the Economist recently. And i believe this is a deeply entrenched perception about future growth in India and China.

The West cannot digest a consistent 9% growth rate. That’s their problem. What worries me is that the Indian investment community is accepting their predictions. And using the stock market fall to justify the "overheated economy" and the "correction" necessary.

The economy has not slowed down. Our confidence and belief has. That's sad.

These think tanks and thought leaders must not make us Indians and Chinese pessimistic. There are 2 billion people in these two countries that are looking to buy the daily basics…good clothes/ shoes/ food/ medicines. Do you think that we can ask these 2 billion people to wait another 50 years because western think tanks think we can only grow at 6% annually?

Do you think they will wait? Do you think social balance will remain in the face of economic disparity over such a long period of time?

A 9% growth is not only possible. It is the bare minimum necessary.

What is my prescription: Quite simply, If we are working in product categories that have less than 10% penetration, we must continuously look for opportunities that double turnover every 4 years. Then, we can expect that in a 25-30 year horizon most Indians and Chinese will be able to afford a lifestyle that people reading this blog can afford today. We are still asking them to wait 25 years.

And it is not about the Indians and Chinese. Its about people who live on this planet. The Africans are poor. The middle east is (in real household income) poor.
Most of the world is poor. And following the west’s predicted growth trajectory is a “self fulfilling sin” that we will commit on mankind.

The west is not used to 9% growths. We Indians have only now seen it happen. But we know it is possible. And it happened because companies in India invested in India.
It happened in India. Let it continue. Let us continue to believe in the power of the human spirit. In the Chinese spirit. And the Indian spirit.

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