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A tough economy and a weak foundation

A tough economy and  a weak foundation
Highlights

The news on Indian economy is turning from bad to worse. As one headline indicated, the rupee hit retirement (60) to a dollar, current account deficit...

The news on Indian economy is turning from bad to worse. As one headline indicated, the rupee hit retirement (60) to a dollar, current account deficit (CAD) shows no signs of abating and industrial growth is in sleep mode. And last week, when the US central bank suggested the end of quantitative easing, the Indian stock market had a free-fall. Weakening of the rupee was waiting to happen. For a net importer like India, the CAD needs to be within reasonable limits for the currency to remain stable. The widening chasm between our imports and exports leaves but little room for the rupee to retain its strength.

In the midst of this pall of gloom and doom, Amartya Sen, the venerated scholar-economist, posted an Op-Ed piece in the New York Times last week. The title reads: "Why India Trails China". The comparison between India and China is like flogging a dead horse. India is no match to China on either planning or execution capabilities. In spite of being three times the size, the Chinese economy grew at a faster rate (7.8 %) than the Indian economy (5%) last year. As per a recent World Bank outlook report, the projection for 2013 is 7.7% growth for China and 5.1 % for India. And like a sore loser, Indian policy-makers offer platitudes like suspect data provided by Chinese authorities or the greatness of Indian democracy versus Chinese autocracy.

In his article, Sen writes that more important than the growing gap between the economy of the two countries is the huge difference in the provision of essential public services. Inability of the State to provide essential services like good healthcare and quality education not only affects the well-being of the citizen but also brings down the living standards and has a negative effect on economic growth. China spends 2.7 % of Gross Domestic Product (GDP) on government healthcare spending compared to 1.2 % that is spent by India. The difference is much higher in terms of per capita spending. The poor in India have to rely on an expensive private healthcare system which is inefficient and largely exploitative.

Even the educational standards show a large variation. In India, quality of educational institutions is discontinuous. About Indian schools, Sen writes: "India has elite schools of varying degrees of excellence for the privileged, but among all Indians 7 or older, nearly one in every five males and one in every three females is illiterate. And most schools are of low quality; less than half the children can divide 20 by 5, even after four years of schooling."

Further up the age group, there are a number of institutes of higher learning like IITs, IIMs and AIIMS that can match the best of the lot worldwide. But their intake is limited and the standard of other 2nd-tier institutions leaves much to be desired. Sen also takes note of the progress made by Japan and other East Asian economies like Singapore, Korea and Taiwan after World War II.

A significant reason for this progress is their emphasis on improving educational levels and aligning them to the needs of the economy. Japan is now the second largest developed economy in the world and China managed to lift 600 million citizens out of poverty over the last 35 years. One main differentiator between the East Asian countries and India is the national character. Most other nationals, particularly the Japanese, believe in being another cog in a large wheel.

When the Fukushima nuclear disaster occurred in 2011, there was widespread devastation and people lost their families, homes and life's savings. Even in the midst of this tragedy and crisis, all relief and humanitarian efforts were aided by these victims who regularly formed single queues, did not loot or riot for food or other relief material and helped each other. In another poignant incident, older Japanese engineers (aged 60 � 78 years) volunteered to replace younger workers who were battling to cool the Tsunami-affected nuclear reactors, so that the radiation hazards did not leave the younger colleagues childless or even kill them.

As details emerge from Uttarakhand about the natural calamity and the aftermath, the most distressing news after the death and suffering of the victims is the inability of some people to let go of their greed during this time. Water bottles and wafers packets sold for hundreds of rupees to victims, and then there was a case where people looted the currency left over from a bank branch; these show that apart from policy we may also need to learn about national character from Japan and others.

The Weakening of the rupee is not surprising. For , the CAD needs to be within reasonable limits for the currency to remain stable in the case of a net importer like India. There is no leverage for the rupee to retain its strength, given the widening chasm between our imports and exports

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