Manmohan tore a hole but socialist fabric remains: The Oracle

NEW DELHI, SEPTEMBER 17: India’s cumulative stock of FDI at 6 percent of GDP at the end of 2005 compares with 9 percent for Pakistan, 14 percent for China, and 61 percent for Vietnam. The reason FDI has lagged badly in India is perhaps no better illustrated than by India’s unwillingness to fully embrace market forces. That is all too evident in India’s often statist response to economic problems. Faced with rising food Inflation in early 2007, the response was not to allow rising prices to prompt an increase in supply, but to ban wheat exports for the rest of the year and suspend futures trading to “curb speculation”— the very market forces that the Indian economy needs to break the stranglehold of bureaucracy.

That’s Alan Greenspan, the longest-serving chairman of the US Federal Reserve (1987-2006), known across the world’s financial markets as The Oracle, in his memoirs The Age of Turbulence: Adventures in a New World. Other than bashing US President George Bush for excessive spending and questioning the “political” coyness over admitting that the Iraq war was all about oil, Greenspan has spelt out his vision of the global economy in 2030. And devoted a chapter The Tiger and The Elephant, on India and China’s divergent economic paths.

“While India is an admirable democracy — the largest in the world — its economy, despite important reforms since 1990, remains heavily bureaucratic. Its economic growth rate in recent years is among the highest in the world but that is off a very low base. Indeed, India’s per capita GDP four decades ago was equal to that of China, but is now less than half of China’s and still losing ground. It is conceivable that India can undergo as radical a reform as China and become world-prominent. But at this writing, its politics appear to be leading India in a discouraging direction.”

India “symbolizes most powerfully both the productiveness of market capitalism and the stagnation of socialism” and “is fast becoming two entities: a rising kernel of world-class modernity within a historic culture that has been for the most part stagnating for generations.” While “the pick up in real GDP growth from 3.5 per cent between 1950 and 1980 to 9 per cent in GDP has been truly remarkable,” Greenspan says that India’s per capita GDP, which was at parity with China’s in the 1990s is now only two-fifths that of China’s and below the per capita GDP of Ivory Coast and Lesotho.

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