'Animal spirits'

 NEW DELHI – In 1927, Mahatma Gandhi called for the support of Indian businessmen in the country’s struggle for independence from British colonial rule.

Businessmen responded positively. Out of that call, the Federation of Indian Chambers of Commerce and Industry (FICCI) was born.

Today India is the “I” in the BRICS. Apart from their enormous landmasses, Brazil, Russia, India, China and South Africa are the world’s top emerging economies.

Among the five, the Philippines should feel the closest affinity to India, the world’s largest democracy. The two societies put strong emphasis on family, faith, education and individual freedom. English is widely spoken as a second language in both countries. We have the same rambunctious democracy. And several economic protectionist policies are guaranteed by law.

We should watch, along with the rest of the world, as India deals with economic deceleration and populist politicians jump in the way of painful reforms. In June, Standard & Poor’s warned that India could be the first among the BRICS to lose its investment-grade sovereign rating.

Our economic planners should take note: the reforms announced last week by New Delhi included easing up on those protectionist policies and opening India’s arms a bit more to foreign direct investment (FDI).

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Last week the government of Prime Minister Manmohan Singh announced a substantial cut in cooking gas subsidies and an increase of five rupees per liter (about P3.85) for diesel – the fuel for mass transport. As of last Sept. 14, the diesel pump price in this Indian capital was 46.95 rupees per liter (about P36.19).

The government is also opening up its aviation and multi-brand retail sectors to FDI, and considering relaxing certain rules on foreign investments in the robust Indian pharmaceutical industry.

At an informal gathering I attended here earlier this week, a local journalist told us that “quite a few are being crushed” by the reforms, considered drastic here. There aren’t enough social safety nets for the poorest of the poor amid only the second wave of economic reforms since 1991, the journalist said.

“It’s a period of holding your breath,” he told the gathering.

Others, however, are more positive, among them India’s former ambassador to Manila, Yogendra Kumar, who attended the gathering.

“Whatever India is today, is because of policy reforms that took place starting 1991,” Kumar told us. “These reforms are required… the need for accelerating the rate of growth is felt by everybody.” 

Prime Minister Singh said the reforms should revive India’s “animal spirits.”

Opponents are unimpressed, saying the reforms would weigh heavily on the poor – and there are hundreds of millions of them in this country of 1.2 billion. A key Singh ally announced she was pulling her party out of the coalition government, with the final decision known today, rendering Singh’s party a minority in parliament.

The reforms are considered bitter pills to pull the economy out of sluggish growth.

“If India is to get out of the poverty track, it has to get back to 8, 9, 10 percent (GDP) growth,” Atul Shunglu, the IFCCI’s assistant secretary-general for East Asia, told us here.

But Singh appears to be softening, with both the diesel price increase and the cut in cooking gas subsidy likely to be smaller. As of yesterday, however, there were no reports that he would back down on the other aspects of his reforms.

It’s so much like Manila, right down to the torrential rains and flashfloods that greeted me upon my arrival late Saturday night in this city.

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For Pinoys who are used to seeing sprawling shopping complexes anywhere they turn, the rarity of large, modern shopping malls in this Indian capital may cause a bit of culture shock.

If you want to buy Indian curry or tea in this city, you look for it in the market. Not an air-conditioned supermarket with endless aisles of all types of goods. Instead you look for a stall in an open market, or a small shop like a walk-in version of our sari-sari or neighborhood convenience store – and not the air-conditioned, 24-hour mini stores that have mushroomed all over Metro Manila.

Also missing in this city are many big-name global brands in retail and fast food.

All this could change soon, if the economic reforms push through. Perhaps Filipino mall developers could take a look: foreigners will be allowed up to 51 percent ownership in multi-brand retail.

Critics say the reforms could kill small enterprises especially in the food sector. As a foreign visitor here, I also rather like the absence of what’s ubiquitous in Metro Manila. Shopping malls are making the Philippine scenery boringly homogeneous. In contrast to Manila, India’s distinctive culture is strongly felt everywhere in its capital.

India already has several sectors where 100 FDI is permitted, including mining and food processing as well as power generation, transmission and distribution.

Shunglu sees growth areas in infrastructure development. Within the next five years, India aims to implement an estimated $1 trillion worth of infrastructure projects, with priority given to roads, highways, railways, ports and power. Other growth areas are telecommunications and consumer durables.

In China, Shunglu noted, infrastructure is built and demand follows. The opposite is true in India, he said.

Also unlike China, India is not heavily dependent on exports for economic growth and therefore has not been hit hard by the crisis in the eurozone and the lingering financial woes in the United States.

Instead India has a ready market at home, and consumption still has a wide room for growth. Only 18 percent of the population, for example, owns a refrigerator. For air conditioners, the figure is 2 percent, and microwave ovens, 1 percent.

China, the world’s second largest economy, is feeling the pain of global woes and is also implementing reforms. If India plays it right, it could overtake China as the leading economy among the BRICS. And if India achieves that, it will be in an environment of freedom.

Mahatma Gandhi would be pleased.