India is quietly weathering the global financial crisis rather well. Its economy is still protected to some extent behind trade barriers and with significant state involvement in key industries, such as defense, power generation, steel, aluminum, oil, and so on the government has supported key sectors. Its banks have not been exposed to the CDS or other financial wizardry that has brought so much of the west’s financial sector to its knees. Mr. Duvvuri Subbarao, Governor of the Reserve Bank of India, expects growth of 6% for 2009/10 led by the private sector with steel at 4-5%, coal at 5.2% and even autos and motorcycles with double digit growth.
Not surprising, some may comment, because India has reduced interest rates, pumped cash into the economy and strenuously protected home industries in everything from steel to finished products against imports from around the world but particularly from lower cost China. India has introduced anti-dumping duties against imports from just about everywhere for cold rolled stainless steel and aluminum. Import restrictions have been imposed on hot rolled steel. One wonders why the government feels the need to pander to vested interests like this when the economy appears to be growing so well. Car-maker Maruti Suzuki reported last Friday a 15% growth on April like for like sales with domestic sales up 9% and exports up 147%. E-scooter sales on which we have written before grew by 10% over the quarter and was forecast to reach 15% this year. Reflecting on the wider economy, electricity production touched a 13 month high and cement production showed a 14% gain suggesting industrial production and construction are still strong even as both are depressed around the rest of the world.
India has often been criticized for operating a protected market. Detractors rightly point out that trade barriers and too much state involvement stifles innovation, competitiveness and free enterprise. In times like these, it does allow the state to protect the local market from the ravages of a global downturn. The question is will the government be ready and willing to remove that protection when the markets turn and allow India to benefit from lower import costs and expanding export opportunities ” history does not bode well.
One argument for the wave of protectionism is the ruling parties are pandering to all comers at election time. When the outcome of India’s five phase election process is finally decided later this month it is unlikely either the BJP or (the current ruling) Congress parties, India’s largest, will have an outright majority. The degree and speed with which India returns to open markets will in part depend on the outcome of the elections and the type of coalition that results. For make no mistake a coalition is almost certainly what will result from the horse trading that will follow. India’s 50 years of democracy can be viewed either as a triumph of democracy or a tragedy of lost opportunities, depending on your point of view.