India’s growth is unlikely to be sustained over 5 percent in the coming years, believes global investor and author Ruchir Sharma. Sharma says it is going to be extremely difficult for the Indian economy to achieve a growth of over 7 percent at any point.
"Now, we are in an environment where that has become much more difficult because we have a period of deglobalization. So, in that way, I think for the Indian economy to ever achieve those growth rates of 7-9 percent over the coming decade on a sustainable basis is going to be extremely difficult,” Sharma said in an interview with CNBC-TV18.
“If you look at post World War II history, all the cases of countries that were able to expand or grow very rapidly, were nations that were able to export their way to prosperity. This included China, this included, before that, Japan, Korea, Taiwan, Singapore, the entire East Asian economic miracle, that was the centerpiece as far as the development strategy is concerned," he added.
Sharma believes that India will never grow like East Asia if it allocates more to the social sector than infrastructure. “We can be unrealistic and think that the government can carry out massive reforms and we can achieve those growth rates just like China did in 1980 and 1990, but look at the politics of this country. I just don’t think that the politics of this country is conducive to enact those kinds of reforms... East Asia did not spend much on social welfare at this stage of the development," he explained.
Successful nations spend more than 3 percent of GDP on R&D, says Sharma. However, he notes that India spends less on R&D and it is a hurdle to growth in an era of digitalization.
"This I think is a major headwind for future economic growth because digitization is one of the big trends that has emerged over the last decade which has only been accelerated by this pandemic. So with such low level of R&D spend, it will be hard to get a big productivity bump in this era,” he said. Sharma further added that regulatory overkill in India and mistrust of businesses is not a good sign.
According to him, expectations of stimulus are far too unrealistic in India as we tend to always compare ourselves to the developed countries. It is a disadvantage for India that it went into the crisis with a high level of public debt and fiscal deficit, Sharma noted.
“We are still a developing country, our per capita income is still below USD 5000, and if you look at most countries in that cohort, they have not been able to enact such large stimulus plans because they are constrained by either having a very large public debt which is a very large government or because their inflation and currency are vulnerable to any large scale printing of money that the developed countries such as the United States or even UK are able to do," he explained.
However, he said what the Indian government has done post pandemic on stimulus is "quite realistic".
“The benchmarks of economic success have changed. The more we talk about self-reliance – you can argue that is a realistic strategy -- the more difficult it is going to be for the economy to grow much above 5 percent. So, if I were to hazard my best guess as far as what India’s growth rate is going to be over the coming few years, I doubt very much if on a sustainable basis we are going to be able to exceed 5 percent,” says the author.
In the adaptation of his New York Times 2016 bestseller, ‘The Rise and Fall of Nations: Ten Rules of Change in the Post-Crisis World’, Sharma uses his matrix of rules to identify, which nations will emerge winners in a post-pandemic world.
Based on data gathered over the last 25 years, Sharma has further distilled his 10 rules, to the top 4 that he believes will matter the most. These include a competent government, low debt, domestic strength and tech sophistication. Based on this, Sharma puts together a list of winners, that will thrive in the post-pandemic world.
"The 10 rules are perennial, evergreen, they matter for long cycles, but in the next 12-18 months as we recover from this pandemic, I think the 4 rules, in particular, will dictate a lot of choices that investors make or other business people make in terms of where to direct their capital in the foreseeable future,” he said.
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"Now, we are in an environment where that has become much more difficult because we have a period of deglobalization. So, in that way, I think for the Indian economy to ever achieve those growth rates of 7-9 percent over the coming decade on a sustainable basis is going to be extremely difficult,” Sharma said in an interview with CNBC-TV18.
“If you look at post World War II history, all the cases of countries that were able to expand or grow very rapidly, were nations that were able to export their way to prosperity. This included China, this included, before that, Japan, Korea, Taiwan, Singapore, the entire East Asian economic miracle, that was the centerpiece as far as the development strategy is concerned," he added.
Sharma believes that India will never grow like East Asia if it allocates more to the social sector than infrastructure. “We can be unrealistic and think that the government can carry out massive reforms and we can achieve those growth rates just like China did in 1980 and 1990, but look at the politics of this country. I just don’t think that the politics of this country is conducive to enact those kinds of reforms... East Asia did not spend much on social welfare at this stage of the development," he explained.
Successful nations spend more than 3 percent of GDP on R&D, says Sharma. However, he notes that India spends less on R&D and it is a hurdle to growth in an era of digitalization.
"This I think is a major headwind for future economic growth because digitization is one of the big trends that has emerged over the last decade which has only been accelerated by this pandemic. So with such low level of R&D spend, it will be hard to get a big productivity bump in this era,” he said. Sharma further added that regulatory overkill in India and mistrust of businesses is not a good sign.
According to him, expectations of stimulus are far too unrealistic in India as we tend to always compare ourselves to the developed countries. It is a disadvantage for India that it went into the crisis with a high level of public debt and fiscal deficit, Sharma noted.
“We are still a developing country, our per capita income is still below USD 5000, and if you look at most countries in that cohort, they have not been able to enact such large stimulus plans because they are constrained by either having a very large public debt which is a very large government or because their inflation and currency are vulnerable to any large scale printing of money that the developed countries such as the United States or even UK are able to do," he explained.
However, he said what the Indian government has done post pandemic on stimulus is "quite realistic".
“The benchmarks of economic success have changed. The more we talk about self-reliance – you can argue that is a realistic strategy -- the more difficult it is going to be for the economy to grow much above 5 percent. So, if I were to hazard my best guess as far as what India’s growth rate is going to be over the coming few years, I doubt very much if on a sustainable basis we are going to be able to exceed 5 percent,” says the author.
In the adaptation of his New York Times 2016 bestseller, ‘The Rise and Fall of Nations: Ten Rules of Change in the Post-Crisis World’, Sharma uses his matrix of rules to identify, which nations will emerge winners in a post-pandemic world.
Based on data gathered over the last 25 years, Sharma has further distilled his 10 rules, to the top 4 that he believes will matter the most. These include a competent government, low debt, domestic strength and tech sophistication. Based on this, Sharma puts together a list of winners, that will thrive in the post-pandemic world.
"The 10 rules are perennial, evergreen, they matter for long cycles, but in the next 12-18 months as we recover from this pandemic, I think the 4 rules, in particular, will dictate a lot of choices that investors make or other business people make in terms of where to direct their capital in the foreseeable future,” he said.

India unlikely to sustain growth of over 5% in coming years, says Ruchir Sharma
India unlikely to sustain growth of over 5% in coming years, says Ruchir Sharma. Get latest Economy online at cnbctv18.com
