Will India suffer for ignoring its biggest resource?

Feb 1, 2012

In this issue:
» Is the world economy teetering at the edge?
» No country will leave the Eurozone in 2012
» Foreign investments to swell in India
» Germany has lowest unemployment in Europe
» ...and more!

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India may be one of the fastest growing economies in the world, but on certain parameters it ranks worse than crisis torn nations such as Afghanistan and Yemen. And one such factor is primary education. For starters, the strong pace of GDP growth has not translated into improved basic educational standards for India's vast population over the past 15 years. Certainly, there has been a huge improvement in the enrollment ratio at 95%. But that has not meant that all of these students have had the benefits of any meaningful education. For instance, only 66% of the students enrolled actually turned up for classes, while in many cases the teaching standards were of poor quality and too much focus on learning by rote. Not just that, the social structure of Indian society has meant that many of the girls in remote villages have not been encouraged to attend schools. Even China, the most populous country in the world at present, has done a much better job in ensuring good quality education for its masses as compared to India.

All these paint a worrying picture. One of the advantages that India has over its less fortunate developed peers is an increasing younger population. These young people have been touted to contribute to India's growth and take it to the next level. Much has been harped on this topic. But in the long run, having more youth is of no consequence if there are no meaningful employment prospects for them. And employment prospects will improve only if they possess the required skill sets for which the quality of education becomes vital.

Not just that, just as there is very apparent income inequality in the country, there is inequality evident in the education system as well. So you have the IITs and the IIMs which compete with some of the best institutions in the world and attract top quality students. But these options are available to only a select few and the same cannot be said for the rest of the institutions be it primary, secondary or professional.

Both strong quality of health and education are necessary, if India's young population is to make meaningful contribution to the country's GDP. This is where the government needs to step in and spend on these social sectors which are highly productive in nature. But given how deteriorated its finances are at present, we doubt any major steps will be taken in the near future. For that the government needs to seriously cut down on wasteful expenditure. But that seems to be wishful thinking for now.

Do you think that lack of basic and quality education will seriously impact India's chances of growing at a strong rate in the future? Let us know your comments or post them on our Facebook page / Google+ page.

 Chart of the day
With growth in the Eurozone almost stagnating, it has had a telling impact on employment prospects in the region as well. What is more, those economies which are saddled with huge debt and are struggling to keep head above water, not surprisingly, have the highest unemployment rates. As today's chart of the day shows, Spain, Greece and Portugal are grappling with high unemployment, while that in austere Germany is one of the lowest.

Data Source: The Economist

The guys who coined the term 'The new normal' are back with another metaphor to describe the current state of the world economy. 'The knife's edge' is what CEO of Pimco, Mohamed El Erian has now come up with. El Erian has penned a piece on foreign policy and has opined in it that the world economy is teetering on a knife's edge. And what would be the tipping point? Well, there are four as per Erian. European economic and financial fragmentation, Middle East unrest, central banks running out of tools to kick start growth and last but not the least, social unrest.

The Pimco CEO believes that addressing and fixing these problems would serve as a recipe to lasting recovery. So far so good we believe. However, we don't quite agree with whatever came next. Erian is of the view that the world economy can either break out of its current malaise to deliver economic prosperity. Or it can slip deeper into unemployment, financial instability and trade wars. We beg to differ though. Bad investments of the past will have to be written off to lay a fresh ground for long term economic recovery. These problems cannot just be papered over. Central bank and Government intervention will only delay the problem. It cannot possibly be avoided. Thus, there will have to be darkness before a fresh morning emerges. And Mr Erian does not seem to be on top of this reality.

2012 may turn out to be a year when governments across the world try to soothe taxpayer and investor sentiments after the tumultuous year we have had in 2011. The spate of elections across the world this year will make it more pertinent for policymakers to keep themselves on their toes in pursuit of rational policy making. But that effort may or may not sustain. International investor Jim Rogers believes that governments in the Euro zone can certainly be expected to work towards strengthening the economic variables this year. And that may ensure that our concern over the split of the Euro zone gets thwarted. Rogers does not see any European country leaving the Euro zone as early as 2012. However, this is not to suggest that the problems brewing in debt laden European countries like Greece will be solved for good. We believe that there is certainly more pain left for countries that are unwilling to end their faulty economic policies. When and how the Euro zone will try to get rid of them is a matter of political rather than economic convenience.

Being in a high growth trajectory, India had always been a hot investment destination for foreigners. However, overseas investments in the recent times have turned sluggish as policy paralysis and lack of transparency worried investors. But 2011 came in as a positive surprise as foreign investments in India rose for the first time in the last three years.

True that capital chases growth but here it seems that lack of investment opportunities in other markets attracted capital into India. Eschewing domestic worries, global investors left with no alternative investment opportunities turned back to India. Further, if a report from Ernst & Young (E&Y) is anything to go by, the foreign investments in India are likely to swell further in the coming years. However, we believe that while structural advantages like cheap labor and robust domestic demand provides comfort to India, it could get seemingly difficult to attract foreign capital in the future if governance and transparency issues are not resolved soon.

What could be the biggest risk to the US economy in 2012? Would it be the Eurozone debt crisis? Or would it be rising tensions with Iran that could send oil prices haywire? If a certain economist who was also a former US Secretary of Labor is to be believed, there is an even bigger threat to the US economy than these two critical threats. And that threat resides nowhere else but in its own land. The threat is rising income inequality. As the gap between the few filthy rich and the rest increases further, it poses a serious threat to the economic and political stability of the US. While productivity in the US has been rising, the number of working-age people in the job market has hardly changed. This means that companies are demanding more from the same workers instead of hiring new workers. Moreover, many jobs are lost due to technology and overseas outsourcing.

We would like to take this example to argue why GDP (Gross Domestic Product) is not the best indicator of a country's economic well-being. What is more important is how well is that wealth being distributed among the country's population. If history is any guide, most major political revolutions were triggered by very high income disparities.

In the meanwhile, the Indian stock markets remained in the negative throughout today's trade. At the time of writing, the BSE Sensex was down by 100 points (0.6%). Barring capital goods, auto and power stocks, all sectoral indices traded weak. Among Asian stock markets, Singapore, China and Hong Kong were among the losers. However, Malaysia led the pack of gainers.

 Today's Investing Mantra
"An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage." - Jack Welch

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12 Responses to "Will India suffer for ignoring its biggest resource?"

George Matthew

Feb 9, 2012

True, India has the highest younger population. But has it not been overstressed to exploit the majority of the population? The way the political scenario unfolds, you cannot ever expect any chances of development.
The biggest curse of Indian Democracy is the Multy Party System. It is disintegrated to such irretrievable levels that there are no values, norms or code of conduct. Any hooligan, without culture, education or moral sense can form a party and can get supporters; next what we find is self-declaration from the local party platform to run for the Indian Prime Ministership!! What an ideal democracy!?

The government is governed by a handful of people, corporates like Ambanys, Tatas, etc. Corruption is the life-blood of Indian Democracy, be it any party to the extent that one is forced to think, What did democracy of India has given to people. Was it not the British Raj that left at least some landmark achievements to the people of India despite the cruel exploitation? Or, Wasn't the pre-british era good for the innocent majoerity of our country?

As long as the Kalmadys, Kanimozhys and Ruthless Marans rule the arena India's democracy is in doldrums.



Feb 4, 2012

Education of a child is of paramount importance for any country be it devoloping or developed. When we talk of education to all we also need to think upon the lines of educational reforms which are the need of the hour. We have all talked about industry relavent education but the level of primary/secondary education is something which is not relavent and not matched upto standards. The 2nd level of reforms need to happen is the quality of education to be provided, in India the education is dispenced to a children in terms of mugging up of the text books, students are hardly into the habbit of research and teachers lack the intrest of research themselves. How many of our teachers post their completion of education take up new learnings in their carrier. We know that the government lacks the means to implement reforms but then reforms do not cost money, let there be industrial participation and give relavent benifits. Government needs to lay down policies moniter them stricktly and see to it that implementation is taken in the right spirit.


sujatha kumar

Feb 3, 2012

The way to capitalise on our biggest asset, young population, is to develop our educational institutions to give them world class education, and our youth can turn India into a vibrant economy which it deserves to be. Otherwise we would be throwing off this advantage and creating a generation of unemployed, frustrated youths, who could be potentially dangerous not only to the economy, but to the security of the country.


Rajaram S

Feb 2, 2012

Your question is very cute, like a typical Indian armchair intellectual, which you are not. Ofcourse, lack of basic & quality education is a huge threat. Not only will wealth creation cease, but distribution of scarce wealth will become the norm, spreading poverty. The government has to stop runninh airlines if it must focus back on the interests of the nation.

But other nations will step in to exploit a population that is poorly educated & skilled. So nature & free markets will balance itself out. Only thing is that we will be a "needy nation" instead of a "leading nation".



sarat palat

Feb 2, 2012

Today's children are tomorrow's youth and the people who drives the country. If these people are deprived of education and even if it is available, if it is of poor quality, definitely it is going to have a direct impact not only in their future but also that of the country.


Shashikant Nishant Sharma

Feb 1, 2012

I do think that India has a vast potential to become economic super power in new decade provided the policy planners ensures that the coming generation is well equipped with the technical skills and moral spirit to serve the nation in true sense of term. The government should also take care that all the basic physical and social infrastructure are provided in each and every corner of country. The policy planners and government should implement the recommendations of the Administrative Reform Commission to ensure better management and coordination for the development.

Shashikant Nishant Sharma

SPA, Delhi
New Delhi



Feb 1, 2012

Good education and health require political will to improve and updation of our exiting system and all efforts should be made to highlight this fact at all level of policy formation.



Feb 1, 2012

Indian Government is misgoverned from the very beginning of India's independence.The "best brains" of India are selfish and full of corruption.The politicians are earning from politics as if they are elected to suck public money and they are at liberty to do it.The worthless MPs,MLAs are hiking their salaries,pensions,enjoying all undue facilities which is wastage of our hard-earned money.They also have steady income of black money through grafts etc.which they prefer to save in foreign banks.That's why they are opposing any movement to investigate the whereabouts of that black money accumulated for their own selves,otherwise that huge amount could have been utilized for people's education and health.Same for Telecom scandal and other scandals.Almost all politicians and government officers are greedy,self-concerned and nobody bothers for the people of the country.Who will bell the cat? Looting of money is the order of the day.Greed,greed everywhere!



Feb 1, 2012

another one area lacked is health issues which makes youth vulnerable to many diseases also heavy drinking poses many new problems to them and thier families



Feb 1, 2012

Lack of quality education (especially higher education)is our serious problem. Our education system is only tagging (majority of ) students with a degree but not making them capable of delivering. Intellects with creativity and innovative talent are hardly seen (I am talking about Gen Y). Few who are talented (on their own) quickly move to greener pastures and settle there.

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