|»5 Minute Wrap Up by Equitymaster|
On This Day - 27 JANUARY 2012
Brazil has answers to India's biggest problem
In this issue:
Does that mean autocracy is better than democracy for economic growth? Well, a country by the name of Brazil certainly chooses to differ. Brazil, which is the 6th largest economy today, has not only grown economically but has even become more socially equitable under a democratic regime since 1994. The country very clearly portrays the kind of phenomenal progressive change that can happen in a country if there are right leaders at the helm. Brazil was fortunate to have two visionary leaders. These leaders put their political careers at stake in order to implement some crucial public policies and structural reforms in the Brazilian economy. For instance, despite a strong lobby that preferred policies that would enable the wealthy few to corner the economic pie, President Lula da Silva (2003-11) expanded the social welfare and educational schemes and made sure they reached the real beneficiaries. What is commendable is that he did so while maintaining fiscal discipline.
Let us tell you that in the past, the rich-poor divide in Brazil was one of the worst in the world. But the economic inequality has consistently come down over the last two decades and is currently the lowest since 1960. Even more, as per Transparency International, Brazil is rated as the least corrupt among all BRIC (Brazil Russia India China) countries.
While both India and Brazil have emerged as powerful economies in the last decade, what differentiates Brazil is the fact that unlike India, the former's prosperity has indeed reached its millions of citizens. The main reason for this discrepancy is the stark difference in the leaders of both the countries. India's meek leadership is seldom successful in pushing much-needed strong reforms unless pushed to the brink of a crisis. We strongly believe our leaders have some serious lessons to learn from Brazil.
Hence, in a bid to soothe the nerves of economists and rating agencies, the Fed has diverted from its beaten track. It has now set an inflation target of 2%. This target will supposedly help the Fed keep its long term goals in line with the remedial measures needed to keep the US' debt burden in check. However, not everyone is happy with the set target. For many policymakers in the US believe that the inflation target will force the US Fed to put employment creation initiatives on the backburner. We are not sure if setting inflation targets are much of an achievement for central banks. Our very own RBI (Reserve Bank of India) has not had much success in meeting it over the past 12 to 18 months. Hence, what is important is that at least the US Fed recognises its mistakes.
And while many of these e-commerce companies found private equity funds or venture capitalists to fund their operations, the latter are also beginning to take an interest in companies providing support functions as well. So you have many companies which have sprung up and which offer services like payment platforms and solutions or courier services that are able to handle cash on delivery. All of this because the potential growth for the e-commerce industry is huge. But it must be noted that all e-start ups do not necessarily hold potential however big the opportunity and that is where the challenge lies. Indeed, the dot-com boom and bust is a painful reminder of the fact.
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