|»5 Minute Wrap Up by Equitymaster|
On This Day - 1 FEBRUARY 2012
Will India suffer for ignoring its biggest resource?
In this issue:
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.
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.
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.
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.
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