And why India must
not miss the opportunity to become an economic outlier
As I get inspired by
Investor Vijay Kedia s latest on Indian
markets and as a proud
Indian, see the hard work of the forefathers of our nation paying off, as
reflected in the present economic indicators, I cannot but muse on the circus
going on in the rest of the world.
Never ever in
recorded history has mankind been happier to learn about the misery of others
as it is today.
If US job losses
increase, the markets cheer the data by going up.
If house prices
crash, the markets go up.
If data demonstrates
progress, growth in GDP and lesser unemployment, the opposite happens – and
markets crash – as is happening at the time of writing this piece.
Counterintuitive –
Isnt it?
Such are the times
when all that matters is the party of excesses to continue to sustain
short-termism on steroids at the cost of future generations and the future
well-being of the planet.
Since a few weeks as
I see Dow Jones plummet by thousands of points triggered by Powell’s succinct yet powerful speech at Jackson Hole and the
recent inflation data and interest rate hikes, I see a few nations worried,
guilty and nervous about the perils that they have unleashed on the world in
the last 80 years.
History is replete
with instances of pivots that have brought extreme progress to the planet, but
humanity must also be cognizant of an equal number of catalysts it has created,
that have put the planet on the path of eventual destruction far sooner than
what the creator had probably ordained for.
And history will not
be kind to the so-called advanced economies (the G4 or whatever) that have
collectively put the world in such peril – the effects of which shall continue
to be felt for centuries to come – if we have that many left.
Mahatma Gandhi Said – There is enough for everyone’s need – but not for
everyone’s greed.
As children we grew
up with simple yet powerful lessons in life such as :
- Eat a bit less than your stomach-full
- Do unto others what you would want others to do unto you
- Live within your means
- Avoid debt
- Save a for the rainy day
- Believe in the law of Karma
What the developed
world has orchestrated in the last few decades will come to haunt us forever.
Most of what’s manifesting
in the world today is a result of some strategic and behavioral pivots the
ramifications of which are mostly irreversible.
Pivot I
Bretton Woods
Great Britain’s weakness (post the II W.War) was a compelling opportunity for
the US to push the Bretton Woods system of exchange thereby giving “THE” dominance to the
US Dollar which USA printed its way to consumption, creation of infrastructure,
funding of wars, orchestration of conflict (whenever US$ felt threatened). When
everything is either traded in or pegged to the dollar, USA was able to
confidently print the greenback and create a monstrously large (the largest in
the world) economy with barely 4.25% of world population.
The situation today
is such that the 330 million Americans must continue to over consume,
overspend, waste, create the largest CO2 emissions per capita for the rest of
the world to barely remain in business. Why else does the world shudder when
all the overstretched economic indicators of that country vary by just a few
basis points here or there. Why do Indian Business Channels and all the
analysts on it (5th largest economy in the world with 1/5th of the world
population) spend a large proportion of their time discussing US unemployment,
US interest rates, US Bond Yields and US inflation data when there are 1.6
billion possible topics to discuss back home.
Infinite power must
come alongside uncompromisable responsibility. Authority if used
indiscriminately is almost always self-destructive
Pivot II
We can never have
enough but others must have limits
Nations and Societies must produce something to be able to compete on a global
scale. The developed world became so, by a systematic transfer of wealth and
intellect from all over the world onto its own shores either through illegal
and immoral reigns or through clever immigration policies and thereby creating
a financial and intellectual edge for themselves. While the excesses of all kinds
can simply be represented by the CO2 emissions of a nation per capita, its
ironic that the developing world is forcing the emerging economies to commit to
CO2 reduction even when a large percentage of emerging nations are trying hard
to rise from the depths of poverty through development and industrialisation.
For the record US and Canada produce ~ 14500 Kg of CO2 per capita, Germany
~8600 Kg of CO2 per capita, while India which produces just ~ 1500 Kg of CO2
per capita is being asked to lead the reduction of the greenhouse gases going
forward – obviously at the cost of its growth.
The root cause of
all greed lies in one small marketing gimmick (that became hugely successful in
the US) of bottomless drinks by cola companies at dispensing units. Kids are the
bedrock of the conduct and character of a nation. Future behavior of nations is
etched during the upbringing of kids. Young generations that grow up consuming
infinitely and disproportionately and with a blatant disregard to the society
and environment, eventually shape the character of nations, companies,
families, societies - that can never have enough. Tell me if you have ever seen
a kid from a developed world sharing an ice cream or a meal with a fellow mate
or a sibling.
When I first went to
the UK for my master's, our cohort went out for a dinner. And like a typical
Indian I proposed that we order a few dishes of each item on the menu that we
all can share. Boy! this proposal of sharing sounded so preposterous to my
western friends that it almost caused a riot in the restaurant. I quietly
retreated and learnt my lesson to never ever propose to share while traveling
abroad.
Progress is a
function of creating something from scratch that’s everlasting. Snatching from
someone else and adding it to ones own balance sheet is neither sustainable nor
pardonable. Limitless consumption is the root cause of all evil that makes
societies, self-centered, inward-looking, greedy, and selfish.
Pivot III
Iraq War
When leaders drive personal agendas at the cost of other nations and the world,
and when these decisions go wrong, these decisions sometimes create an
irreversible pivot that changes the course of the future. Middle East was
reasonably peaceful and within that region ‘the powers that be’ had struck a balance
that lasted decades till Bush started looking for the non-existent WMDs . While
these WMDs are still elusive, the chaos that’s been unleashed in the
middle-east has resulted in a loss of atleast ~2 million lives to one or the other form of conflict or
collateral damage since 1991.
‘All for access to Oil’ while preserving (almost never touching) its own
reserves.
With due respect to
Saddam and while being very aware of his Tyrannies, Iraq was rather prosperous,
powerful and a policeman of the middle-east that contained regional conflict.
When political
decisions are taken for self-interest and with blatant disregard for other
nations, it creates irreversible imbalances. Even while all war-supporting
leadership of the time - à la Bush and Blair have a lot to answer, this
paper ‘The US Invasion
of Iraq – Explanations and Implications’ by Prof. Raymond
Hinnebusch gives a rather
compelling insight as to why hegemons in a certain region are a balancing necessity.
Strong leaders with
compelling arguments are very impressive and can move opinions among a large
cross-section of people and yet mostly the irreversible damage caused by their
leadership is felt long after they are gone after causing permanent damage to
the soul of nations, corporations and societies.
Pivot IV
Covid
It’s a different matter that the virus got leaked from the Wuhan Virus Factory,
probably because of someone’s negligence. There is now a reasonably strong
consensus that Covid was work in progress (biological warfare) gone wrong and
countries are developing specialised weapons that can target ethnicities,
specific gene sequences (an aerosol sprayed in an entire theatre of thousands
of people will only kill the people who are intended to die), etc etc. More
effort, resources, and military advancements are being developed to kill rather
than to protect.
Such is the state of
this planet, and this is what has become of us Homo Sapiens, where we are
finding ways to establish supremacy not through superior intellect and goodness
but by our ability to destroy and kill – and kill precisely.
The Foundation of
success on someone else’s misery or failure is not sustainable and karma will
always come home to roost. Bedrock of progress should be based on superiority
of intellect, education and hard work.
Pivot V
When remaining
unemployed is better than doing something
I have more than a few friends living in the developed/ First World countries
who saw their bank accounts getting credited with comfort/hardship money during
Covid. While one country was doling out loans and aid (primarily aid) without
any guarantees so that people could still take holidays during their
thanksgiving weekends and consume goods and services far more than what was
needed, another country started reimbursing the discounts given by pub owners
to their customers. (these are just few of the many bizarre initiatives taken during
the Covid times). All at the cost of the Nation’s Balance Sheet that of course
will have to be paid for by future generations in one form or the other.
The concept of
unemployment benefits is dramatically flawed in the first place. Creating a
path of least resistance that’s ‘provided for by the state’ alters the very
essence of human existence and survival of the fittest. It makes swathes of
generations useless and breeds mediocrity and alters the gene pool of homo
sapiens from hunter-gatherer-survivor to wait-for-the-credit syndrome.
This is what’s happening in the developed world. Yes – ‘Developed World’. When a pre-owned Rolex sells for twice the price of a new one because of a printing machine that refuses to stop and artificially boosts all available asset classes (Real Estate, Stocks, Crude Oil, Byju’s) it only requires more and more of it to keep there. Failure to sustain the bubble is an obvious collapse – thereby pushing the world in turmoil and affecting the bottom 70% of the global population – who in any case were at subsistence level or creating hyperinflation which can only be controlled by bringing even greater pain.
Financial liquidity
(one that comes not by producing goods, services or addition of economic value)
is like cocaine – every next dose must be slightly more and more powerful, and
the supply must never stop because withdrawal can be fatal – it almost always
is.
Pivot VI
The rapid
deterioration of the climate
Every excess has its ramifications. You have a drink you enjoy and perhaps it
is medicinal. You have 5 and you kill yourself. What took millions of years to
form and become part of the reasonably balanced homogeneous planet has pretty
much been destroyed or consumed by us in a matter of less than 150 years.
Fossil fuels, metals, ores, everything has been embowelled from the womb of
mother earth to provide for these excesses. And a mere 2 degrees rise in the
average temperature of earth in the last 150 years, has pretty much melted all
glaciers, alpine slopes, ice shelves. So much so that the Kevin Costner’s
1995 ‘Waterworld’ is no longer fictional but a reality staring at us in
not-so-distant future.
Its snowing where it
never snowed before, it's flooding where it's never flooded before, and the
perennial water sources are now dry. The intensity of the vagaries of nature is
becoming increasingly unpredictable. Large ships used to ply on The Yangtze which
is now dry and The
mighty Colorado is facing
an existential threat. The Rhine, The
Danube, The Po, The Loire it’s the same story. Civilizations since hundreds of thousands of years came about
to settle along the river coasts. It is believed that 80% of the global
population still lives alongside the major global rivers and water sources as
water is the elixir of all forms of existence. But the global warming and
climate change has done it all in just such little time.
If you have ever
been to the Grand Canyon, one sees the beautiful patterns of fluvial erosion
telling stories. Each sinew of the erosion, barely a few cm below the other,
tells a story of hundreds of thousands of years of the mighty Colorado cutting
through time. In the last 200 years while the Colorado has reached the verge of
dying, imagine how toothless it would feel because there is nothing to cut
because its dropping so fast.
I have spent close
to a decade working in Kerala – India. Its almost unfathomable that a coastal
area would get flooded. Yet year after year since the last few, floods have
become common, and the entire ecology seems to be on the brink.
Isn’t this too much
a price to pay for being called the purveyors of Industrial Revolution and
progress – that we have totaled it all in a mere 150 years (approx. 0.0037% of
proportion of human existence of 4 Mill years).
The creation of
everything around us is fascinating, inexplicable, awe inspiring, self-balancing
and GODLY. Nature and Earth will fight back and take it all back what’s been
snatched away from it. We are just visitors representing 2*10-18 of
the entire time frame. If we screw this up, we would end up destroying our
present and future forever.
Pivot VII
Hopelessly trying to
be a global policeman & Underestimating others
We have all encountered one or the other instance in life or career when an
alleged big boy / person of authority encouraged us to pick a cudgel against
someone else with an assurance of “main hoon na – I am there” only to find out
that’s no one’s there.
Jury is still out
whether Russia s military invasion of Ukraine is right or wrong. It would
require a delve into history and analysis and ramifications of ‘NATO s promiseto Gorbachev’ or the ‘Cuban missile crisis’. But if America was completely
dependent on Russian Oil and Gas like Europe is – America might have actually
allied with Russia to help it accede Ukraine. While all other misadventures,
Vietnam, Iraq, Afghanistan have failed miserably, US has successfully pushed
the entire Euro region (in the name of allied cooperation) into an economic
turmoil that factories are going bankrupt, utility bills have shot up 5-6 times
and the middle class is being pushed to what’s called energy poverty and people
are struggling to barely keep themselves warm.
And no country
supporting Ukraine to fight this surrogate war even as much as fathomed or
anticipated that Putin might just change the world order because he controls
the largest nuclear arsenal, largest natural reserves, has been accumulating
gold for last 10 years to challenge the fiat currencies of the west, is teaming
up with another brat – China, has bypassed the SWIFT system of payment and
while all other currencies cant seem to find the bottom on their way down, the
Russian Rouble is up 40% as compared to its long term averages.
By sanctioning the
foreign reserves of Russia (which were obviously in dollars) US has fired a
bullet, albeit holding the gun backwards where it has scared every other nation
that US can freeze the so called global reserve currency at its own whim and
fancy and all the central bankers are now securing and upping their gold
reserves hedging themselves against the US Dollar and the whims of US of A.
Can one even begin
to imagine that if dollar begins to lose its status of being the reserve
currency, what will happen to an average American who barely has a thousand
dollars in bank while the nation has a per capita debt of ~92000 dollars.
Everyone has a right
to consider oneself a rockstar or James Bond – just don’t underestimate your
peers or adversaries as dodos. Anticipation of risk & possible outcomes and pre-emptive
strategy is underrated.
Confidence to orchestrate a conflict for self interest
in hope of winning is overrated.
Pivot VIII
Assumption that
Credit Card Debts needn’t be paid
We all (Nations, Individuals) must eventually repay our debts. And debts can
only be paid by free cash generated by adding economic value not merely by
borrowing more or by selling natural resources (as there won't be many natural
resources left to extract and sell in some time). Economic value must be added
by converting intellectual or physical capital to real GDP. And developed
countries will have to figure out how to gradually wean off the dose of the
proverbial free cocaine (read Quantitative Easing) from the system without
killing the addict.
Would any truly
loving family make a credit card in the name of the youngest member (who
doesn’t even know anything) or the one who isn’t yet born and max out the same
for the present indulgences. I have no doubt that the answer is a vehement ‘No’
and yet most of us are doing exactly the opposite.
Anything that’s
seemingly free and easy isn’t ever. There is no interest-free EMI. There is no
free lunch. Every indulgence must always be paid for or will be a debt of
burden that one’s future generations will have to repay.
Pivot IX
Reversion to mean
Everything reverts
to mean and this
doesn’t only really apply to prices of financial instruments. It applies to
life, it applies to fate, it applies to karmic burdens and rewards, it applies
to the hangover that must be gotten rid of.
Nations that have
built their castles on other's graveyards will have to repay and Societies that
have been deprived of their fair share of resources & success because of
oppression will see a transfer of wealth back sooner rather than later. That’s
just how cyclicity of fate and progress evolves.
Momentary success
leads to overconfidence that leads to hubris that makes you careless thereby making
you commit a blunder leading to misfortune & misery making you work hard to
re-emerge and by that time balance of power shifts. Isn’t that how it has
happened since the last 500 years. The Dutch, The British, The US…… everything
eventually reverted to mean.
The powers that be,
will find it harder to cede their assumed supremacy thereby leading to periods
of extreme conflict during this transition. At most instances this conflict
will be artificially created to cause adequate distraction and to cling onto
the remnants of usurped authority. So, unless all global leaders consider
themselves and their nations as one among equals for the greater benefit of
humanity and the planet, the imbalances will be impossible to manage.
India’s role and
fate in the future of this planet
The way we have
fought all incursions over the last 1500 years, the way we survive adversity of
weather, terrorism, economics, loot and plunder and yet carry on. The way we
have become a factory of global corporate talent, and to be born in a true
democracy governed by a constitution that’s truly considered sacrosanct by
every stakeholder in this nation - this is our time. We must learn from our and
others’ past mistakes to become better in every aspect of life and leadership
and future-proof ourselves. Opportunities also often strike just once and if we
fail it this time due to petty politics, bureaucratic stickiness and crony
capitalism we might have to wait for another 7- 8 decades.
We all went gaga
when we heard Bob Sternfels calling this era not as India’s
decade but India’s century.
I think its audacious on anyone’s part to even opine on the obvious. India
contributed 25% of the global GDP not too long ago in history - for a
reasonably long period of time. Our achievements in the field of Math, Science
and Astronomy, Business, Economics, Finance and Strategy have been
underappreciated or hijacked. The pall of subservience that lasted till 1947 is
rapidly getting lifted.
We are slowly yet
steadfastly reverting to mean.
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