Thoughts of Gurumurthy

This high flung auditor from Chennai, has controversial thoughts on any given issue for that matter. Being a regular reader of Thuglak, I was introduced to his writings few years back. One of his recent articles in Thuglak impressed me a lot and here I am to share his thoughts.

Whole India is crying about foreign direct investments and feeling happy about growing forex reserves. Mr. Guru truly differs stating that India need not feel inferior for not attracting FDI as china or any other country for that matter does. China, being a communist country, never encouraged its citizen to be entrepreneurs. Or probably that was a new concept for China and Chinese are lagging in entrepreneurial skills. But that is not the case in India. Our entrepreneurial skills start from the street hawker who sells vegetables. Every Indian right from lower income group knows the concept of being independent.

It is only the semi educated youth, who depends on government and other industrialists for a decent living is becoming a burden and not the self-confident street hawker who himself is a capitalist. Thus we can conclude that more than half of the Indians are blessed with entrepreneurial skills while the need for capital in china is internally created and that makes china a better place to invest for foreign companies rather than India. To put it clearly, the flow is towards the direction where the need is. They can flourish well in Chinese environment rather than in ours. Neither we need them.

There can only be two reasons for worrying about FDI. One is the need for foreign exchange and the other inability of Indian government to bring in more capital. We no longer worry about forex reserves as our ministers are wondering as how to make use of the huge forex reserves India has. They are thinking about the option of investing in infrastructure projects. The matter of concern can only be the second one.

Economists strongly felt that savings rate is not enough to infuse more capital. Though India is one of the country whose savings rate is higher, economists were of the view that savings rate has to reach 32% of GDP so that India can reach 8% growth rate. Also they strongly believed that fresh FDI capital of 10 billion per year is needed for speeding up the growth rate to 8%.

But to every one’s astonishment, our savings rate was 28% of GDP during 2003-2004 and during the same period, the growth rate was 8.8%. Please note that our FDI inflow during this period was only 4 billion. Economy is not bound by economist’s word.

Our economy works because we save. American economy works the other way. The more the people earn, the more they spend. The reverse is the case here. More the people earn, they tend to save more. Gurumurthy rightly describes our economy as having feminine features, while western economy has masculine features.

Hence a strong message is that we need not give lucrative offers to attract FDI. Our growth is not limited due to non-availability of capital. Left to itself, our sectors will grow well.

I think this view, really needs a deep thought. Any opinion of yours is welcome.