India needs to turn slow walk into an elephant walk

Partha Chakraborty-


Making economic changes in India is often compared with making an elephant dance. But an elephant needs to walk before she can dance. I hope and pray that future generations can sing paeans to the choices India makes today.

Partha Chakraborty

Last week I was flying from Boston to San Francisco. Two hours before landing, my neighbor at the window seat pointed to the landscape below and excitedly commented that preparations of an elephant walk is going on under us. Skeptical that he could identity an elephant from so far above, also curious about free roaming elephants in Utah, I quizzed him on it.  Turns out he was USAF veteran and “elephant-walk” is a unique USAF term – a close formation of military aircraft taxiing just before takeoff. It dates back to WWII days when fleets of allied aircraft, at times over 1000 a mission, would gather nose-to-tail on the field, just as elephants walk in the wild. The idea is to have a show of numbers, and highlight coordination of individual crew in a highly synchronized, risky but bold maneuver. Even if it looks like lazy stroll, what it portends is unleashing of massive force of change.

Just what the Indian economy needs right now before we can see the elephant dance again.

Public data and available estimates put India’s GDP growth since end of 2013 at 50% cumulative, and GDP per capita growth at about 32%, both commendable given India’s size and difficulty to make the elephant dance. Also noted is the fact that, by almost all measures, balance sheet measures of economic growth have grown by north of 100%, at its height, during the same period. Examples like stock index performance, real estate prices, public / corporate / individual debt levels are just a small sample of an overall malice. A simple back of the envelope calculation implies expectations of such growth continuing, as well as increasing, for years to come. Surely, something was not adding up.

It is inevitable that positive momentum in economy is carried to an elevated asset level that calls for a stall, or even a correction, usually called a “mid-cycle correction”. Remedies are well documented – they start with letting market to cool down, letting it catch up with fundamentals. Since human emotions have difficulty with long-standing cooling off period, best minds and tons of midnight oil are usually deployed to find a market driven growth driver that usually starts with addressing a structural impediment; at times facilitated by coordinated stimulus –avoiding “irrational exuberance” is Job No.1.

What we saw in India can, at best, be described as a “deer-in-headlight” approach. It is universally accepted that as far economics agenda goes, mandate from 2019 elections is largely squandered away. 

Previous five years were marked by tangible gains on repositioning of India in global geopolitics. On the economic front perceptible differences were made in cutting red-tapes, opening up of various economic sectors to foreign investment, direct disbursal of assistance, well-meaning attempts to move economy from informal to formal sectors. Even when they were poorly executed on a first attempt – e.g., GST and Demonetization – well-meaning intentions came across.

Faced with much anticipated slowdown, administration turned to majoritarian politics that resulted in protests of size unprecedented in India; consequently, headlines around the globe that puts India in a very poor light. Moves like these surely earn passionate support among the base for sure; they also deliver a “Hindu rate of growth” that India can ill afford.  It will take a small amber to light up pent-up economic frustrations with fuel of identity divisions. India needs a decisive response for mounting headwinds. 

First, enough of stoking up of divisive emotions. If it is not obvious the damage it has done to investor psyche, domestic and foreign, India is looking at a bottomless abyss. A slow walk back is the best course while the Courts work a way out.

Second, massive investment in infrastructure, housing and related projects. We have well-reasoned skepticism about Government suddenly embarking on what can easily be multi-hundred-billion dollar outlay. Best use of resources will be to set up legal and organizational frameworks where limited government support is leveraged up for projects within guidelines defined beforehand. A good example are Freddie Mac and Fannie Mae of US. Both of them are private corporations with implicit government support, but they insure multi-trillion dollar US mortgage market. Federal support was only needed in the wake of The Great Recession; a decade later US Treasury has more than earned back as US mortgage market goes from strength to strength.

Third, labor market reform. Anybody who has done business in India can attest to structural impediments to a functioning labor market in the formal sector. Usual political calculus traditionally kicks the can down, this time it is different. 2019 mandate can be put to good use here and corporate India will be overwhelmingly supportive.

Fourth, balance sheet reform: India faces a “triple-balance-sheet” problem in the organized sector.  Public sector banks have been abused for decades to extend credit where there should have been few, recognition of non-performing loans, and worse discharge, is left to whims and expediencies at banks and NBFC’s. Bankruptcy codes have been rationalized in the last few years and it is time for the code to expedite its way through the system. Labor market reforms might make its impact pronounced locally; added market efficiency is and some government help is expected take care of the displaced.

Fifth, global positioning. India is uniquely positioned as the world segments itself into the Free World led, hopefully, by the US facing a collection of autocratic elements, led, presumably, by China and Russia. Success of repositioning India into the free world will be felt on the ground only when India can monetize these relationships. A retooled “Make in India”, coupled with coordinated diplomatic overtures, will be critical here. India must take advantage of its well-developed human capital base, along with an independent judiciary, to make it a home for IP driven businesses, thus making it a bulwark against Chinese malaprop.

Making economic changes in India is often compared with making an elephant dance. But an elephant needs to walk before she can dance. And India needs an elephant walk as good as they come – highly choreographed display of its potential that can blow away minds of skeptics. Risks, and returns, are outsized just as WWII pilots faced. 

I hope and pray that future generations can sing paeans to the choices India makes today.


[Partha Chakraborty, Ph.D., CFA is an entrepreneur in Blockchain and Wealth Management in US and India. Dr. Chakraborty spent two decades in all parts of the Investment Management value chain globally; he lives in Southern California with his family. All opinions are of the Author alone, and do not necessarily represent that of any organization he may be part of. The author alone is responsible for any error or omission.]