Globalisation & internal connectivity

Source :Economic Times
Writer :Swaminathan S Anklesaria Aiyar

People ask if India can grow fast if Bharat does not. Well, nothing exemplifies Bharat more than Bihar, and it has grown at 11% during 2004-09 ,
the same period when India registered a record 8.5% growth. India’s fast growth owed much to high technology and exports, exemplified by computer software and automobiles. But Bihar has neither high technology nor exports. India and Bihar seem to have little in common, yet both their growth spurts have a common cause: connectivity.

India’s success stems from globalisation , which the Left calls an imperial recipe for subjugation. But when Indian companies are taking over global companies galore — the latest being Bharti Airtel’s takeover of Zain in Africa and Warid in Bangladesh — the notion that India is being subjugated is nonsense.

Globalisation creates on a global scale opportunities that were earlier available only within nations. Once, people knew little of the world beyond the 20 miles that could be traversed by bullock cart, and the opportunities for innovation or entrepreneurship in this limited space were few. Then modern roads and vehicles appeared, providing connectivity first to the whole district, then to the whole state, and ultimately to the whole nation. This increased economic opportunities a thousand-fold .

Meanwhile, plummeting shipping transport, communication and financial costs in the last 150 years made it possible to do across the world what was earlier possible only within national boundaries. An Indian company can raise money in
Hong Kong to build a plant in Spain that exports goods to Latin America. Connectivity had become global.

For decades, inefficient Indian Railways and ports made connectivity costly. One World Bank report on Mumbai port said the cheapest way to unload cargo was to first pay official dock labour to go home and then hire a private crew for unloading!

The situation was transformed with the export of computer software and business services over the airwaves. Suddenly, telecom provided cheap, instant connectivity across the globe. It did not depend on dysfunctional railways and ports or corruption-laden export documentation. This kickstarted India’s economic upsurge, and with reforms, even the ports and railways improved immensely. Financial connectivity provided global finance to Indian companies , not only to set up new plants but also to acquire MNCs abroad. That is how Tata and Birla acquired Corus and Novellis.

Globalisation is unstoppable because it is based not on western domination but on continually-falling transport, communication and financial costs. China is the best example of using globalisation for economic success. Far from becoming a western puppet, it now challenges western supremacy.

At first sight, Bihar looks completely different . Its 11% growth has been driven mainly by construction (average growth 47%) and unorganised industry. Organised industry has grown little in the last five years. Bihar exports nothing of consequence , and has nothing hi-tech .

Yet, connectivity is the heart of Bihar’s success too. Under Lalu Yadav, few new roads were built and existing ones disappeared for want of maintenance. Lalu defended this, asking, “Whose car will travel on roads, and whose buffalo will be killed by the car?” This lack of connectivity stymied economic development at a time when reformed central policies had made strident growth possible.


Very wide rivers handicap Bihar. Many of these are dry most of the year, yet require long bridges for connectivity. Under a dynamic IAS chief, Pratyaya Amrit , the Bihar Rajya Pul Nirman Nigam, once a sick unit, revived and built 336 bridges (including 80 major ones) in three years, and is now building mega-bridges across the Kosi and Gandak. Its turnover is up from Rs 42 crore in 2004-05 to Rs 768 crore in 2008-09 . Amrit subsequently moved to the road construction department, whose road building improved from 384 km in 2004-05 to 2,417 km in 2008-09 .

This was buttressed by telecom connectivity , driven by the private sector. Bharti Airtel claims that Bihar now has the highest growth of talk-time in the country. The big missing element in connectivity is electricity. Without connection to the electric grid, economic opportunities plummet . After meeting obligations to supply Nepal, the railways and defence, Bihar has barely 500 mw, a ridiculously-low level for a major state. This needs to rise by thousands of megawatts per year. Many proposals are in the pipeline, but are held up by lack of coal linkage. T&D losses — mostly power theft — are a massive 49%.

Keynesians attribute Bihar’s fast growth to rising public development spending, from Rs 2,000 crore to Rs 16,000 crore. Yet, such Keynesian tactics in Japan in the 1990s and Europe in the 1970s produced little growth.
Much depends on what you spend money on. Hiring two lakh teachers and medical staff or providing school kids with cycles and uniforms may be desirable, but will not accelerate growth in the short run.

Additional infrastructure spending in Japan produced no growth. But connectivity there had already reached saturation point. The opposite is true in Bihar, where connectivity was pathetic, and any small improvement generated a spurt in economic activity.
The big non-Keynesian success in Bihar has been the restoration of law and order in place of Lalu’s jungle raj. With absent physical security, people will not travel, build houses, buy vehicles or engage in commerce . Earlier, goons and ransom notes proliferated, and nobody dared engage in economic activity. But the Nitish administration has jailed tens of thousands of goons under the Arms Act.

With peace returning, pent-up demand has exploded, creating a boom in construction , vehicle ownership and unorganised industry. Bihar has proved that physical security is also vital for connectivity and economic growth.
The lesson for other poor states is clear. Globalisation is not the only kind of connectivity .

You first need internal connectivity , between towns and between villages. That must be buttressed by physical security , which is lacking in many poor states. Once you get security, roads and telecom, the economy will take off. And if good policies make a state attractive for investment, investors will in due course arrive from other states and other countries. Globalisation starts with internal connectivity.

It's politics stupid ..

Switching of balance of payment surplus to deficit, capital flight exacerbated by the political instability, mob mentality labor force, marginal growth in remittances ,liquated crunch ,high credit to deposit ration of commercial banks, double digit food inflation, bearish equity market have finally attracted the attention of fiscal and monetary policy markers. Even the prime minster and the finance minster ,who until recently were selling their hallow rhetoric of high growth rate and economic development now believe that Nepal waning economic health is a serious cause of concern. As reported by this news paper, Finance minister Surendra Pandey has requested the fund (IMF) to access the macro economic situation of the country and provide recommendation. No one doubts the IMF credentials and I am sure that at the end of the day , International monetary fund -often called as a spokes person of the “Washington Consensus” will recommend polices that will revolve around free-market, pro-trade and globalization policies .But the question that arises is will the set of policies that will recommend by the IMF will solve our macro-economic concern of the ? Analyzing the impasse between the political parties despite of the hundreds of high level political maneuvering mechanism committee clearly state that no matter what polices or economic models you import either influenced by the proponents of Adam Smith or Karl Marx , or any school of thought between these too , unless there is a atmosphere in Nepalese politics in which all the political parties despite the differences they have develop a understanding to work together, no economic development can take place .Heterodoxy, openness, and reasoned discourse are the fruits of democracy and one should enjoy it but when devouring the fruits, one should not eat the seed of the fruits. The seed should be planted carefully so that it grows up to feed the generation to come.
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Capital Flight..

You don’t have to be a rocket scientist /PHD in economics to figure out why capital flight is taking place, there are three main causes for the capital flight - political instability, high inflation and a search for increase return on one’s investment. With never ending national political drama and high inflation rate (more than banks deposit rate), Investors started looking for investment opportunity that is not coupled /correlated with the nation politics. At the mean time When Nepalese investor did not see any hope in the domestic economy, what was happening in the emerging markets (especially India and other emerging Asian nation) was that they were raising fast from the ruble of the disastrous economic crisis, with the buttress of huge fiscal stimulus package and high flow of foreign institutional investment. Like any prudent investor, what investor here in the country started doing was investment in India, those who were not challening there fund to India, where buying gold. Gold often consider as a headge against inflation and as an alternative to depreciating USD. Until and unless we do not make our nation stable political and economically ,I don’t think any tools employed by the government or the central bank can stop capital flight, when there is immense opportunities at the next door neighbor ,where you do not have to knock the door ( open boarder) .