Ruchir Sharma, Head of Emerging Markets and Chief Global Strategist, Morgan Stanley Investment Management, in The Times of India (February 16, 2021)
Summary by Alejandro Reyes (Photo credit: Pradeep Gaurs / Shutterstock.com)
Many commentators complain that, with the pandemic-stricken economy “in the ICU”, now is exactly the wrong time to push painful reform. But if not now, when? Few nations ever accept harsh medicine unless they are forced to by a crisis. Reformers come out better in the end. Today, developed nations are offering stimulus packages to ease the shock of the pandemic, but they are running up debts that will slow growth in the future.
Meanwhile, India is one of the many emerging countries that, lacking the funds for more stimulus, are instead pushing reforms which are likely to boost productivity and growth. India’s reforms encompass the controversial agricultural reforms, the new privatization push, and the broad shift in spending away from subsidies and other freebies to capital investment.
Indonesia’s reforms are as ambitious, including looser labor laws, tax cuts, deregulation, and most recently a push to open up the financial sector. The Philippines lowered its corporate taxes from among the highest to among the lowest in Asia, and will emerge more competitive. Brazil, a chronic over-spender, has imposed caps on its deficit and is working to meet them by downsizing a wildly generous pension system and streamlining bureaucracy by making it easier to fire public workers and cut their benefits.
By comparison, there is nothing particularly harsh about how the Indian government is treating its patient. When the sugar rush of stimulus fades, the effect will not be felt equally. Nations that exercised restraint and prioritized economic reforms are likely to see their growth prospects continue to improve. Those that spend heavily to ease the pain are likely to pay for it in higher debts and slower growth. This was the lesson of 2008 and every major global crisis: Seize the opportunity to reform, or it will never happen.