Lessons from market cycles – Chapter 5

The years after the 2008 global financial crisis – from 2011 to now in 2026 – have been packed with big changes for financial markets worldwide.

The 2010s started on shaky ground:

·         The world was still recovering from the GFC. Globalization faced pushback. Europe's debt crisis worsened in countries like Greece (with “Grexit” talk), and the UK moved toward Brexit. Ultra-low interest rates and massive money printing (quantitative easing) in rich countries sparked fears of new asset bubbles and soaring commodity prices.

·         Gaps between rich and poor nations grew as aid dried up. The Arab Spring, Gaddafi's death, and Bin Laden's killing reshaped the Middle East. Immigration surged from poorer to richer countries. Protectionism and nationalism – forces that had faded after World War II – came roaring back. (Around 2011)

·         IBM's Watson won Jeopardy! in 2011, signaling the start of the AI revolution.

As the decade rolled on:

·         China overtook Japan as the world's second-largest economy in 2012 and helped launch the BRICS-backed Asian Infrastructure Investment Bank (AIIB) in 2013. Russia annexed Crimea in 2014. The UK voted for Brexit in 2016.

·         AI made huge leaps with deep learning and big neural networks (2013–14). AlphaGo beat a top human Go player in 2016.

·         Donald Trump became US President in 2016–17, sparking a US-China trade war from 2018 that slowed global growth.

·         Trust in traditional money wobbled a bit; cryptocurrencies caught on with everyday investors (2017–18).

·         The 2015 Paris Agreement kicked off serious climate action, boosting renewables fast.

Then came the end-of-decade shock:

·         COVID-19 hit in 2020, crashing economies and markets. Supply chains broke. Governments and central banks poured in record stimulus to avoid depression.

The post-COVID world looks different:

·         Inequality widened. Geopolitical fights grew fiercer and longer. Protectionism and nationalism shape policies more than ever.

·         Asset prices bounced back hard; stocks hit records. But central banks reversed course – hiking rates and tightening money.

·         Trust between countries eroded further. Russia invaded Ukraine in 2022, spiking energy and food prices. The Israel-Palestine conflict escalated in 2023. In 2025, India and Pakistan fought a short four-day conflict (May 7–10) after a terrorist attack in Kashmir triggered India's Operation Sindoor missile strikes. Then in early 2026 (starting February 28), the US and Israel launched major strikes on Iran (Operation Epic Fury / Roaring Lion), killing Supreme Leader Khamenei and others in a push for regime change, with Iran retaliating across the region – creating huge uncertainty in the Middle East.

·         AI large language models like GPT-3 went mainstream in 2022. Massive spending on AI data centers followed. Doubts grew about traditional IT services' future, and job losses sped up.

All these events reshaped markets, capital flows, policies, industries, and global power.

For Indian investors, this period brought its own ups and downs:

·         India handled the 2008 crisis fairly well thanks to earlier growth. But in 2013, a “taper tantrum” (US Fed signaling less QE) triggered capital outflows, plus high oil/gold imports and a weak rupee pushed the current account deficit to a record 6.7% of GDP. India was labeled a “fragile” economy – but RBI and government steps fixed it fast.

·         2014 brought a stable majority government after 25 years.

·         Demonetization in 2016 (scrapping high-value notes) hit small businesses hard and slowed growth.

·         GST rollout in 2017 added pressure on the unorganized sector.

·         COVID lockdowns in 2020 crushed SMEs and informal jobs again. Organized large firms gained market share. Government ramped up welfare support, straining the budget.

Stock market impacts:

·         These shocks weakened small/micro businesses. Bigger organized players took share. Many family businesses sold out to corporates or PE firms. Jobs got scarcer in some areas. Work-from-home spread. All this pulled millions of households – especially younger people – into regular stock investing.

·         Government boosted capex with big infra projects (roads, railways), plus incentives for manufacturing (chemicals, electronics, renewables) and defense amid global tensions. Theme stocks in these areas soared, often ignoring valuations.

·         New companies with unproven models launched IPOs at high prices.

·         Recently, geopolitical risks, sticky inflation, higher rates, and doubts about the financial system pushed gold and silver prices up sharply. Many investors shifted away from their planned mix to buy more metals.

·         But corporate capex and profits haven't met hopes. Government spending fell short too.

·         Higher US yields, a weakening rupee (hitting 89–92/USD range by early 2026), stretched valuations, and limited direct AI/semiconductor plays drove record foreign outflows (~$18 billion in 2025 alone).

·         After euphoric post-COVID years, markets disappointed newcomers. Many theme/momentum stocks corrected sharply. Gold/silver turned volatile below peaks. Even bonds underperformed.

·         The hardest hit were momentum-driven stocks popular with retail investors – when liquidity dried up, prices plunged with few buyers. This is classic: fast-rising assets on hype and easy money fall hardest when mood shifts. No single big event caused the recent correction – just stretched valuations, crowded trades, and a slow global macro change. When everything's priced for perfection, small letdowns cause big reactions.

My final lesson from all these cycles

Stick to a solid asset allocation plan. It's not about maxing returns every year – it's about matching your risk comfort, cash needs, and long-term goals through ups and downs.

Rebalance regularly and calmly. View equity dips (especially in good companies) as chances to allocate more for the long run, not panic signals. Keep fixed income and gold at planned levels – don't overload on fear.

Markets reward patience and discipline far more than chasing the latest hot theme or reacting to headlines. The best investors stay steady when others chase or flee.

This is the concluding part of the series. I will be happy to receive readers’ comments; especially if someone wants to share his/her experiences and lessons learnt from them.

Also read

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Loving silver on my scalp

A friend recently remarked, “I don’t want to be young for the first time in my life”. He was alluding to the challenges Gen Z (born between 1997-2012) and Generation Alpha (born after 2012) children are likely to face in the coming years. I fully agree with him. The silver on my scalp gives me comfort that a relatively well lived life may end as comfortably for me, and many people my age. But young people in their 20s have no such comfort.

The people in their late twenties have already stood witness to three massive economic/market crises (dotcom burst, subprime burst and Covid-19 pandemic) that (i) were not caused by a war or natural disaster; (ii) did not cause human suffering which was anywhere closer to the crises witnessed during 19^th and 20^th centuries; and (iii) were brought under control through monetary and fiscal stimuli within a short period of time.

In the past twenty-five years, the governments across the world have increasingly become more socialist. While serving the interests of crony capitalists, they have made sure to provide basic necessities of life to the common people – not only in their jurisdiction but much beyond it. The central bankers across the world have remained accommodative – keeping the markets sufficiently liquid, and cost of capital low to fuel consumption, support higher asset prices and ensure availability of adequate risk capital to fund tech innovation.

This generation has mostly lived in low inflation, low interest rates, constantly improving productivity due to tech innovation, accelerating speed of everything, improving longevity, globalized economies, contained geopolitical conflicts, and an environment promoting individualism against the spirit of society. Accordingly, this generation carries a strong faith in the central bankers, governments, technology, medicine, and mobility. Personal savings, family, austerity, tolerance, sacrifice, social ethos, patriotism are only a few of the concepts this generation may not be sufficiently versed with.

A famous Chinese curse goes, “May you find what you wish for”. The Gen Alpha, perhaps is affected by this curse. Riding the broomstick of unhindered aspirations, they feel entitled to get freedom, liberty, comfort and convenience, despite being mostly selfish in their approach towards society in general. They take peace and society support for granted. The very freedoms and comforts this generation seek might become their undoing, as they may not be adequately prepared for tougher times.

The events of the past few years are suggesting that things may change rather dramatically for this generation in the coming decade.

·         The governments are increasingly acquiring parochial character. The focus is evidently shifting to retraining fiscal profligacies. Frugal governments mean the younger people might have toll hard to make a living for themselves. This will happen when the technological developments would have eliminated most of the jobs requiring unskilled or semi-skilled workers.

·         The central bankers, as evident from the recent Fed commentary, have developed the fear of the endgame of this unmindful monetary expansion. Cheap and abundant money may not be available to fund redundant fancy tech innovations.

·         The efforts of the government to define the narrower contours of personal freedom and liberties are also conspicuous from the US to India. Conforming to social norms may become essential for survival, if this continues like this.

·         Excessive use of chemicals and changes in lifestyles have severely affected the procreation capabilities of both men and women, adversely affecting the demographics. “Not having family” may soon become a disease rather than an option.

·         Climate change may make food and water scarce for more than half of the world.

·         Ultra nationalism may trigger a war, for which not many youths would be prepared. This could lead to several times more lethal digital, chemical and even nuclear attacks. The misery that would follow is unfathomable. Of course it is the worst-case possibility, not a baseline assumption.

I am certainly not suggesting an end of the road for Gen Alpha. I am just expressing my sadness for the fact that my children may have to learn a few life lessons rather painfully.

I am confident about the capability of the young generation to quickly adapt to the changing environment. Gen Z and Alpha have grown up with smartphones, not stability—they’re naturally used to disruption. They might lack the thrift or stoicism of boomers, but they’ve got agility and a native grasp of systems (tech, social, political) that could see them through. I am sure the pain would forge something new, not just break them.

I would be keenly watching the developments in the areas of food and water; particularly, how the food production shifts from the farms to factories.

View from the Mars - 4

Continuing from yesterday (View from the Mars – 3)

In my view, the following issues may, inter alia, play an important role in shaping the contours of the new world order that may evolve in the next decade or so.

·         China presently is finding it hard to gain acceptance as a major global leader. One of the reasons is lack of democracy, which is still a major consideration for the western developed world. Besides, it is also regarded as an irresponsible power by the extant major global powers. Recently, the spread of Covid-19 virus from Wuhan laboratory, causing a global pandemic, has materially tarnished the image of China. In particular, the mistrust between the US and China have increased manifolds after the outbreak of pandemic, resulting in a Sino-US cold war. This cold war that may last for many years, or may be decades, may be a key determinant of the new world order. Important to note that Russia, which was a key WWII opponent of China, and key OPEC members – Iran & Saudi Arabia, and erstwhile strategic partner of the US – Pakistan, are overtly standing on the Chinese side in this cold war.

·         The vulnerabilities of the US and Europe have been exposed by the coronavirus. Post 9/11 incident, we saw dramatic changes in the concept of internal security in the US and many other countries. The suspects were shot dead without much provocation, disregarding all concerns for human rights and liberties. The culprits were chased and killed in foreign jurisdictions often disregarding sovereignty of these foreign lands. The diplomats, politicians and prominent personalities arriving in the US and the UK were strip searched and denied entry with impunity.

We may see further rise in xenophobic tendencies of the developed western countries. Another major impact could be a concerted effort to reverse the course of demography, especially in European countries that are turning old at an alarming rate. This could be achieved by substantial incentives for procreating aggressively or changes in the immigration policies to encourage young professionals from developing countries to settle there.

·         The global supply chain presently relies heavily on China for components as well as manufacturing services. Many developed countries get their fiscal gaps filled by China in lieu of using Chinese manufacturing services and allowing China access to their markets. The new world order may see a massive shift in this trend. Countries may seek to limit their fiscal deficits and seek diversification of their supply chains. This could present many opportunities & threats to the emerging economies like India.

·         The dominance of USD as the world's only reserve currency could face serious challenges from more neutral digital currencies, especially as a medium of exchange.

·         The ideas like free trade, personal liberties, etc. may face serious challenges from the rising tendencies of governments world over, which are eager to exercise enhanced surveillance and control over personal conduct and data.

·         The business models, valuation models, risk assessment techniques, commercial contracts etc. may need to be redefined to build in probability of frequent disruptions and conflicts.

·         The business and official ‘foreign travel’ may become ‘avoidable unless necessary’, due to rising scrutiny and excessive VISA restrictions.

·         The business continuity planning may become a mainstream subject for all businesses, not just for the mission critical processes and financial services.

·         A strong wave of debt defaults/waiver may hit the global financial system. Handling of this tsunami and subsequent recapitalization of the lenders will be a key challenge for the governments and central banks. Inappropriate handling of this challenge may eventually lead to shortage of growth capital and thus rise in cost of capital.

Where does India stand in this transition and what are the opportunities and threats?

I shall share my thoughts on this next week.

Also read

View from the Mars

View from the Mars - 2

View from the Mars - 3

Trade war cannot quick-fix

The master failing the first test

Take a deep breath, hold and let it go

The market action in the past three days has been quite exciting. It reminded me of the market action witnessed during March-April 2020, in the wake of the outbreak of Covid-19 pandemic. Drawing from the experience of 2020, like many, at first, I was also tempted to increase my risk exposure to Indian equities. However, on second thought, I have decided to reign my temptation and avoid any deviation from the “plan”.

I note that the 2025-2026 market trajectory may not be similar to 2020-2021, for some very simple reasons.

·         Ignoring the panic fall in February-March 2020 and subsequent recovery, Nifty 50 gained 12% in 2020 and another 16% in 2021. These gains occurred because corporate earnings were coming out of a 10yr growth drought. Nifty EPS has grown over 225% in the past five years (FY21-FY25), against just 50% growth witnessed in the preceding decade (FY11-FY20). The growth trajectory is now moderating and is more likely to stabilize in 11-13% CAGR range in the next couple of years.

·         Presently, Nifty 50 forward consensus PE is marginally higher than the long term (10yr) average. With earnings growth moderating, there is no reason for the PE to re-rate to the higher levels. If at all, it can slightly de-rate to the long-term average. This implies that Nifty 50 returns are most likely to be in tandem with the earnings growth (11-13%), in the next couple of years, with some downside risk.

·         2024 has witnessed a record Rs5.26 trillion domestic flows into the local secondary market alone. Accounting for flows into primary markets, unlisted securities and foreign equities, domestic flows would be much higher. Expecting this kind of flow to sustain during 2025-2026 also, would be unreasonable. Given the currency weakness, higher cost of capital (bond yields) and rising uncertainties, foreign flows may not see a significant reversal from the 2024 trend, where foreign investors were marginal sellers (adjusted for buying in primary market).

·         The economic growth in 1HFY25 has been much below the expectations. No major recovery is expected in 2HFY25 and 1HFY26. The actual government capex for FY25 is expected to be much lower than the budget estimates. There are reports which suggest that the capex budget for FY26BE may not see any material growth. This trend raises reasonable doubts over the sustainability of the higher than historical valuations of the sectors and companies that were expected to benefit from higher government capex. For example, infra builders, PSEs, railway equipment suppliers, etc.

·         Financial sector, especially public sector banks, have contributed materially to the market buoyancy in the past four years. The rally in these banks was led by recapitalization, NPA resolution/recovery (asset quality improvement), margin expansion and high credit growth. None of these factors may be contributing in the next two years. Asset quality and margins have mostly peaked, and credit growth is moderating.

·         Last but not the last, one of the keenly watched indicators - the Market cap to GDP ratio – is at an all time high. With nominal growth trajectory settling at single digit level, and IPO activity remaining strong, the risk of market cap of the existing listed stocks correcting cannot be ignored.

Lessons learned from GFC

 There is strong evidence emerging that Indian corporates have learned their lessons from the global financial crisis very well. In the post Covid global risk rally, they have avoided most of the mistakes they made during the exuberant years of 2003-2008, and have emerged stronger.

In pre-GFC buoyancy companies like Tata Steel (Corus), Tata Tea (Tetley), Tata Motors (JLR), Indian Hotels (Orient Express), Havells (Phillips), Sun Pharma (Taro), Suzlon (Hensen), Hindalco (Novelis), Reliance Telecom (Flag), etc. got lured by cheap debt and bought global businesses (in some cases bigger than their India operations), paying top dollars. Most of these acquisitions inflicted severe pain to the parent entities in the ensuing years.

This time, despite near zero rates and abundant liquidity, they have been very careful in acquiring businesses abroad. IT services companies have some niche small sized acquisitions to augment their resource pool. These acquisitions have been mostly earnings accretive almost immediately.

Indian companies have (a) continued to deleverage despite raising their capex; (b) managed their cashflows well; and (c) rationalized their operational expenses especially wages well to raise larger resources through internal accruals.

Lower dividend payout: As per a recent latest ET report, in FY24 the Indian companies curtailed their dividend payout to the lowest in nine years. As the capacity utilization increased above the long-term average, companies reserved more money for capital expenditure. FY24 dividend payout ratio was 34% (including buybacks 38%), down from 43% in FY23 and 37% in FY22.

Leverage trending lower: As per India Ratings, net leverage of top 250 companies (excluding BFSI) has trended lower in the post-Covid period. The net leverage of about 3100 other listed companies has not changed much from the long-term trends.

Indian companies have done modular capex in the past five years. Due to a calibrated approach adopted in capital expenditure, in the majority of cases cash generated from operations has been sufficient to meet the capital expenditure.

Despite the consensus expecting lower rates and a weaker USD, Indian companies are not rushing to raise money through ECBs. Peter Guenthardt, head of Asia Pacific global corporate & investment banking at Bank of America, recently commented, “After having deleveraged their books, Indian corporates are likely to go slow on overseas dollar loans as current rates are expensive, although there is "huge pent-up demand" for buying into local firms' equity”. (see here)

In the FY23 net ECB flows into India were just US$1bn and in FY24 it was US$9.5bn. Though, in FY24, registrations for ECBs with RBI surged to the highest in four years.

More importantly, learning from the mistakes made in the pre-GFC euphoria, more than 70% of ECBs raised in FY24 were effectively hedged in terms of explicit hedging, rupee denominated loans or loans from foreign parents, limiting the impact of external shocks, according to an article called ‘State of the Economy’ in RBI’s May bulletin.

This prudence augurs very well for the Indian companies and markets, as it makes the growth sustainable, predictable, and profitable.

Winds of change

In the past 6 years, several significant events have occurred that would shape the new global order in the next decade or two. I would particularly like to mention the following ten events that in my view could potentially prove to be transformative for the global order:

1.    Incorporation of the Belt and Road Initiative (BRI) into the Constitution of the Chinese Communist Party. (2017)

2.    Abolition of time limits, allowing Xi Jinping to remain General Secretary of the Chinese Communist Party and chairman of the Central Military Commission for life. (2018) (After winning an overwhelming majority in the 2020 elections, Russian President Vladimir Putin is also eligible to stay in office until 2036.)

3.    The Exit of the UK from the common European market (the EU) (2017-2020); and the elevation of the first non-white person (Rishi Sunak) to the office of Prime Minister of the UK in 2022.

4.    The beginning of the latest round of trade war between the US and China. (2018)

5.    The tariff war between the EU and US. (2018)

6.    The outbreak of the COVID-19 pandemic, allegedly from a laboratory in Wuhan province of China, and consequent breakdown of global supply chains. (2020)

7.    Exit of the US forces from Afghanistan, handing over the regime to the Taliban (2021)

8.    Invasion of Ukraine by Russia and subsequent economic sanctions on Russia. (2022)

9.    Signing of a strategic partnership agreement between China and Saudi Arabia (2022)

10. Massive attack on Israeli civilians by Hamas and subsequent retaliation by Israeli defense forces killing thousands in Palestinian territory in the Gaza Strip. The attack divided the world with Western allies extending support to Israel and Russia, China, and Arab League nations uniting in support of Palestine. (2023)

I feel that each of the above-stated events, along with many other events occurring simultaneously, has added to the momentum of change in the global order that had been in existence since the early 1970s.

It may still be early days to project how the new world order would look like. Nonetheless, it seems reasonable to assume that the global economy may get a significant impetus from the rebalancing. The realignment of trade balances; localization of manufacturing; redistribution of population; and renewed focus on finding/developing new materials, technologies, and methods to promote sustainability may usher in a new industrial revolution.

Notwithstanding the labor pain that the transition would inevitably entail, the new world order would be much better, as has always been the case.

I think young investors need to evaluate the recent events and their likely impact on their investment strategies. I would be happy to share my thoughts on these events in the coming weeks.

In crisis – strong leadership is what would matter the most

The global financial crisis in 2008 and the unprecedented quantitative easing that followed it triggered a debate over sustainability of the USD as global reserve currency. The simultaneous fiscal crisis in peripheral Europe, especially in Greece, also created doubts over the sustainability of the European Union with a common currency. The debate subsided materially over the next one decade, as the US Federal Reserve (Fed) and Government initiated a corrective action to taper the monetary stimulus and balance the fiscal account. The situation in Europe also improved as the troubled economies of Greece, Italy, Portugal, Iceland, Spain etc. stabilized due to the combined efforts of the European central Bank (ECB), IMF and respective national governments. The European economy even endured the BREXIT rather calmly.

The onset of Pandemic in early 2020 however undid most of the corrective actions undertaken by the central banks, multilateral agencies and governments. The US Government and Fed unleashed a much larger stimulus, substantially expanding the Fed balance sheet and fiscal deficit; while many major economies, especially the emerging economies, managed the situation in a much more calibrated manner.

Notwithstanding the fiscal and monetary profligacy of the Fed and US government, the USD has endured its strength relative to most emerging market currencies. The broken supply chains across the world due to the pandemic led to severe shortages of everything leading to very high inflation worldwide. The suffering in most emerging economies due to inflation created a sentiment against US dominance on the global economy.

A strong US economic response to the Russian aggression in Ukraine since early 2022, including freezing USD assets of many Russian businesses, further exacerbated this sentiment. Russia and its allies like China and Iran; and major trade partners like India have shown interest in development of a non-USD trading mechanism. The traditional US allies like Saudi Arabia, Mexico, Brazil and even France have raised questions on continuing US dominance over global economic order, besides showing interest in non-USD trading mechanism.

Though the details of a non-USD global trade mechanism are still sketchy, the debate is intense. Maybe like many previous occasions, this debate would also subside as inflation peaks out; US Fed and government embark on a credible course correction; Russia withdraws its forces from Ukraine and a sense of normalcy returns to the Sino-US trade relations.

Or maybe over the course of next decade, we shall see the emergence of a neutral currency that may act as the medium of exchange for international trade not involving the US or its close allies, while the trade with the US continues to be done in using USD.

Or maybe we shall see multiple trade blocks using non-USD currencies to settle trades within their respective blocks; while using USD or some other acceptable currency for trades outside their block.

All these conjectures are presently predicated on the premise that the US as a global power is declining in terms of its technological edge; financial strength and geopolitical supremacy. There is evidence of economies like China and India gaining technological edge; and the US losing its geopolitical supremacy. In the past one decade, both India and China have shown remarkable progress in digitization of their economies and space program to back faster and superior digitization. The complete failure of the US led alliance in resolving Russia-Ukraine conflict; China bringing Saudi Arabia and Iran closer; and Afghan Taliban pursuing a foreign policy independent from the US and its ally Pakistan influence are some signs of declining US geopolitical supremacy. It however remains to be seen if this decline is structural or is just a reflection of poor confidence of the global community in the present US leadership.

I posses no competence to comment on sustainability of the USD as global reserve currency for long. Therefore, it would be preposterous on my part to speak about impact on the global economy, should USD lose its only “global currency” status. Nonetheless, I must say that this will be a major global event, no less than a world war. And in a war like situation strong leadership is what matters the most.

Goldilocks India

 In a recent research report, Goldman Sachs estimated that “energy bills will peak early next year at c.€500/month for a typical European family, implying a c.200% increase vs. 2021. For Europe as a whole, this implies a c.€2 tn surge in bills, or c.15% of GDP.” The bank believes that repercussions of this “will be even deeper than the 1970s oil crisis.” Obviously, a problem of the magnitude would require an impactful policy intervention that could have wider and deeper implications for decades to come.

The policy interventions could involve partial suspension of free market mechanism; rationing of energy consumption; fiscal subsidies; deferment of climate goals and increased use of coal and/or accelerated shift to renewable sources of energy etc. Besides, there could be serious geopolitical implications also.

In another interesting paper, McKinsey & Co, outlines how inflation may be flipping the global economic script. In the paper McKinsey’s experts have examined many of the strategic implications of inflation. The key points highlighted in the paper could be summarized as follows:

·         In the past six months, inflation has far exceeded December 2021 expectations. In many countries, actual rates have doubled projections. European countries are particularly affected. Asia is seeing a less severe change: Indian inflation is about 7 percent, only a bit above projections; and South Korea is at 5 percent. In China and Japan, inflation remains muted.

·         In response to inflation’s alarming rise, central banks worldwide are raising their core bank lending rates. So far, however, rate raises in most countries have not matched the pace of inflation. The rising rates are expected to ease demand and lower prices for two critical components of headline inflation: housing and commodities such as energy and metals.

·         The lift-off in fertilizer prices, supply chain snags, drought, along with other fallout from the war in Ukraine, has pushed prices for basic foods much higher. Since 2021, food prices have risen to their highest level since the United Nations’ Food & Agriculture Office began its index. Prices today are considerably higher than in past surges in 2008 and 2011.

·         As economies stabilized and reflated post Covid, real wages began to creep higher again. But rampant inflation checked that growth, rising so fast that it has diminished the purchasing power of people’s take-home pay. For example, workers in the United Kingdom today have seen their real compensation fall by roughly 8 percent year-on-year.

·         As prices soar, and show few signs of abating, the risk is that inflation becomes entrenched and central banks will have to raise rates more assertively to slow demand. The growth may slow down much more than previously estimated.

The global economy is therefore entering a prolonged phase of correction and realignment. For many these corrections may be extremely painful, while for some it could provide an opportunity to enhance their position in the global order. India, being one of the least impacted countries in this global turmoil, hopefully would fall in the latter group. Amen!

ASHA – A ray of hope

A recent media report highlighted remarkable reduction in the infant mortality rate (IMR) of India. India’s IMR improved from 47 in2010 to just 28 in 2022, bringing it closer to the global average of 27. (see here)

Much contrary to the popular perception, India achieved one of the best Covid vaccination rates in the world. As per the latest available data close to two billion doses of Covid vaccines have been administered, defying all the logistic challenges.

These are just two success stories from India’s public health sector. Recognizing these remarkable achievements, the World Health Organization (WHO) recently honored more than a million Asha Workers of India for their commendable public service, especially during the pandemic.

It is rather unfortunate that not much of the urban population is even aware of the existence of Asha (the frontline health workers). Many mistake Asha workers for Aanganwadi workers. Even though millions have “liked” the pictures of Asha workers administering Covid vaccines to people in remote places, sometimes walking for many kilometers, not many seem to have bothered to learn more about them.

ASHA stands for “Accredited Social Health Activists” – “community volunteers” engaged under the National Rural Health Mission (NRHM). The designated Asha worker is the first port of call for any health related demands of deprived sections of the rural population, especially women and children, who find it difficult to access health services. These workers create awareness on health and its social determinants; mobilize the community towards local health planning; promote good health practices; and provide a minimum package of curative care. (learn more)

‘Stories of Change”, a report published by the NITI Aayog, in collaboration with Center for Social Behaviour Change (Ashoka University), highlighted some of the brilliant stories of changes that are happening in the hinterlands, away from media headlines and social media gossips.

These are the real stories that reinforce faith in the bright future of India; much more than a startup with virtually no business model (or even any real revenue) raising a few million dollars at a billion dollar valuation to get “unicorn” status. These stories explain what a small but brilliant innovation could bring meaningful change to many lives.

In my numerous travels across the length and breadth of the country, I can certainly vouch that these true stories are not only inspirational, but also deeply insightful. These stories highlight an original Indian model of frugal innovation and entrepreneurship – the Gandhian model of Swaraj (self-reliance with dignity).

The following is a gist of three simple stories from hinterlands, reproduced from the cited report “Story of Change”, highlighting how small simple solutions can handle complex problems.

PARI – (A pilot program for Diarrhea management in Bihar

Pari (fairy), a plastic inflatable doll with two openings, one at the top and the other at the bottom, is used to educate villagers about diarrhea that kills many children every year. A frontline health worker (FLW) pours water into the top inlet to inflate the doll to show what a healthy baby looks like. Then she releases the water by opening the outlet at the bottom, which deflates the doll to demonstrate what diarrhea does to the body: causes dehydration. When the FLW plugs the second opening and pours ORS into the doll, the water does not leak out. She explains that in order to solve the problem, it needs to be ensured that the outlet at the bottom has been plugged. When the child is administered ORS and zinc supplements, it acts as a plug to the bottom outlet thereby retaining vital fluids that can be absorbed by the body.

Pari has been used in Bihar for over two years across eight districts. In 2018, the Government of Bihar committed funds to scale up Pari to all 38 districts of Bihar. Results showed that among women exposed to Pari, appropriate knowledge of diarrhea management was three times higher and the use of ORS and zinc was almost two times higher than women not exposed.

Mobile Kunji (Guide) – Aid for awareness on family planning, pregnancy and child care

Mobile Kunji is a multi-media job aid (Kunji means key or guide in Hindi) designed for use by FLWs when they counsel families. It has two components: a deck of colour-coded cards with illustrations and related key messages for each stage of pregnancy or post­ natal care, and an audio component accessed via mobile phone. Each card carries a unique, seven-digit number or mobile short code that the FLW dials from her mobile phone, playing a piece of pre-recorded audio content for the family she is visiting. The audio content is delivered in the voice of a fictional doctor character, Dr. Anita, who brings credibility along with her great and very localised bedside manner. Moblle Kunji helps standardise the FLWs' dellvery or the key messages, reducing inconsistency and significantly improving interpersonal communication.

Evidence shows that conversations between FLWs and families last twice as long when Mobile Kunji is used,and families trust FLWs who use Mobile Kunji more than those who do not.

Kilkari – Mobile health update for mother and the child

Kilkari (Hindi for  a baby's gurgle) delivers  weekly, time-sensitive audio information about reproductive, maternal, newborn and child health (RMNCH) directly to families’ mobile phones, from the fourth month of pregnancy until a child is a year old.It aims to improve families' knowledge and uptake of life-saving preventative health practices. Kilkari supplements the counselling visits that FLWs make, by providing a regular and more consistent source of timely, relevant information for families, reaching families that are otherwise left out, and addressing issues that FLWs hesitate to discuss. As of March 2019, Kilkari had reached almost 10 million users across 13 states in the country. Subscribers cited Kilkari as a private, comprehensive, credible source of information on family planning and the service contributed to building health equity by conveying information to women in marginalised communities, whom ASHAs may not visit.

 

Now or never

If we have to list the reasons for the loss of growth momentum in our economy in the past decade or so, the following three would be amongst the top reasons:

1.   Credit euphoria preceding the global financial crisis and the subsequent meltdown

The credit euphoria preceding the global financial crisis and the subsequent meltdown severely damaged India’s financial system. The banking system was crippled with enormous amount of bad assets; many key infrastructure projects were either abandoned or suffered inordinate delays; employment generation capabilities were impaired; private savings began to decline structurally; and overall investments also slowed down.

It has taken almost a decade for the Indian banking system to clean its books and return to the path of growth, stability and profitability. Private savings and investments though still have a lot to catch up.

2.   Disruption through policy changes without adequate mitigation strategy

At least two major policy decisions were taken in the past decade that disrupted the status quo materially, viz., demonetization of high denomination currency notes constituting over 80% of the currency in circulation; and implementation of nationwide Goods and Services Tax that subsumed a number of indirect taxes. These two changes had a significant impact on the unorganized segment of the economy. Numerous cottage, marginal and small enterprises that were outside the main industrial value chain of the economy lost out to their larger organized peers. It was almost a repeat of the 1991 liberalization that made many protected and patronized businesses unviable. Incidentally, no lessons were drawn from the painful transition during the 1990s.

The structure of the Indian economy has changed significantly since the early 1990s when the first round of transformative economic reforms was implemented. The share of agriculture & allied services has reduced from over 33% in 1990-91 to less than 17% now; whereas the share of industry has grown from 24% in 1990-91 to over 28% and the share of services has grown from 43% to 55%. However, unlike the economic transitions in the now developed economies, our planners have failed to ensure a proper transition of agriculture labor to the industry and services.

The public sector that was a major employment provider to urban labor started to downsize post economic crisis in 1998-99. The share of industry in the economy did not improve much in the past two decades. With technological advancement the employment elasticity of industrial growth also diminished materially. The task of employment generation for unskilled and semi-skilled labor was thus left mostly to the construction sector. As this sector suffered the most in the post GFC meltdown, it was for the unorganized cottage and marginal enterprises to support the lower middle class and poor households. The decision to implement demonetization and GST had no explicit provision to support this sector.

Consequently, the reliance of the poor and lower middle class on fiscal support (food, health, education, travel etc.) has increased materially impacting private consumption and overall growth.

3.   Disruptions due to the pandemic

The outbreak of global pandemic (Covid-19) in early 2020, disrupted the economic activity world over. Most of the countries were locked. The global supply chains were disrupted. The labor displacements and travel restrictions have been debilitating. The process of normalization is continuing, but it is far from complete.

Domestic economy witnessed huge displacement and reverse migration of labor; loss of livelihood for millions; loss of opportunity for millions as digital apartheid pushed them out from the education and skill building ecosystem; rise in wealth and income inequality; and lower productivity due to restrictions. Besides, the broken supply chains ensured higher inflation in almost everything.

Arguably, all these reasons are transient in nature and the economy should be able to revert to the path of stable growth in due course. However, the two key considerations here are – (i) How fast could we complete the transition to the new order; and (ii) how could we minimize the damage to the socio-economic structure of the country. The more we delay completing the transition, the deeper and wider the pain will spread. And if we fail to take mitigating steps to minimize the pain, the damage to the growth ecosystem could be structural, impeding the growth efforts for decades.

Also, this must be understood in the context of the fast maturing demographic profile (see Gorillas in the Room) and worsening inequalities (see Economy – Uneven recovery to pre-pandemic levels, accelerators missing).