One of the interesting effects of the global downturn has been to reshuffle the hierarchy of which nations are considered economic geniuses and which are considered dunces.
India, for instance, is now deemed to be a member of the honor society. Its economy expanded 6.7% in 2009 and is expected to grow 7.5% this year. The country’s government has won top marks for its strong, confident management of the recent crisis.
So what are the keys to India’s success? Oddly enough, the country’s biggest successes seem to be what people used to perceive as its largest failures.
Consider its heavily regulated economy, for instance. No doubt all those layers of red tape have slowed down innovation, but they have also prevented Indian banks from playing with the fancy financial instruments that blew a hole in so many North American and European banks.
In another strange twist, India has benefited during the recent crisis because its exports have never been hugely successful. The country’s reliance on domestic demand has proven to be a plus when international demand is shrinking.
Finally, the country’s regulators have been shown to be right in pursuing policies that once drew the scorn of North American economists.
For instance, the Indian government was willing in recent years to increase lending standards for banks to combat runaway stock prices and property values. That was considered silly at the time. Now it looks rather smart.
Freelance business journalist Ian McGugan blogs for the Financial Post.