As economic tide turns, India troubles stand exposed; Unwanted milestones for Pakistan, India & Bangladesh; Asia's recent past catches up with it

1 As economic tide turns, India troubles stand exposed (Keith Bradsher in The New York Times) India had seemed tantalizingly close to embarking on the same dash for economic growth that has lifted hundreds of millions of people out of poverty in China and across East Asia. Its economy now stands in disarray, with the prospect of worse to come in the next few months.

The economic decline has laid bare chronic problems, little remarked upon during the recent boom. An antiquated infrastructure, a sclerotic job market, exorbitant real estate costs and bloated state-owned enterprises never allowed manufacturing, especially manufacturing for export, to grow strong. The rupee fell further and faster in August against the dollar than any of the world’s 77 other internationally traded currencies as investors in affluent countries took their money home for higher returns. 

The root of the problem is India’s failure to create a vibrant industrial base with the strength to export. Infrastructure is also a problem. Poor infrastructure has also driven up costs for industrial real estate in India, which are high compared with China’s. Just in the last five years, China has opened 5,800 miles of high-speed rail routes and 400,000 miles of highways of two or more lanes. India has been unable to open up its interior the same way, building half as many miles of highways over the same period and no high-speed rail routes. 

2 Unwanted milestones for Pakistan, India & Bangladesh (Sakib Sherani in Dawn) Over the past few months, Pakistan’s economy has crossed three unhappy milestones of sorts: The rupee finally crossed the 100 to a dollar mark, Bangladesh’s exports overtook Pakistan’s ($26.6bn versus $24.5bn), and debt servicing has become the biggest budget item, overtaking defence and development spending.

As Pakistan has discovered, and India is discovering to its economic peril, when nations ignore fundamental structural reforms for too long, they become accident-prone. After years of speculation, and trepidation, regarding when the Pakistan rupee will hit a century against the US dollar, the event itself was quite anticlimactic.

It has taken the Pakistani rupee 66 years to get here. But, the rupee has really been on a slippery slope since the 1990s. From an exchange rate of Rs21.85 to a US dollar on July 1, 1990, the rupee has lost nearly 80pc of its value. In comparison, the Indian rupee has lost roughly 60pc of its value, and the Bangladeshi taka approximately 51pc over the same period. As the battering of India’s currency demonstrates, there is no escape from pursuing a course of serious, credible and meaningful institutional as well as structural reforms.

3 Asia’s recent past catches up with it (Frederic Neumann in The Wall Street Journal) As investors cast around for someone to blame for recent market turmoil in Asia, it's easy to point the finger at the US Federal Reserve. There's just one problem with this conventional wisdom: The current turmoil in emerging markets, above all Asia, has mostly local roots.

It's true that easy money provided a cushy ride since 2009. With rising interest rates in the US, those days are now over. Still, the scale of the current sell-off, such as in India and Indonesia, suggests that something more profound is going on. After years of policy neglect, emerging Asia no longer offers the returns in growth and profits that investors seek. Only far-reaching reforms can pull the region out of its malaise.

A bigger issue, and the one that explains the scale of the latest financial market rout, is that too little of borrowed capital went into efficient investment. Cheap money, of course, is always seductive, inflating asset prices and fuelling speculation. But in Asia other factors skewed the allocation of capital as well. Take India. Despite its celebrated and aggressive private industrial conglomerates, the banking system, the nerve centre of any capitalist economy, remains mostly in public hands. Beyond this, restrictions, whether legal or judicial, curtailed investment.

What Asia now requires is obvious. To restore productivity growth and re-attract much-needed foreign capital, far-reaching reforms are needed. Pruning the pervasive reach of public enterprises would be one important step, along with less restrictive regulation for private firms. Outside of China, more funds need to be directed at public works instead of costly subsidies.

This is not a call for unbridled laissez-fair. Especially in emerging markets, the state retains a powerful and important role in steering progress. However, the efficiency of state intervention matters. This will need to be addressed if Asia is to attain its goal of sustained prosperity. Blaming the Fed's taper talk for the current turmoil only diverts from the true cause of the region's travails. Officials instead need to tackle what are mostly local challenges.