India Shining? - Part II

There is a concept of perpetual bonds issued by Brazilian Banks. A perpetual bond never matures – you get interest on it whole life but you never get back the principal. Many finance wizards might be perplexed as to why such bonds sell, given the fact that interest rates are poised to dip lower in future. Brazilian banker's feel that it sells because banks have marketed these bonds on the basis of a theory that says Brazilian economy is poised for a makeover. This information is courtesy of my friend A, who visited Brazil recently and met some leading bankers there. He claims that this marketing of perpetual bonds is similar to 'India Shining' campaign unleashed by the previous BJP government. But while perpetual bonds are a success story in Brazil, the 'India Shining' campaign failed to get BJP back into power in India. Why?

Here I draw from my previous post – the elite Indian finds infrastructure lacking and hence his faith in ‘India Shining’ is misty (he would rather migrate to the US than believe in India Shining). The poor Indian on the other hand has already lost faith on government who has cared only for building advanced components (higher education etc) of infrastructure which are of no use to him. Hence, he feels that even if true, ‘India Shining’ will never positively affect them but will only benefit the elite. Resultantly, the ‘India Shining’ model fails.

On the other hand, the elite Brazilian is satisfied with public infrastructure, so when a bank tells him ‘Brazil Shining’ – he buys that story and invests in the perpetual bond. While this is true for the middle class, probably it is as true for the poor class also. The poor class has no money to invest, but it invests its faith in a government which creates policies that bring instruments like the perpetual bond into the market.

In a democracy like India, it is important that the government cares equally for the monetary investment provided by the elite and the political investment provided by the poor. The only thing poor and elite share is infrastructure. Any investment in infrastructure will sell in both sections – elite and poor – as both of them are affected equally by infrastructure development. The only way an ‘India Shining’ can be demonstrated to the poor is by building up of other components of infrastructure like roads to villages, water facilities to the remotest of areas, health services, primary education and communication.

So, whether the government wants to restrict ‘brain drain’ (though this term is out of fashion nowadays, but it is still a bitter truth), or wants to succeed in implementing ‘progressive’ policies, it must invest in basic infrastructure. Even vote politics would lead to the same conclusion.