Sunny Indians and dangers of optimism

Forget all those theories about the passive, fatalist Indian, long peddled by commentators, both home-grown and foreign. If recent survey data are to be believed, Indians are among the most optimistic people on earth, and this is true of consumers, investors, business managers. . . the whole spectrum.

To establish the case, Exhibit No. 1 is the Business Confidence Survey, done every quarter by the Confederation of Indian Industry.

The issue is not how the index of confidence has fluctuated between good times and bad, but the fact that the two components of the index point to two different things. The Present Situation Index, for instance, yields a consistently lower score than the Expectations Index.

This was true in the go-go years of 2006 and 2007, it remained true through the crisis of 2008, and it is truer than ever in 2009, as confidence about the future has soared, although the score for the immediate business situation has dipped even further to dangerous lows.

A sustained gap between expectations and reality can only mean that chief executives take a sunnier view of the future than is warranted by the facts; in other words, they are incurable optimists.

It's not just CEOs. Exhibit No. 2 is a survey of investors done in the first quarter of 2009, ie before the stock market took off.

The ING Investor Dashboard Index found, early this year, that Indian investor sentiment had improved by an astonishing 75 per cent, compared to the last quarter of 2008, and further that Indian investors reflected the highest level of optimism across Asia.

It might seem that the subsequent stock market surge has been fuelled more by international than domestic money, but that would only be another indicator of the divergence between belief in the future and actual behaviour in the marketplace.

Exhibit No. 3 dates back to the second half of 2007, when people across the world were optimistic about the future.

But on a relative scale, a global survey done by the Swedish research and consulting firm Kairos Future, showed that young, middle-class Indians were the world's happiest lot, and the most satisfied with their lives.

"This satisfaction is also reflected in optimism about tomorrow," according to the survey.

Finally, Exhibit No. 4 is the recent survey done by Manpower, which reported that India has once again emerged as the most optimistic nation (among 34 surveyed) when it comes to hiring intentions.

It seems extraordinary that, through good times and bad, Indians in different walks of life seem to have a sunny outlook on the future.

It could be that the last few years have seen most people do much better than before, in terms of salary increases, growth in wealth and also in terms of new opportunities thrown up that even a sharp downturn is not going to dampen the enthusiasm. The assumption that most people seem to have made is that the good times of the past will come back because that is what is normal, and that current difficulties are a brief period of abnormality.

All this is a welcome change from the defeatist fatalism of the past (reflected in, among other things, the theory of a Hindu rate of growth). But undue optimism can be equally damaging, in that the hard work that remains to be done for matching China's performance does not get done, the reform decisions that are required for improving productivity and growth rates do not get taken, and we end up shortchanging ourselves and under-performing in relation to true potential.

We've been opium-eaters before, and should not become that again.