My column in today’s DNA
High in the Swiss Alps is the little city ofDavos. The highest city inEuropeit is a cold, snowed in place that was known best for its great ski holidays. It has around 12,000 inhabitants, most of whom learn to ski almost as soon as they learn to walk. The native language of most of the people here is German, though some speak Italian as well. The city – by Indian standards it would be a slightly large village – has been playing host to the World Economic Forum. Every year leaders from politics, business, industry, and other walks of life descend in Davos to talk, network, resolve issues and declare intentions for the coming year.
This year’s World Economic Forum took place under the shadow of the Eurozone Crisis and the recessionary trend in western economies. With most western countries facing declining growth rates, high rates of unemployment, growing deficits, high levels of debt, and mounting interest repayments – the tone of the conference was not the usual ‘capitalism is the cure for all national ills’. Instead, the focus of the WEF was key words that were, till recently, the purview of the World Social Forum (WSF) – inclusive growth, sustainability, energy security, food security, combating inequality, collaboration between public and private, and, horror of horrors, state directed capitalism.
With the western economies in decline, capital needs to look for new markets that give it greater and greater return. And, amongst the key markets that they are eyeing isIndia. Despite the negativity that we have been seeing inIndiaover the last year or so, Western companies and investors are definitely upbeat. What compels them towardsIndia? The starting point is the GDP. 7% growth is not 9% growth, but it isn’t 2% growth either. Companies in Europe and theUSAare looking at internal markets that are growing exceedingly slowly, at between 1% and 3%. In comparison 7% growth is phenomenal.. While there were those who expressed concern over the fiscal deficit – especially in light of welfare schemes adopted by the government – such as NREGA, the Right to Education or the Right to Food, others saw it as part of the ‘inclusiveness’ that formed the back bone of this year’s conference . They saw it as investment in future consumers.
Key phrases that were used to describeIndiaduring the WEF were “Indiais the future”. Not surprising given the Demographic Dividend.Indiais a young country. 70% ofIndiais under the age of 35. The median age ofIndiais 26. In contrast bothChina(35.5) andRussia(38.7 years) are comparatively older countries. Also, given thatIndiahas fewer cities, fewer hospitals, fewer universities, fewer roads – these are seen as business opportunities for those who wish to build. Education and training are seen as another major investment area.
The second phrase used to describeIndiais “intellect”. It is seen as a country with highly skilled management, very creative people and individuals who are able to adapt to changing circumstances very rapidly. This is especially important when companies talk about setting up and expanding research laboratories inIndiaemploying Indian scientists. Or when companies talk about designing for the world, out ofIndia. It means thatIndiaas an economy is considered not just for back end work that reduces costs , but for high end work that creates value.
Other repeated phrases were vibrant, democratic and dynamic. Not one person said Elephants or culture or ancient civilisation. Most sawIndiaas a modern, dynamic, diverse Democracy that offered a potentially large market.
The one concern area was not so much corruption or infrastructure or even policy paralysis, it was the lack of clearly understandable, consistent, administrative procedures. It was the time taken to start a business, manoeuvring through all the red tape. The problem arose out of the fact that procedures seemed to exist in black box of their own, with no one knowing the entire picture. . The fact that most procedures were not consistent and relied on discretionary powers was a major issue that made it difficult for Western companies that are exceedingly process oriented to do business inIndia. They believe that simplified, transparent procedures will give growth inIndiaa fillip that will take it to the next level of development.
Indians in Davos were far more critical of the Indian Government than foreign companies and leaders. Possibly because we live here and see the mess, and they live there and have seen own Governments leading them to the brink of bankruptcy. Those investing inIndiaare doing so because of the market potential, the indomitable Indian spirit, the spirit of enterprise that is second nature to us, our natural optimism and hope. The future forIndia, in a cold Davos, looked just a bit brighter.
When you are done drinking your own cool aid, write a 400 word essay on why this write-up is silly.
SO Agree with nilu…..
This policy will only make India the asian greece in the coming decade…
Fisc deficit UP trade deficit UP Govt borrowings Quadrupled Debt to gdp UP
GDP growth rate Down, Investment rate Down, PSU Mkt cap Down….Country ratings Down…
Inflation and Inflation expectations UP UP and Away, so well entrenched that it feels like we are back in Indias lost decades under nehru/mahalnobis and indira…. the government is hiding it , by making psus suffer losses and bear the cost increase in coal, coke, metals, fuel oil etc.. it is infact so tired of hearing bad news week after week that it has , abandoned the idea of weekly releases of the whole WPI on the grounds that the data tended to be inaccurate. Most govt data is inaccurate
This is a recipe for disaster
They get their money here because their economy’s are a mess, of the arbitrage . and because the unending money is flowing from the printing presses or liquidity tap of the eu and us, currency or its like, printed out of thin air be it the efsf or qe ….the money is hot .. not because of the indomitable Indian spirit, and we are getting less than what south east Asia is getting, remember it dont take them time to reverse flows if recent history is a guide. Just a hint of improvement of us or eu economies and see…
MMS has become a 10% fiscal deficit man. First as fm in19 he supposedly got us out of a payments crises when fiscal deficit went above that mark and india had to sell gold … now he is pushing india to an overall fisc deficit of 10.5%… I dont know if he was give more credit than he deserved because of my lingering doubts that he was remote controlled by narasimha rao.
It wont take time for the demographic dividend to become a nitemare, because all said and done money is pouring into vote bank schemes rather than to seriously shore up education quality and invest in infrastructure, power and chiefly agriculture which still hovers at 70% employer of the nation. India should not investment in future consumers who depend on handouts, as number of uneducated and unemployables would increase with such a policy. It needs to desperately invest in productivity, employment generation, agriculture , power and skill sets…
The loss of psu wealth is staggering and shocking.considering the fall in share prices of most of the better managed ones by 35 to 70% . sbi had halved , psu banks languish, ongc coal india etc have seen a massive fall in their stock value and market cap.and govt is finding more ways to steal and cheat from the taxpayer and shareholder…
Small investors have lost 45 to 60% in psu ipos … no wonder no one will buy any psu shares at govt rates and the govt has met a 1000 odd crores of its 40000 crore target through ptc finance.. …which it disinvested at 28 and is traded at 14.7 a loss of 47.5% ONGC FPO postponed 8? times.. same with BHEL…
The way investors have been treated , they are switching to gold .Rs 2,150,000,000,000: that’s our gold import bill this year….and it returned 30% compared to a mf which returned avg negative 15 to 50%.. which is a very unhealthy sign ,and means that people have lost confidence in govts ability to hold currency value and in investing directly in the nations progress as they see the purchasing power of the rupee half in the last 6? years… Even the 1 rs coins minted on the 50 paisa die these days …
Sadly the aam investor is not given the choice to invest in indonasia or singapore or thailand because he has no clout like the politicians and big business who use the Mauritius or Dubai or Singapore swiss bank route … they have performed way better than india..
The ipo mkts are dead and the stock markets are comatose like govt policy if volumes are an indicator…
As of now psu state sebs are bankrupt, the govt is slowly ruining psus like ongc and coal india etc And all the protectionist policy of the govt is bolony.. it is selling out the country and its psus.. what with policy such as devaluing air india by praful patel , the recent one allowing India’s airlines to import jet fuel directly.. which will shave off profits from the psu oil cos .hp, bp etc.. and similar schemes …that will to increase not decrease in quantum as elections near
If u havent realized there was a massive outflow of money which , with rbi and govt officials statements aiding the fall of Rupee to 53…by calling it overvaled at various forums
It was a reluctant govt that liberalized nri fund inflows thanks to very lucrative returns on nri deposits enabling interest rate arbitrage that brought in the flows… If u borrow at 0. something % in the west and invest in nri deposits ur doing a lazy arbitrage and earning good money , this is intervention…
Maybe this is the last time i comment… as i find that im a bigger idiot writing all this….
@nilu – thank you for your comments, as always…
@prax – i wasn’t talking to hot money investor. but investors in manufacturing, infrastructure and services. Companies who are setting up base. They are doing so despite the current GoI – because they see the market potential. ALl one hears about are the negatives — as a smaill business we find economic policies oppressive. Interest rates are too high. there is no focus on SME’s, bureaucratic procedures too many – I have to file 4 sets of taxes for my company. External investors find the same. But, despite all this they are coming to INdia. No one said that it is a cake walk …but it isn’t doom and gloom either
Godess Saraswati, please give the ignorant the strength to admit to it and shut the fuck up.
Also, if one were to go by the grounds cited here for India’s development in the future, the Dear Leader’s contribution in North Korea must be hailed.
are u having an argument on economics with me ? Just asking
and maybe Godess Saraswati will give the ignorant sense, when she gives the boorish manners…
Guess i am luckier than you …
you want a boring world, where everyone agrees with your view…i prefer mine…thankyou
Umm, I don’t have a view on this. I am merely saying yours is demonstrably wrong.
I also think people who lack epistemic integrity lose all rights of invoking Kalaivani.
The problem with taking the easy way out and buying votes is that in general terms it increases peoples expectations and the politicians have to come up with a grander scheme to buy votes.
This leads to an economic mess and the fm puts pressure on the taxman for taxes. Net result is that the small man is generally the target because most industrialists live with at least 2 tax cases all their life .. and it shows in the unrealised taxes due to pending litigation .The sad bit for us is that we are natural targets, because middle class is a big soft target. except if we are politically connected. not just that such governance borders on despotic acts and one must expect more regulation and more discretion for babus if history bears witness.
Only people with large pockets and a vision that is two decades in future do long term investments , yes that money will come in but it will be minor in statistical terms in comparison to the hot money.In any case indians dont benefit cause most of these cos delist and take all profits away to their home country and create a long term drain.Look at the disney utv deal
More money has come in as people with stashed wealth have dismantled a portion of their caymens and swiss portfolio because of the liquidity squeeze and the focus on ill gotten gains and it shows up in the export figures , and mostly the politician and babu is complicit in this scam as the conclusion on the kotak reports suggested
When u get down to the basics .. when a local investor looses faith what will a foreigner to do?
there are two very different things here – one is the investment in the capital market, where confidence is low. the other is investment in manufacturing and services – where it is a long term game… IMHO they are willing to play the game, not because we are great, but they are in doldrums….Europe is really dismal. They aren’t sure of China’s internal market. and, the one thing i kept hearing was that all your issues are out in the open, there are no hidden surprises…
Now it completely depends on the GoI and how they create stickiness vis-a-vis investment. And i really hope they get their act together in the next year. I appreciate the need for fiscal prudence, but welfare has always cost any government. If you aspire to greatness, your people atleast need to eat one square meal a day. the problem is not with welfare, it is with delivery of welfare. the leakages have to be plugged. I will give you post war Europe and the US as case studies of welfare + manufacturing + service – inflationary. but some types of inflation are good. I will give you the example of Europe in the 70’s where inflation was bad …because it came thro’ price rise, not productivity rise. India right now is more in the post WW2 stage of economy in terms of things that need to be ‘constructed’… no one said it is going to be easy. but, everyone wants a stake of the pie.
The real question is why the capitalist pigs ignore the dear leader even in death.
Does investment in markets not lead to investment in infra and services
if i invest in bhel or lnt which need funds to build bridges because the govt pays them awefully late then what the heck am i doing? If i invest in infosys im investing in service sector . Ur talk baffles me.. They are not distinct or separate …they are interfungible .. u have a small business so ur perspective is small…
The european model has failed , just like the soviet model … Social state eventually fails…
The problem here is if we fail or flop in our great leap forward …. and that is the way we are going , we can see a repeat of what happened in the mao era in china , we will have to deal with massive starvation .. The same thing that is happening in N korea with the dear fat leader!
India is facing stagflation … same wages more expenses… and a social state gets bankrupt if it subsidizes the lives of the majority ….greece is the best example….
As it is farm wage has tripled or quadrupled , while the farmer is unable to sell direct or get a productive return or even his investment back , it gets cheaper not to cultivate anything and take a crop holiday….