This headline is not something many of us won’t agree to or not know in factual figures on various countries that were once seen as the most powerful nations in the world on sheer consumer power however we have seen over the last decade as to how fundamentals play an important role to ensure economies not only achieve scale but also thrive in the longer run.
Case in point is clearly US, a lot of fundamentals in their accounting practices itself were wrong, the norms to list, trade or for that matter even do business in the debt/equity or commodities market were so wrong that several companies had to wind up shop and put a once powerful 13 trillion dollar economy on its knees but with some quick reforms and their bullying ability to get their way through on various global needs like oil & gas along with futile aspirations of controlling the middle east; has got them to survive atleast in the short run, during which time economists are figuring out frantic solutions to ensure the economy stands back on it’s feet.
During all this if you realize there has been a slow but steady revolution of sorts happening in Asia, closer to home. If 1810s - 1820s everyone wanted to be near London to do business and in the 1900s - 1920s everyone was flocking New York to catche in on the opportunity the global super powers in the making were giving for not just individuals to build large organisations but also give enough and more opportunity for the common man to dream in those markets from where several of them made it big. If you were to have been in these cities during that time, the chances are you would have been one among the 9 out of the 10 who made it large. Such was the opportunity!!
The time is exactly the same for us to witness similar boom in Beijing, Shanghai, Guangzhou and the other cities of China. Look at this startling number:
- The Chinese economy opened only in the early 80s when it was a poor country but with promise like India.
- In the last 10yrs or so over 120M+ people in the country have gone from poor to middle class.
- In the next 10yrs, 80% of the Chinese population will be in the middle class.
The above is an unprecedented movement that is happening at historic proportions, which means that, here is going to be a birth of a consumer class that you could not have imagined, something that would be bigger than several European Countries put together if it has to be in numbers. Such is the power of China, which is why the investor sentiments are extremely high in that country. Every car maker, cola maker, CPG producer, digital investor is queuing in that country and it simply means that there is not only enough domestic consumption but the production costs are so low in manufacturing that even after keeping the values of product driven companies like Apple intact, whose 65% of products gets manufactured out of China; the country’s exports are unrealistic. Their fundamentals of economic story is exactly opposite to that of the world. They over produce thus by making the huge bulk orders for overseas requirement cost a penny when other countries would cost a pound for similar products to be manufactured in their country. This sometimes to me looks like a bubble but they have over the last two decades ensured that this is a winning formula because they dump the extra produce within the country at very little margins thus by making it affordable for a commoner in their market.
China, sitting on the world’s biggest foreign exchange reserves of about $US3.2 trillion ($2.98 trillion) as of the end of June, is the largest holder of US Treasuries. China has warned that tortured efforts to raise the US debt ceiling had failed to defuse Washington’s “debt bomb”, and that it would further diversify its currency holdings away from the greenback. US President Barack Obama finally signed an emergency austerity bill on Tuesday that averted what would have been a catastrophic debt default for the world’s biggest economy.
Let’s get closer to that of our own home - India. The last 2yrs have been tough but because we had our fundamentals right we did not have the kind of collapse situation in 2008 September when the world markets collapsed; however there began the slow down. Infact, I keep telling this where ever I go that there is always an opportunity in adversity and give my own example. I launched NetworkPlay in October of 2008 right after the world markets collapsed in September and today I am proud to say that I could really do the things I wanted when the chips were down. Proud that we became so attractive in 4yrs that we were bought out by the German Media Conglomerate, G+J, Publishing Division of Bertelsmann. That apart coming back to the situation we are in India; we managed to stay afloat after 2008 but we could not sustain the kind of growth envisaged in the beginning of 2000s when India was as hot if not more than China and investor community was very gung-ho about India’s prospects.
Then what went wrong that we are now struggling to grow at even 5.4% when we should have touched 11% by now?
Sometimes I feel the license raaj hasn’t gotten out of our babus at the centre. I mean the form is different but the way we deal with some business is still not the way progressive economies would work, not 100% there yet.
Let’s look at the flaws:
3) Political Will
5) Agri de-growth
Let’s look at each of the above points. Every single person over the last several months whom I have known has been talking about FDIs in aviation, retail and news broadcast media. Barring the last point every other aspect seemed like the government was not interested in giving the necessary growth platform that the country needed.
But imagine the investor sentiment here. The aviation business is a disaster in India. Why would you want a foreign entity to bear and cover all your losses to ensure that a particular airline remains afloat? I see no logic in this, for me it should be a no brainer for the government to open up the space for organisations and equity players to invest in companies or in the sector from ground zero than to support the enormous losses these organisations are into. 5years ago Indigo the latest entrant in the space launched it’s operations and today it is not only the most profitable operator in the country but also someone who has taken away the entire market share of the sector and is the number one player with over 27% market share in the sector with Jet having 23%. Now, if the investors in this company did not believe that there was an opportunity then why would they back this company in the first place however FDIs to be opened up for the sake of opening it to save dying companies in the sector means gloomy investor interests for a country that has over a billion people, whose educational foundation is rapidly changing with the changing reforms of the government and with a populations of youth below the age of 30 comprising of over 65% of the total population.
Now retail - what about it? It’s the same story there too, however my point of view on this category is different, I do believe that the consumer power of India is just next to China and in the next 10 years India will be the most powerful consumer growth story after China and organized retail plays a very important aspect of building this sector and therefore foreign investors, institutions etc should be given a warm welcome to change the dynamics of this space. I do not want to go into detailing of how they will be better but it is just the contrary to my point of view on the aviation sector.
Scams are a big issue in India and the magnitude at which these are happening are unbelievable to an extent that our favorite growth story, the telecom sector recently faced a situation that was unprecedented in nature. The way we auctioned in 2008 and the way the norms are being changed now after all the losses the exchequer had to face post the arrests of the masterminds in the scam, it was evident that the world will not look at India as a market for this sector at least in the near future. The biggest loss was to Uninor, the Norwegian telecom giant has lost over 3B USD till date with it’s operations in India and with such an unfriendly policy it is getting difficult at least for the sector to continue keeping it’s growth on investments, which is why Indian cash rich companies are not only spreading their wings abroad like Airtel did by foraying into Africa but we also have the Reliance Industry’s services being rolled out shortly in the Wi-Max and 4G ready spectrums.
Political will is a big issue in this country. Whenever I travel outside of New Delhi, I don’t feel like a Citizen of India simply because I wonder where my taxes are being utilized? Atleast in Delhi, though people are tired on a whole host of issues I get to see infrastructural changes that happen at a fast clip, Delhi Metro, Road Development by PWD etc are enough for us to know that there is some amount of development that is happening in the country. But land into Mumbai and my goodness I cannot handle it.
Due to political will there is a direct impact on infrastructure and therefore investments in them, apart from the Golden Quadrangle I don’t know of any ambitious project where India has actually executed a large scale connectivity through road programmes in the last decade, ohh ya may be the Pune Bombay Highway, however what I don’t understand is that connectivity is such a boom for the growth of the economy and when all of India will be connected through roads and proper transportation the amount of business that could take place through trading in itself will be a huge boost to the local and the hyper local economy and for that one has to have a strong infrastructure. If policies are right then there will be huge influx of investments into this sector of infrastructure. Imagine there has not been a single fund apart from the Tiger Fund launched 5 years ago in the infra story.
India has always been an agricultural land and even there recently China over took us in rice production on per hectare per farmer basis however we have had de-growth in what essentially is the life line for our farmers and off course it is a huge contributor to the overall economy. Blaming it on climate changes and monsoons have become the favorite reasons for de-growth in this sector for the government but what about the agriculture minister not taking ownership of quintals of rice, paddy and other produce going to the dumps due to lack of storage capability by the government of India? Half the time Sharad Pawar is managing the affairs of the ICC and is never available for the betterment of his own portfolio, which is a 16% contributor to the entire GDP growth story of 5.4%. How can someone just blame it on monsoon when we could have optimized our produce from the previous year through various other means to atleast not let the money invested in government storage go to waste?
So while the west is going down, investors running to the hills or investing in gold as safe assets for securing their money, it is not a great picture for us in India if we do not bring in reforms for a progressive economy at the earliest. I strongly believe that India even when the global melt down is happening through various crisis including the Euro Zone has all the capability to grow at atleast 8%, but certain aspects of our country’s execution capabilities at the government level is pulling us down.
So while investors are still gung-ho about tech and digital space on investments the massive infra, manufacturing, coal and mining investments have slowed down and those won’t pick up until such time the 5 points are worked upon by the government to improve the growth story of India else we will remain a tortoise before the hare, which is China.
April 22, 2013, 5:55 am UTC
April 4, 2013, 5:21 am UTC
March 29, 2013, 4:57 am UTC
March 15, 2013, 7:02 am UTC