Betting On India

I have spent the majority of my life outside the USA. My view of the world is very different than most all people both in and outside the USA. One thing I have learned — that the perceptions or conclusions of a non-native writing on a country are almost certainly wrong. 

The facts discussed by non-natives will be correct, but when these dots are connected there are important dots not connected. I believe the USA (in fact all countries') intelligence agencies suffer from this defect. Therefore mostly what is concluded about another country is distorted. 

Still, I want to write on India which seems to exist to investors as being in the shadows of China. I am talking up India — not talking down China.  In fact, I think the pundits have underestimated China in the medium and long terms. Nothing will outperform a command economy even with misdirected spending or large debt — especially one which is well organized and is dedicated to continuous improvement.  When you spend a lot of money, you waste a lot of money (no guts, no glory). 

Based on GDP tossed around, India is growing more slowly than China but much faster than the USA.

But the equity markets in India (red line in chart below) have outperformed both China and the USA

Here is the link to the above chart which is  interactive — and you can play with different timeframes to show the varying improvements.

According to the World Bank, here is the household final consumption expenditure expressed as a percent of GDP, followed by the definition of household final consumption:

 

  1995 to 1999 2010 to 2014
China  35%  34%
India  56%  60%
USA  68%  68%

 

Household final consumption expenditure (formerly private consumption) is the market value of all goods and services, including durable products (such as cars, washing machines, and home computers), purchased by households. It excludes purchases of dwellings but includes imputed rent for owner-occupied dwellings. It also includes payments and fees to governments to obtain permits and licenses.

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Comments

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Jay J. Nair 4 years ago Member's comment

I don't fully agree with Mr. Kulkarni's assessment of Mr. Rajan. lot of people looking at India from an investment perspective seem to think he has been overly aggressive. In my opinion they are all looking at it on a short term basis. The Indian infrastructure is woefully inadequate as you have pointed out that any increase in demand cannot be matched with supply in a short period of time. This means that reducing rates that causes an increase in demand will almost certainly increase inflation. With the currency already sitting at historic lows vis-a-vis the dollar and the foreign reserves still not at a very high level, any regulator worth his salt would pause twice before adding another cylinder to the economy. Mr. Rajan has been repeatedly saying that the government needs to give him confidence that they are eliminating the bottlenecks before he reduces rates. It is not for a lack of trying.

Global Economic Intersection 4 years ago Contributor's comment
I am a foreigner who lives in India about 6 months a year. there is a theory that a ship runs smoother if all rowers are rowing in the same direction - even if it is wrong. At this point Rajan is the rower trying to move the ship in the opposite direction. It is significantly easier to slow an economy down than speed it up - in fact, i see no evidence from anywhere in the world that monetary policy can be used to accelerate an economy. Rajan's policies are a brake on the indian economy.