Betting On India

Yes India and China are very different — India's economy is bottoms up domestic consumption based while China has been command driven and an export led one. Consumption drives the Indian economy. GDP figures can be misleading when comparing China and India.  As an example, in 2010 GDP growth was 10.3% for China and 8.6% for India.  However, the two countries have different processes for calculating GDP.  The IMF has attempted to put both countries on an identical standard and they have reported that when India's GDP is calculated by the China formula, the 8.6% goes away and is replaced by 10.4%.

India suffers from a relatively poor infrastructure - especially the ability to move freight.  I could list the infrastructure defects but I really see no portion which is up to par with Western standards (although I would give a good try award to India Rail for its ability to move a lot of people in a timely and reliable manner with antiquated equipment).  Even the internet sucks (sucks is a technical word meaning "not good").  For the most part, growth is not well thought out or controlled.  Population growth (which is too slowly getting under control) is straining the ability of the government to get ahead with infrastructure development.

Yet there are portions of growth (say Gurgaon) which rivals the best growth in the world. India has the capability of very good controlled growth - but the question is what will this road look like and how long will it take. Two major developments have occurred recently that should have a major positive impact to the Indian economy:

  1. The election of Narendra Modi as Prime Minister in May 2014 has been what many believe a water shed election sweeping in a majority government for the first time since 1984. Narrow cast and religion voting patterns were set aside and the electorate opted to vote for promise of clean and effective governance.  Modi is known for achieving results in his past elected positions - but not known as a great master planner.
  2. The appointment of Indian-American economist Arvind Panagariya to the key post in economic planning for India.  Panagariya is a heavyweight on the stage of international economists.
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Jay J. Nair 5 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 5 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.