Betting On India

I have asked my friend, businessman and colleague Sanjeev Kulkarni for his views:

Modi administration's performance since May 2014 has been mixed one. Politically reigning in what is called the "Saffron Family" has been tough who have at times worked at odds with Modi administration. Economically the country has stabilized. Inflation is down and India's manufacturing PMI rose to 54.5 in December, 2014, while in the corresponding period a year ago it stood at 50.7, just above the crucial 50 mark which separates growth from contraction. Many in industry blame the super Hawkish Raghuram Rajan for throttling industrial growth.  Modi has put together a heavy weight team which believes free market economy tempered by social spending to create inclusive growth for the third of the world's most extremely poor who live in India.

From May 2014 when Modi got elected , the Super Hawk Raghuram Rajan has been running circles round Modi's administration by keeping tight leash on money.  Many believe that the Central Bank single handedly has almost frozen industry by crying wolf on inflation, completely ignoring the generally deflationary trend worldwide.  In an ironic twist he has been now circled by the heavyweight Pangariya and his crack team who we believe have better handle on what needs to be done for the Indian Economy. Hopefully we should see the Indian Economy being unfrozen.

Here is our crystal ball for what might happen in the next financial year from April 2015 to March 2016?

  • Reform in Indian banking sector
  • Government will not find larger fiscal deficit to quicken the infrastructure spending
  • A Hawkish Central Bank led by Raghuram Rajan will have to "bow" to equally heavy weights led by Panariya who are not hawkish
  • Taxation Reforms which will be friendly to both domestic and international business
  • Manufacturing sector should get a boost

Downside scenarios are sabotaging Modi's administration good work by The Saffron (Hindu zealots) and the continuous tension on Indo-Pakistan border. We do not make much about the Indo-China rivalry and have on the contrary argued that both will work together.

My view is that both India and China should be good bets for investors - JUST NOT NOW. The dollar strengthening cycle scares the bejeebers out of me for any non-dollar based investment. This current situation of currency wars (where the dollar is rising almost uncontrollably), falling oil prices, and slowing global economies will reap havoc in capex and bonds - and start restraining profits of global business.

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Comments

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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.