I mean, I hear a lot of talk about maybe India is the next China.
And in terms of investment here, the next great opportunity.
Wow. What's your reaction to that thought?
Well, David, I guess this is a legacy of the fact that I've covered India now for
nearly three decades. And my consistent observation about
India has been that this is a country that has consistently disappointed the
optimists and the pessimists. So this is not the first time that I
believe in India being the next China. India will be India, which is that it's
a complicated story. There are many nuances out here, and
that will possibly never be a next China just because what China achieved over
its four decade long economic expansion, where it grew over a piece of nearly 10
percent, I think is something which we have never seen in history and we're
unlikely to see ever again because an extraordinary set of circumstances and
leaders brought China to the position it is.
And as you know, that China has been reversing many of its policies over the
last few years, such as India is concerned.
I think that it offers many great prospects.
But to project China on it is a story I've seen in the past.
And unfortunately, I feel that people who think that are likely to be a bit
disappointed. Russia, as you so wisely suggests, you
really can't compare any two countries at the same time.
Is there one parallel part of the reason for the amazing economic progress of
China is they started from a very low base and you actually caused me to go
back and look at per capita GDP for India.
And it's something like twenty five hundred dollars a year as opposed to
China, which is like five times that much.
Does that offer actually help? Because there's a lot of headroom there.
You can grow an awful lot. Yes.
So I think that India, in terms of because of its low base, will remain one
of the fastest growing economies in the world.
It's been so over the last three or four decades just that its success has been
overshadowed by what China has been able to achieve.
But if you look at India's growth, it is consistently growing at a piece of about
two and a half to three percentage points fostered in the global economy.
That's been the link. China's growth rate during the similar
income levels was far greater than the average of the global economy.
India's average has been about two and a half to three percentage points
positive. The global economy, it's consistently
been bad. And there's nothing to suggest that
that's about a change. So if you expect the global economy to
grow in about two and a half percent, which is what I expect it to for the
foreseeable future, then I think that India's growth rate is likely to be
five, five and a half percent or so. Anything more than that to expect out of
India is far too ambitious and something we have never seen in its boldest reform
in history, which began in 1991. Sure.
Could the role the government actually modify that?
Because it's long been perceived that in India the government has had a very
active role. Can I put it that way in the economy and
it's not really backed off. Is there a potential for the Modi
government really to back off a little bit and let it go?
I mean, we wrote a fascinating piece in the Financial Times last summer,
actually on the seventh anniversary, saying the problem in India is it got
the political freedom before it got to economic freedom.
Are we moving toward economic freedom? But even there I think the as is the
case with most things in India, the story is a bit more and wants to at one
level, the Modi government has been doing the right things, which is cutting
taxes following a pretty responsible fiscal
and monetary policy makes. And it desisted from doing too much
stimulus. The problem is that we still haven't
seen private investment or manufacturing really pick up in a meaningful way.
As you know, the key to success of China and other East Asian countries was
you've got a manufacturing boom. And really exporting your way to
prosperity is the only path to achieving very rapid income.
The issue in India and I think that this goes back even to the current
government, is that the government is far too involved in people's lives.
And one of the issues with the Modi government, I think, is that the
regulatory overreach remains a lot, which is that a lot of businesspeople in
India remain in this fear that whether it's the DAX authorities, whether it's
the investigation people, that somebody is going to always
come knocking on your door. And often it is for vindictive reasons
or extortion reasons that I'm sure it's still very pervasive in India.
And in fact, it may have even been aggravated in the last few years that
this perception was created, that a lot of Indian businesses are crooks and they
need to be reined in. And some of it is just bluster and
political vendetta. So I think that that is one of the big
issues in India, which is that the government at on one hand is trying to
encourage more private investment to come a bit more schemes, more incentive
schemes to help. That scheme is what they call it.
I don't have a different connotation here, but also cutting taxes and being
responsible from the fiscal side. But on the other hand, is this climate
of fear created by the regulatory overreach, which I think is holding back
some of the investment and also ends up being quite intimidating to even foreign
investors? When we talk about investment in India
right now, given what's going on in the news, we think about the Adani companies
and I don't know what's going on. I suspect you don't know what's going
on. So this is not about the merits of
exactly what the claims are about the Adani companies.
But does it raise questions in Western investors minds?
It would direct to India about how predictable and reliable the system is
to make large investments. Yeah.
So this has been a problem with emerging markets, as you know, in general.
But having said that, as far as India is concerned, just going back to my
original statement that everything you see about India, the exact opposite is
also true. So, yeah, India has had a series of such
issues in the past as well. But what I like about India is this that
when I look at the investment universe, the highest number of really high
quality companies is also to be found in India.
How do we define high quality? You look at the return on equity, look
at the consistent earnings growth or just the sheer number of stocks in India
that have gone up four or five times in dollar terms over the last decade is
possibly the highest. If this is the ratio of the overall
market is the highest of any country I know in the world.
So yeah, we keep getting these kind of issues that come to the fore.
But the other side of the equation is that some of the highest quality
companies in the world, including the US for that matter, it is the ratio of the
overall. Don't you get some of the highest
quality companies in India? Now, the problem is that they're also
valued that we if you look at the 100 largest companies in India, about a
third of them, three that price to earnings multiple of nearly 40.
So that is a staggering number. I think that is really what the
fundamental issue, Judy, in India is that it got a bit overhyped.
It is the most expensive market in the world if you look at traditional
valuation metrics. And I think that we're seeing a bit of
disappointment, a bit of that gloom come off the rose because of these very high
expectations and this hype about India being the next China being reflected in
the prices in the market.