Friday, 19 March 2010

Davos and the Recession- What do these mean for India?

Sandeep Parekh, in an article in the ET, makes a passionate plea for improving competitiveness, reforming education and labour markets in India as the key messages coming out from Davos to India.

Whilst I do not dispute that the above are clearly big ticket agenda items India must act on, my question is- what part of Sandeep’s agenda for India is being inspired by Davos and events of the past two years? To me those are things we need to do, Davos or no Davos, recession or no recession...

When i look at Davos and the post Recession world- and broadly at the events of the past 2 years , i see the following three “tailwinds” that give us in India a cause to cheer:

1- Thanks to the past 2 years, for the first time, India truly cannot be ignored by ANY investor. Let me explain- yes, sure, india has been a hot destination for almost a decade now, but so have commodity markets, so has Emerging Europe, so have particular sectors in the first world, and indeed so has most of the first world economies, including the US. But for the first time, there are very, very few investment options that continue to yield returns, and india surely is near the top, if not on top of that list now. This is indeed different, and will translate to lots of good FDI flowing into India , which it already is. Good news, because, more than anything else, we need money- given that we have cheap talent, and a good agenda.

2- The First world economies continue to be anaemic, being propped up by government spending, which clearly is unsustainable, increases deficits massively, and borrows from their future incomes. All of which translates to less confidence and hence weakening currencies. Look at the $ or the £ vs the Rupee and you will see what i mean. The above, coupled with a massive Indian savings rate (~33%) translates to a big opportunity to acquire IP, Assets, Brands for India Inc. Stronger Indian corporates that have better ability to serve customers, because of better tech/ip etc, means a wealthier india. Good news.

3- Elections 2009 resulted in a strong, stable government that is capable of taking decisions and pushing policy and agenda. All indications are that this will be a government that will sty in power over the next term to- a 10 YEAR window of stability and policy driving. Which is already showing up in Educational reform (foreign universities bill) , in infrastructure etc. Stability is always good news for investment and growth, and we have that solid stable window now. Great news!

Alongside is the great China story. I refuse to believe that a strong China story is to the detriment of India- au contraire, a good China story clearly helps spotlight India’s story given the similarities-we are neighbours, highest growing economies, similar size and scale, in categorisation (emerging economies- though they i think have emerged alreadyJ) etc. And, occasionally, we benefit as well- for instance the Google and Rio Tinto’s experiences in China serve to highlight how different the Chinese system is from that of the rest of the world, and hence increases india’s attractiveness.

Finally, the words of cheer come from Martin Wolf, a long term Chino-phile, who in the recent article in the FT of the UK had wonderful words to say about how well India is coming out of the recession. Way to go, India.

in reference to: (view on Google Sidewiki)

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