By Anjan Roy
Morgan Stanley, a widely respected global investment bank, has upgraded India’s rating. This essentially means the bank now is now arguing it is worthwhile investing in India on the basis of the macro-economic data on the performance of the Indian economy.
At the same time, Morgan Stanley has downgraded China and even the United States. China has been slowing down for a while and despite its wide range of stimulus measures, now and then introduced by the Chinese government, the country economy has failed to show any marked transition to its famed fast paced growth.
Because of the highly inflated property sector, where the largest property companies of China are looking down at defaults and massive loan burden, the overall economy is getting depressed. The burden of loan losses for large banks is also looming, although the deep coffers of the state is intervening to shore them up.
On the other hand, the American economy is growing, although its dragging problem with price rise, is egging the central bank — the Federal Reserve— to hike interest rates. The Fed’s basic policy rate is now at its decades long peak at 5.5%. This is feared to eventually lead to a recession in America.
In the circumstances, the continuing India growth story might attract the global investors’ attention. What can be expected is a flow of funds into the Indian financial markets — both equity and the newly emerging debt markets.
We have already witnessed a buoyant trend in the stocks markets. The Sensex and the National Stock Exchange Nifty are scaling hitherto unseen peaks. Money is pouring into the Indian secondary markets and the indices are rising consequently. The question is for how long?
Earlier what we have seen is that the decades long double digit growth of China had attracted funds into the country from global investors. These investments were in both the secondary capital markets as well as in green field ventures. While the financial investments built up the sinews of the Chinese economy over years.
Its manufacturing industries got investments from the largest corporations and these had also brought in world class technology into the country. The prospects of a huge market had attracted large investments into manufacturing which in turn resulted in massive jump in Chinese exports from these same global corporations.
Will India be able to attract similar investments from global corporations. These are early days for prognostications. However, we are seeing the initial indications that such decisions from multinational corporations might bring in funds into India. The South Korean manufacturing giant, Foxconn, has announced its decision to invest in India. Foxcom had introduced a new kind of organising manufacturing by setting up some of the largest factories for specific products.
Apple has also indicated its decision to diversify its production base away from China. It is looking for alternate locations for its factories for either the marquee iPhone or other products. Tesla has promised investment in India for manufacturing electric vehicles, although Elon Musk has not been very trustworthy about his investment decisions.
Like China, India is an attractive market for the size of its domestic market. As the economy is growing, the purchasing power is rising and domestic demand is ever buoyant. Almost everything is in demand. Take the example of iPhone. Despite its price, the instrument is selling so much so that Apple is now expanding its chain of exclusive high end commercial outlets. The future looks too good that iPhone’s owner Apple’s Tim Cook himself flew down to Bombay to inaugurate the flagship outlet.
IN short, India is in its sweet spot. The question is will India be able to convert this opportunity into its winning bid. Because, these perceptions are volatile. These swing between extremes.
Solid economic steps and reforms are still needed. The biggest of these are the reforms in land laws. If we are to attract large scale investments in manufacturing industries —like a huge Foxconn factory, a facility for manufacturing aircraft parts and components and eventually the whole aircraft, or a electric car battery manufacturing unit— we have to quickly allot land for these projects. The convoluted land laws stand in the way. We have to develop a smoothly functioning land market.
Similarly, the bureaucratic rigmarole around licences and permissions still needed to be straightened. The state level reforms regarding clearances must be tackled on a emergency measure. Labour laws are also rather complicated, although these have been to a large extent met. In many states, even without going for neat labour law reforms, the authorities have taken a more realistic approach and these laws are now implemented with an eye on ease than on ideological grounds.
Above all, the fierce competition among the more forward looking states for the investment wallet is ensuring that the former state level hassles are being minimised. The state governments are voting for the prestigious projects and they themselves are far more investor field now than before.
The laggard states in these matters are lagging further behind and there is definitely a clear demarcation of rising ones and the backward ones. The divide is getting deeper, which is not good for the country as a whole.
At the same time, there are increasing fears that the party might be spoiled by extra economic factors. The global press is full of coverage on incidents of violence in Manipur.
The extensive coverage of the Manipur atrocities, even after a month, is sullying India’s image as a stable reliable society. The European parliament had commented on these incidents and several countries have drawn attention to these.
Now, the communal clashes in Haryana have been taken note by the global media. Especially because these clashes have now close to the cynosure of all eyes, Gurgaon, which had emerged as he latest show-stopper. Host of multinational corporations have chosen Gurgaon as their home in India.
Te swanky offices and innumerable corporate headquarters for even Asian operations constantly put Gurgaon in the focus of attention. The clashes have spread to Gurgaon’s posh localities even and employees have now been instructed to operate from their homes.
As if it could not have come at a worse time, these widely reported clashes are happening in the foreground of the G20 Summit in the national capital. Some comment from the summiteers at the G@ conclave can spoil the golden image of India as portrayed by the investment banks. If the centre does not take steps to maintain communal harmony by controlling the fringe groups of the ruling party at the centre, the India story may not be that sweet despite all the potential.(IPA Service)
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