I just finished dinner at a Delhi (no not a New York deli) restaurant where Thai food was served on American placemats accompanied by French mineral water and an (unfortunately poor) Indian version of a European wine with Italian napkins for us messy eaters. I can’t comment on the path from a person’s stomach to his or her heart, but I’m pretty sure that the alimentary path leads inexorably to a global perspective on investment thinking. I’d happily come to India just to eat, but I’m here to attend the Institute for International Finance (IIF) spring meetings, which focus on emerging market economies, especially that of India.
I was last in India three years ago and will start with notable change and continuity. First, in infrastructure-challenged India, a smart, shiny new airport terminal and an actual expressway into the heart of New Delhi vastly improved the process of getting here, though the taxi drivers still figured out how to produce a cacophonous traffic jam between the terminal and the city-bound expressway. Less pleasantly and more portentously, security measures have increased substantially in the wake of bomb attacks in the center of New Delhi, Mumbai, and other major cities. Armed guards search taxis before they can cross blockades leading to hotels, and are omnipresent in the lobby outside my hotel room.
The first day of the IIF conference highlighted both the hopes and concerns of a nation as large, as diverse and as rapidly growing as India. Speakers took pride in India’s tremendous growth and even greater potential. One speaker took special glee in noting that The Economist now projects equal 9% growth for both India and China (I didn’t verify); another asserted that by 2025 Indians will comprise fully one-quarter of the world’s work force (I didn’t try to replicate her number either). Officials of the monetary authority judged that smaller, more frequent adjustments to liquidity provision and short-term interest rates would keep inflation in check, although they did refer to an unnamed foreign bank that was making their jobs more difficult with over-easy monetary policy of its own. Mr. Bernanke was not asked to respond.
The same speakers also confronted the daunting challenges that all that growth creates, especially in light of India’s heritage of unsuccessful central planning and a regulatory regime that makes the U.S. seem like libertarian heaven. Despite my quick ride into New Delhi, infrastructure, especially power generation, has not kept pace with India’s growth. As one result, manufacturing, which might help employ that vast work force, is expanding at less than optimal speed. Inefficient financial infrastructure, a weak corporate bond market for example, exacerbates this deficit. And no speaker could avoid the issue of grinding poverty and high levels of illiteracy, especially in rural areas. Tellingly, almost every speaker touched on agriculture, which one reported to generate 14% of national income while employing 58% of the working population (again, unverified). The monsoon remains a major, if uncontrollable and unpredictable, Indian policy issue.
Stay tuned for my next post on Monday, 3/7 . . .
Special risks Investing in foreign securities involves additional expenses and special risks, such as currency fluctuations, foreign taxes and political and economic factors. Investments in emerging and developing markets may be especially volatile.