Posted by: Shiv Muttoo | March 7, 2015

Driving Black Money out of Real Estate

Two long standing objectives of every government at the center are affordable housing for all and increasing tax collections. Both are seemingly unrelated with the only key commonality being in the relative failure of each successive government to deliver on well-intended goals. It is widely understood that the real estate sector is a major source of/destination for unaccounted/black money in India. This leads to widespread under-reporting of value in a large number of real estate transactions resulting in revenue losses to the exchequer. This practice also inflates real estate prices by not allowing value to be discovered efficiently.

The government is now aggressively driving policy initiatives that will curb the use of unaccounted/black money in the country. Measures announced in the recent Union Budget speech include prohibiting payment/acceptance of cash of Rs. 20,000 or more for any transaction in immovable property. Tougher measures are expected to be in place to limit cash dealings in the real estate sector including e-filing and tracking down of transactions.

In this regard, implementing the following submission may allow us to address this issue of unaccounted/black money usage. The suggested method would be as follows:

  • Mandatory public disclosure of every real estate transaction recorded/registered in the country on a suitable online platform before it is allowed to culminate.
  • Key disclosures pertaining to the transacted property – location, size and transaction value – to be made available in public domain on an online portal and the property physically kept open to inspection for a period of one month.
  • In this period of one month, additional bids to be allowed on the said property keeping the original transaction value as the reserve price.
  • If no further bids are received, the transaction to close at the original transaction value.
  • If higher bids are received in the designated period, then the transaction could be closed with the highest bidder at the end of one month.

Evidently, following such a methodology would be beneficial to both the seller and the tax collector. Also, importantly, real estate would no longer be available as a ready store for parking unaccounted/black money created from parallel economy transactions. Prima facie, all stakeholders benefit from this solution and there is no perceptible reason for resistance from any constituency. In addition, its implementation may bring India closer to its objective of affordable housing for all.

There is a similar mechanism already in place for the auction of properties foreclosed or otherwise repossessed by banks (please refer: A similar portal could be developed for the suggested purpose as well.

This is a simple solution to an issue of significant proportions that has remained on the nation’s agenda for many decades. Implementation is easy and inexpensive, and results will be evident almost immediately. All that it requires is good intent from the ruling government.

Posted by: Shiv Muttoo | October 17, 2013

India’s Taxing Conundrum

Global data compendium CIA World Factbook puts India’s tax collection at 9.3% of GDP, higher than only Nigeria, Syria, Sudan and Burma. So we rank #176 of 180 countries. India’s own union budget document indicates tax to GDP of 7.4% which, despite public pronouncements to the contrary, continues to trend lower over the last few years. This can possibly be singled out as the one structural issue that is holding back the Indian economy and, unless addressed on a war footing, can keep us meandering aimlessly to an uncertain future.

Along with our failure to equitably expand tax collections comes our inclination to behave like a welfare state. Subsidies rose to 2.6% of GDP last year from 1.4% five years ago, when our job guarantee program was launched. Now, we are introducing food for all. We need to understand that the welfare state model works best when economic development has reached the entire population, everyone contributes to the tax corpus and the Government redistributes efficiently through public spending. Unfortunately, India doesn’t tick any of the above boxes.

And this reflects in our high fiscal deficit, which was 5.4% of GDP last year as per CIA data. The U.S. deficit was higher at 6.9%. Realizing that this is unsustainable, the Americans are targeting a 40% cut over two years. Meanwhile, India’s deficit in the first five months this fiscal year has already reached 75% of the yearly objective. At the same stage last year, we were hitting 65% before aggressive spending cuts came in.

Normally, we exercise greater control over plan expenditure which supports the country’s growth prospects, while non-plan expenditure (including subsidies) exceeds the budgeted figure. Then deficit financing requires the Government to push its borrowing program, which keeps interest rates high, inflates prices and reduces our global competitiveness, thereby deterring new capital investments and keeping the rupee under pressure.

IMF now estimates India to grow at 3.75% this year based on the expenditure method of GDP calculation. While there is widespread outrage around this new data point, it is interesting to note that the country grew only 2.4% in the first quarter using the same method. So IMF actually expects growth to accelerate over the rest of the year.

And while Q1 growth may have been the weakest in many years, half of it came from the Government’s own consumption expenditure, which expanded by over 10%. This tap needs to be turned off if the yearly fiscal deficit target is to be met. Further, second quarter data suggests that both services and manufacturing growth are at 3-year lows. Looks like tightrope walking skills need to be quickly honed.

Coming back to our extraordinarily low tax collections, it may be time for some creative thinking. While our direct tax collection seems to be based largely on individual compliance, indirect taxes are linked to transactions and less reliant on discretion. Scandinavian countries, well-founded welfare states with the highest tax to GDP globally, have successfully focused on indirect taxes. It may be worth an effort trying out this model in India as well.

Posted by: Shiv Muttoo | March 7, 2013

We’ve Fixed the Economy

Posted by: Shiv Muttoo | June 14, 2012

Are We Ready For Them?

The growth slowdown is here with us. Usually, slow growth curtails opportunities for employment. Studies have concluded that employment intensity of economic growth is 0.5 – if the economy expands ten percent, the number of jobs grows five percent.

Between the years 2000 and 2005, the Indian economy grew 34 percent while the corpus of jobs increased by 25 percent – employment intensity of 0.73, and all was well. 93 million jobs were created in this period; which easily exceeded the growth in the country’s working age population, so unemployment may actually have reduced. Data from the National Sample Survey Organization (NSSO) suggests that half these new jobs were created from self-employment in rural areas. As the main self-employment opportunity in our villages is farming, there must have been a surge of people that took to tilling fields. And I thought people have been flocking to cities seeking jobs and land under cultivation has hardly been growing. Maybe I was wrong!

But even more interesting is the data made available a year back suggesting that the country added just two million jobs (versus the target of 55 million!) between the years 2005 and 2010. 18 million casual jobs were created in this period but the number of self-employed in villages reduced by 24 million. Coincidentally, 18 million is also exactly the number of jobs created by 2010 under the Government’s rural employment scheme, MGNREGA!

Conclusion: many of those that went back to agriculture found it unviable, and therefore re-invented themselves as daily wage laborers. The Government helped these people find employment digging ditches in their native villages. Apart from creating political support, the clamor for employment in our overcrowded cities was reduced in one masterstroke.

During this time, the economy grew 51 percent so the spoils of progress missed the stated objective of wider inclusion. Wage rates increased considerably, further adding to inflation caused by cost pressures from other factors of production – land and capital – and pushing Indian enterprises to look for cheaper locations to expand their domains. Urbanization maintained its slow crawl to reach 31 percent, up from 26 percent over the last two decades. And the employment intensity of growth hit a low of 0.04!

Now the number of working age people in India is slated to increase by over 200 million over the next 20 years as we hit the sweet spot of the demographic dividend curve. These people will seek jobs, possibly other than those requiring them to dig holes and fill them.

Are we ready for them?

Posted by: Shiv Muttoo | August 4, 2011

Slow and Easy

A leading investment bank estimates that India ($ 4 trillion GDP at present, PPP basis) will continue to grow at eight percent to emerge as an $ 86 trillion economy, the world’s largest, by 2050. At that point, the country would represent 23 percent of world GDP; the US contributes 19 percent to world GDP at present. The Indian economy in 2050 would be larger than China’s; over twice the size of the US and 11 times that of Japan. Per capita GDP would exceed $ 50,000, 10 percent higher than the prevailing level of prosperity in the US. Phew!

Since the beginning of the economic liberalization process in the early 90’s, the Indian economy has tripled in size. Per capita income has doubled to over $ 3,000. However, the fruits of growth have largely evaded India’s agricultural economy that supports 60 percent of its people but contributes just 15 percent of the country’s output. Maintaining archaic practices on increasingly fragmented land holdings, the per capita GDP of the country’s 700 million still dependent on agriculture has inched up from $ 600 to $ 800 in almost 20 years. During this time, the farmer’s city cousin, participating in India’s services revolution, is significantly better off, his income growing from $ 2,800 to $ 7,000. In economic terms, while the Indian farmer lives in the jungles of Central Africa, all others are in rapidly prospering China. So much for inclusive growth!

This disparity is increasing further, a potential time bomb unless we bridge the chasm between the two dozen on Forbes’ annual billionaires’ list and the half billion living at less than one dollar a day. Here it is interesting to note that while the global poverty standard has since been revised to $ 1.25 daily, the Indian Government believes that a fourth of that number is sufficient to deliver the recommended 2,400 calories to the country’s rural poor.

What we need now is a soft landing of the agricultural economy as its contribution to both employment and output reduces to under five percent over the next few decades, the way it’s happened in every developed country worldwide.

UP, Bihar, MP, Rajasthan along with their offshoots, termed BIMARU states, account for 42 percent of India’s population and represent a sizeable portion of the demographic dividend we are likely to be blessed with. Jobs are needed in these states if we want to avoid a disastrous cross-country exodus.

India’s growth achievements have come on the back of seven million new jobs created annually as the restrictive policy environment encouraged capital rather than labor intensive growth. More recently, new job creation, obstinately steadfast over many years, is up to 10 million annually. But this meets just half the requirement as over 20 million will join the employment bandwagon every year in the near future.

Waking up to this reality, the Government now wants to increase economic contribution from manufacturing to 25 percent  by 2025 from 16 percent at present, implying 11.5 percent annual growth. World class manufacturing zones planned across the country will seek to deliver 100 million jobs over 15 years. However, the National Manufacturing Policy that will achieve all this has been cutting through the jungle of red tape for over a year now and will be with us soon, hopefully. Indian manufacturing has delivered less than seven percent growth over the last decade so there’s a lot of ground to cover.

India’s services sector has grown at 10 percent for almost a decade and now represents 57 percent of the country’s economic output, delivered by just 29 percent of the labor force. Sustained growth momentum in services requires the bandwidth of urban infrastructure. While India is now 30 percent urban, it is already the global slum capital with over 90 million living in derelict structures and gross penury. It is estimated that only 15 percent of Mumbai does not live in slums, chawls or footpaths. Other Indian cities are headed in the same direction.

The list of constraints to growth seems never ending. There’s a growing deficit of infrastructure, policy and governance as well as of thinking, inclination and propriety. Despite these issues, we have hurtled along just fine for many years but the strain is beginning to show in recent months. But no worries…  India will grow just to catch up. Look deep within and there’s realization that maybe six percent growth is sustainable, anything more an aberration that is likely to even out over time. And we can happily chug ahead once again, undaunted by basis points and fine print of economic forecasts originating out of New York or Singapore.

Posted by: Shiv Muttoo | January 21, 2011

Green Green Grass Away From Home!

Recent media reports indicate that India will not meet its objective of achieving a stable population base by 2045. Instead, this goal is now likely to be met by 2060 when the country’s population stabilizes at 1.65 billion people, 200 million more than the original target. After ten years of rigorous enforcement, the mark has moved forward by 15 years!

But the honorable minister is confident that increasing use of contraceptives will enable India reach this target (brilliant deduction, sir, but I thought we had already missed the target!) and is beefing up the supply chain mechanism to reach the grassroots. The minister, however, does not want to impose any legislation to drive stricter compliance, possibly mindful of the reaction of the ‘aam aadmi’ (votebank!) to such imposition in the mid-1970s.

While the government wakes up to this new reality, expert estimates have suggested for some time that India will not lose much of its enthusiasm for procreation in a hurry and its population will keep growing almost till the turn of the next century (something that the then honorable minister will possibly realize ten years from now!). For the last 60 years, India has instituted a pioneering family planning program that has halved the country’s fertility rate to under three but its population has still increased 3.5 times over this period contributing, along with Africa, to half the world population growth in recent years.

As the ‘aam aadmi’ grew in number post-independence, his affluence measured by per capita GDP inched up at a ‘hindu’ rate of 1.5% annually right up to 1980, a legacy of Soviet-style central economic planning that advocated public investments in heavy industry, license-driven private entrepreneurship and cottage industries at the grass roots. All this while, most of the country continued to till the land.

Since 1980, however, India has steadily upped its economic growth momentum and is now poised at the cusp of greatness. The key task is to harness the rapidly growing productive (15-64 years) population base. We can learn from China, now four times our size as an economy, that derived significant advantage from pushing its productive resources – man and machinery – to its cities. This propped up its growth rates to vertigo-inducing levels over the last three decades as rice farmers transformed into factory workers. China has absorbed an additional 400 million in its cities since 1980 compared to India’s 200 million. Over the next three decades it is now India’s turn to gainfully employ 400 million people that will flock to its cities. But given the state of Indian cities, such pressure is likely to cause them to implode.

The situation is grim, is there a solution? Well, send the migrant from Jhumri Telaiya straight to Tokyo!

Japan’s population peaked at 128 million five years ago and has started declining. By 2050, Japan will have less than 100 million people and 50 million by the turn of the next century. The country’s fertility rate has remained under 2.1, the level needed to sustain a low mortality population group, and remains steadfast at around 1.5 despite the government’s best attempts to vitalize it. As a result, the country will see growing labor shortages and decline in consumer demand, asset values and overall economic productivity. Meanwhile, it is estimated that Japan’s GDP will crawl up from $ 5 trillion at present to $ 6 trillion by 2050. Achieving this will require unprecedented increase in productivity of the average worker backed by huge investments in technology, both of which are unlikely to happen in prevailing recessionary conditions. So, the economy may instead be headed south over time.

Japan desperately needs people, rural India desperately needs employment. And the opportunity is not limited to Japan alone. Countries across Europe will see their populations shrink, requiring external infusion of human resources to maintain economic productivity. Most of India’s states have a large and ever growing base of people who have nowhere to go – the country’s farmlands cannot sustain more people, its cities have no space left in them and infrastructure investments that can potentially create more localized opportunities are forever stuck in the logjam of red tape, land acquisition, rehabilitation of people and financial mismanagement.

Now is the time for India needs to break free from its Nehruvian obsession with self sufficiency and look outward. The key is to closely track global skill gap-based opportunities, prime up the currently unemployable rural mass and invade greener pastures globally – the grass on this side of the fence has all been eaten up!

Posted by: Shiv Muttoo | November 6, 2010

Big Brother’s Watching His Own Back, Again

In June this year, following a meeting with President Obama, BP agreed to create a $ 20 billion fund to compensate for the damages caused by the oil spill it created in the Gulf of Mexico, pre-committing two-thirds of its annual cash flows over a 3.5 year period. The spill had caused extensive damage to marine wildlife and prospects of the fishing industry in the region after the blast that started it killed 11 rig workers.

In August, India was urged to go easy on its $ 300 million compensation demand made on Dow Chemicals, an American company, for causing the world’s greatest industrial catastrophe in Bhopal that took away thousands of lives a quarter of a century back, apart from inflicting debilitating injuries to many more thousands. The ‘noise’ around this issue was also seen to be positioning India in an unfavorable manner for further financial assistance from the World Bank.

Clearly, American fish are more valuable and therefore deserve better than Indian people.

And indeed the noise levels are down here in India. However, thankfully, our government remains firm in its resolve to bring justice to each and every victim and will put systems in place to ensure that a repeat of Bhopal does not happen. That’s the sense of purpose that runs through India’s rulers and we are all richer for it, in life and in death!

As though to demonstrate this, a panel of ministers has recently announced additional compensation of about $ 16 million that will benefit 4,000 people, previously not recognized as dead!

This is not the only instance of the American juggernaut (derived from the Sanskrit word Jagannatha, which means the Lord of the Universe), though weakened from the strife of the last couple of years, asserting its might and using a different yardstick for itself.

In the mid 1990’s, the process of economic liberalization created the platform for globalization of world trade. The World Trade Organization (WTO), guided by industrialized/first world countries, developed a trade framework for all to follow. This meant that the lenient process patents regime applicable to the Indian pharmaceuticals sector had to go starting 2005. Many believed that domestic players in the sector would be rendered uncompetitive and eventually be run over by big pharma majors. However, the industry adapted well, focusing on global off-patent generics, low-regulation markets, contract research, clinical research, even drug discovery. While global majors have since included India as a market for their product pipeline, introducing drugs that are priced way out of reach of most Indians, the Indian pharma companies have done reasonably well too.

The crumbling walls of world trade, while opening up emerging markets to global corporations, created huge opportunities for aspiring entrepreneurs in the developing world. The IT industry is one such, having grown from just over $ 1 billion 15 years back to $ 73 billion today. That’s CAGR of 33 percent, including strong contributions from global majors such as IBM and Accenture! The targeted $ 225 billion in the next ten years may look aggressive today, but it’s only 12 percent annual growth. Given Indian IT’s exemplary track record, all targets have been met or exceeded through every business cycle and against all odds, this should be within the realms of reality.

But there are stronger headwinds today. America, Indian IT’s largest market,  is protecting its turf by building walls of protectionism around itself, the same walls that were dismantled twenty years ago. All the tricks of the trade – tariffs, quotas, restrictions – are being used to try and keep the Indian IT companies at bay. Mindful of weakening public opinion highlighted by the mid-term polls, the administration has focused its attention on IT outsourcing that is seen to be taking away jobs from a country facing unprecedented unemployment.

At the same time, the President has urged American students to work harder and develop skills for greater global competitiveness. However, the issue here is not of competitiveness but of compensation. Median salary for fresh-out-of-college workers in America is $ 40,000, compared to $ 12,000 in China and only $ 5,000 in India. Whatever be the level of competitiveness, any skill is good at a price and at 3-6 times is priced out of the global talent market.

With restrictions on the movement of goods and people lowered across the world, water continues to seek its own level. Not only does foreign merchandise continue to flow into America, but both jobs and cash fresh from the printing press are continuing to flow out. Mr Obama hopes to plug this leak. But he really needs to ask his countrymen curb their excesses and learn to live more frugal lives. Else, all he will end up creating is not jobs at home but valuation tsunamis in emerging markets.

Posted by: Shiv Muttoo | August 24, 2010

India Needs Cities for Growth

It was that time of the year again. The monsoons were upon us, Bihar was flooded, millions reeled under the impact, thousands went missing, and hundreds would be dead. It could have been just about any of the last 50 years.

This was followed by the usual sequence of events – aerial surveys by the high and mighty, grand pronouncements, appeals for calm, promises galore, outbreak of epidemics, still more deaths in the aftermath, relief contributions from emergency funds, culminating in, of course, yet another opportunity for the local mandarins to contrive their annual quota of scams.

Every year, water released from overloaded dams in upstream Nepal adds to the fury of the Kosi. As the river breaches the shackles of its half-hearted embankments, the common man’s primary line of defense is to look heavenward in prayer as his elected representatives first take their own time to get off the blocks, and then make some feeble rescue attempts, before diving headlong into a finger-pointing melee. While New Delhi sanctioned over 1,000 crore rupees to repair the damage, the state demanded fifteen times more. Last year’s flooding ritual closely followed the state government’s announcement that Bihar was ravaged by drought, India’s other recurrent ‘natural calamity’, along with the usual appeal for alms.

In the middle of all this, nobody talked about preventing a repeat of this sad situation next year by focusing on planting trees, dredging the rivers or making more canals. Why kill the goose that lays golden eggs every year? This year, the rain gods have been kind to Bihar by passing it by, but the resultant drought bill is 5,000 crore rupees, duly sent to the central government.

Bihar automatically reserves its place in the bottom-quartile on almost every development parameter. Over the years, the state machinery has proven most inept while dealing with any situation of adversity. Religion and caste are the overriding influences over most decisions. The state almost always tops most crime and corruption charts despite stiff competition from many other aspirants. However, in more ways than one, the situation in Bihar just accentuates the ills that afflict the whole country.

90 percent of Bihar’s population is in rural areas. Rural incomes in India are less than a third of urban incomes. It is not too difficult to conclude that the average man in Bihar lives a life of extreme penury. So what does he do? Wait to get swept away by next year’s floods or head to the distant El Dorado. Over five million Biharis have already exercised the second option despite vociferous cries everywhere to keep them out.

Many of them land up in Mumbai, now an urban sprawl of over 20 million. Greater Mumbai, the core city, has continued to add two million every decade – four million in 1961 should be 14 million now, including a significant contribution from Bihar.

The city’s population density now exceeds 30,000 people every sq km, the highest for any city worldwide. That’s like 250 instead of the usual 22 on a football field, try dribbling the ball through this horde!

This puts tremendous pressure on Mumbai’s infrastructure. 54% of Mumbai stays in slums, only 40% of its sewage gets treated and the city provides only one square foot of open space to each of its citizens. Pressure from its growing population also extends to real estate prices that are amongst the highest globally (# 10 as per Global Property Guide, 2009 rankings).

But Mumbai is not the only Indian city singled out for special mention in the overcrowding sweepstakes. All of the seven largest cities in India are amongst the most densely populated urban areas worldwide. We have already achieved such heights (or depths?) at a stage when India is one of the least urbanized countries in the world. McKinsey research indicates that over the next twenty years, 250 million more will flock to our cities, up from 120 million in the last twenty.

There are fewer opportunities outside India’s largest cities, so many of them will go to Mumbai and Delhi, pushing these megapolises further down the tubes. We need new urban centers to stem this rot. We need to create plug-and-play urban infrastructure for businesses and people to move into and start functioning real time.

China has followed this model very successfully over the last 30 years. 45% of its people are in cities today, up from just 20% in 1980. While its population has increased by 35% in these 30 years, its urban population has trebled, delivering significant urbanization dividends. Sustaining a 10% growth rate, its GDP has increased 16 times since 1980 to $ 5 trillion today.

In the same timeframe, urbanization in India inched up from 23% to 30%. Its population has increased by 73% between 1980 and 2010, due to the limited success of the family planning program, while city population is up 120%. The economy is one-fourth that of China today, 30 years ago it was within hitting distance. While poverty has almost been pushed out of China, a third of the world’s poor are Indians today. China also surpasses us on every parameter measuring a country’s development and prosperity.

But all this can change. Over the next ten years, India’s working population will grow by 17% as it derives demographic dividends from its median age of 24 years. The Chinese are almost ten years older and this gap will remain. China’s population dependency ratio has started rising, India’s will continue to decline over the next 30 years.

To benefit from this position of strength, we need to get the 800 million people in our villages, largely disguised unemployed, to our cities and make them productive. But before that we need to create urban spaces for them to move into and operate from, educational institutes to prime them for greater contribution and an efficient system of governance to give them a life. If we don’t, the growth opportunity will pass us by and India will choke on its own prospects.

Posted by: Shiv Muttoo | November 26, 2009

Enjoy This Trip (once you see it coming, that is)

The term Ponzi gained prominence when the intricate US$ 65 billion web of deceit woven by Bernard Madoff was exposed a few months back. The Madoff affair was not the first such incident, nor, sadly, is it likely to be the last. Greed, in many forms and incarnations, has tended to shroud reason since times immemorial. It is human tendency to hope against hope, to blindly follow the pied piper, indeed to believe that the oasis in the distance is not a mirage. Till it is too late, that is.

In the Madoff case, window dressing the numbers became an addiction that was not unraveled till the snowball went out of control. The Satyam case bears some similarity in this respect. It was apparently deeper scrutiny from investors over a botched acquisition that prompted Satyam’s chairman Raju to own up, resulting in the proverbial shit hitting the fan.

There are several other such instances of Ponzi schemes being operated at various levels of magnitude. Here, the US 64 scam deserves special mention. What was once perceived as an ultra-safe, almost gilt-edged investment by the country’s masses came crashing down in a heap denting many lifetimes of thrift. The Government, however, chose to go easy on the perpetrators – maybe because the institution was “too big to fail”. The chit fund industry, however, went kaput a few years back, not having reached TBTF stature. Those whose savings tanked with it were not as fortunate.

But these and other such Ponzi initiatives worldwide pretty much pale in comparison to the one being pulled off by Messrs. Obama, Bernanke and associates. And, going by the fairly strong numbers thrown up by the US economy over the last few months, its working. The baton has seamlessly passed from consumer credit based liquidity to an active fiscal stimulus. The growth philosophy has transitioned from ‘looking the other way’ to ‘really pushing it’.

But beneath the hope of deliverance lie weak consumer spending and a floundering housing market. Consumers remain spooked by sagging income growth trends and growing unemployment. The real estate market remains lethargic despite the federal subsidy support and the Government’s virtual takeover of the entire mortgage market. Only corporate profitability has sustained, supported up by widespread deferment of spending and aggressive accounting initiatives. Despite these artificial props, the consensus view is that long-term growth could at best be anemic.

Meanwhile China, the other harbinger of global growth, has also pushed through its own stimulus package by flooding liquidity into the corporate market. The high command obviously believes that what has been working for America will work for China too. And, given China’s prowess at contorting everything to align with its ambitions, we should soon expect a spurt in the trajectory of growth there.

Smart money seems to have already read the writing on the wall, given the significant foreign inflows into such emerging markets as India. Foreign investors getting a larger foothold in India have allowed the markets to tide over the impact of even a floundering monsoon, till recently considered a make-or-break annual event. As the world continues to realize the futility of remaining invested in the western world, money inflows could further increase and increase significantly. India presents a great platform for global investors – stable government, fairly strong legal system, a very wide range of investment options and hardly any restrictions – and needs to sell its case of a stable 6-8% growth economy over the foreseeable future.

However, valuations in India seem to be stretching the optimism a bit. In the near term, the tide of global (including Indian) valuations could recede in tandem with any significant (and to-be-expected) reaction in the US markets, still by far the biggest gorilla amongst markets globally. And that, if it really needs to be timed, may be the most opportune time to get in with a longish term perspective. To gain from corporate earnings growth in India’s domestic sectors that is a multiplier on the country’s growth rate. For western investors, there is of course the additional advantage of locking into a more ‘finite’ currency that should gain longer-term when benchmarked against the flood of dollars sloshing around everywhere.

So, what’s the key take away from this long discourse? The writing is clearly on the wall for all to read. Buy your tickets, get in, hold tight and enjoy this trip.

Posted by: Shiv Muttoo | May 26, 2009

It’s Now or Never

Following the meteoric rise and even more dramatic decline of the global financial framework, scores of learned economists and other such miscellaneous clever people all armed with the benefit of hindsight have fallen over themselves to explain what hit us and why. As we all know very well by now, the American consumer stopped saving and leveraged his earnings to craft a humungous house of cards that financed world growth for a few years. From now, however, the concoction created by this magical leverage can only move in one direction, as delinquencies/foreclosures continue unabated over the next few years and new credit is harder to come by. America could now go the Japanese way, a somnolent Rip Van Winkle economy, somewhat scary but not entirely unlikely. Data suggests that per capita GDP in the land of plenty is already at 2005 levels after just two quarters of economic contraction. And the now famous stimulus package has largely passed personal debt into Government hands. A modern day Robin Hood story, if there ever was one, but clearly only postponing the inevitable.

In this scenario of gloom, India more than any other country has the opportunity of a lifetime to ‘decouple’ itself from the sleeping giants of the western world and drive ahead on the road to prosperity. The reins however are in the hands of a group of people who have spent the last five years somehow keeping their motley crew of disgruntled alliance partners on their side and driving a populist bandwagon rather than using buoyant market conditions to break the shackles off the economy. And in the hands of a political outfit which has presided over our generally apathetic state over the last 60 years. Several economic powerhouses emerged around us from the ashes of crippling war and imperialist subjugation to drive prosperity to their people. India however continued to lumber along at the famous Hindu rate of growth, polarizing economic well being in the hands of a select few. No wonder that our minds boggle as a Korean leader takes much too much responsibility of the disrepute that his actions may have caused, all for a mere $ 6 million (that much does not even qualify as a scam here!).

But take heart. Let’s give our dream team yet another chance. Let us not blame them for the sins of commission but more often omission of their fathers. Armed with U.S. university degrees and intricate lingual skills, they are once again ready to bring the promised manna to their less fortunate brethren. Cut the crap, fellers, just get the bloody job done.

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