In a world of sluggish economic momentum, India stands alone among major nations, with growth topping 7% a year. Frontera’s Managing Editor Gavin Serkin visited to moderate a conference headlined by Prime Minister Narendra Modi and then travelled across the north of the country. He was interviewed on the Emerging Opportunities show on Share Radio by Juliette Foster.
What were your overall impressions of Prime Minister Modi? Does he live up to the expectations that the markets had of him as a man who is dedicated to reform?
Well this is the first time I’d actually seen Modi in person, but I had this really strong sense of déjà vu. It’s a bit strange – and I wrote about this for Frontera News – it was just like going back a decade ago, if you remember the celebrity of President Lula of Brazil. I saw him at the London School of Economics and it was like a rock star had walked in the building. This was before Brazil’s corruption scandals.
Modi in a similar way had this otherwise fairly reserved audience at the Global Business Summit in New Delhi cheering and clapping every few seconds. Like Lula, he keeps this very careful balance between liberal economics – he likened his government’s duty to provide economic opportunities to providing enough oxygen to breathe – with messages that show his concern for the poor, arguing strongly, for example, against the right-wing economists who would have him eliminate subsidies on stuff like cooking oil or kerosene for the poor.
Right, so he’s making all the right noises in that sense. If we look beyond the rhetoric, what is the perception on the ground?
It really depends on who you speak to. For all of Modi’s best efforts to prove otherwise, he’s still very much seen as representing the ruling classes and the business sector. One man told me that Modi had done nothing for poorer people like him except, he said, to give them bank accounts. But actually, that one step is hugely significant. No. 1, this is about financial inclusion – giving poor the ability to save whatever small amount so their money isn’t eaten up by inflation; they then have the prospect to borrow. And No. 2, it enables the government to pay those subsidies directly to people and means test them.
This same poorer man, who was critical of Modi for not helping people, also described how under the old system, the postman would insist on taking his cut before the subsidy was passed on to him, say for kerosene. So, providing bank accounts is also a way of combatting ground-roots corruption and ultimately cutting the cost of providing subsidies through more efficient means testing and delivery.
Now you weren’t the only one who was watching Narendra Modi. Dr. Doom was also there. You bump into the strangest people in your travels. Who I’m talking about, of course, is Nouriel Roubini. He’s an economist, and he very famously predicted the 2007-2008 global financial crisis. He’s basically become a bit of a celebrity off the back of a disaster. What did he have to say?
As you’d expect, he was critical of the notorious amount of red tape that goes with doing anything in India and the lack of infrastructure – everything from the open sewers and the squalor that afflicts the cities, to transport and technology needs.
But, even for Dr. Doom, it’s very hard to be pessimistic when you are sitting in an economy that is growing at over 7% a year, faster than any other major economy in the world. So in terms of government initiatives, Roubini said he’s confident that India is moving in the right direction to be successful in the next few years. And I think for Dr. Doom, that’s as close to optimism as you get.
You also took the time out to do a bit of traveling. It’s important to wander around and talk to people because you can match what people are telling you on the streets to the official rhetoric that is coming out of government circles. So, what were the lasting impressions that you had?
Well, I travelled through some of the northern regions, from New Delhi across to Uttar Pradesh and Rajasthan. The poverty really hits you: infants by the roadside going through waste for scraps along with the dogs and cows and monkeys. It is really shocking to see.
But then, just an hour outside New Delhi, is this kind of New New Delhi, which is like its own city that’s springing up, with a huge glass HQ for KPMG. There are cranes everywhere. They’re building offices and apartments. The six-lane expressway to this suburb, called Nodia, is so far beyond the normal experience of India’s chaotic horn-honking drivers that there are actually road signs telling them not to stop in the fast lane.
And then two hours in the other direction from Delhi is the sprawling industrial zone called Neewana. It has a Japanese company zone and a Harley Davidson factory.
You can see the contrast there. This is the modern India that Modi is building and the benefits are feeding through to the rest of the economy – but it is achingly slow.
Well, listening to this is George Birch-Reynardson, who is the frontier markets manager at Somerset Capital. What are your thoughts on India? Do you share the sense of excitement that this is a country on the brink of something huge?
I definitely share some of the excitement for the reforms that are coming through. Clearly on the infrastructure side, modernizing the transport network is going to do fantastic things in terms of India’s competitiveness.
Also, I think India, unlike some of the other major emerging markets, like China, is quite a long way through its banking cycle. You’ve seen some of the banks taking pain for two or three years already, whereas in other emerging markets like China, we feel there’s asset quality deterioration to really start coming through now.
So for us, it doesn’t all just hinge on whether Modi can deliver on those reforms. I think the economy is generally going to be in a healthier state in the next five years. We are very excited about India and definitely prefer it to some of the other large emerging markets.
Just in terms of delivery, one thing Modi said was, “The devil is in the detail, God is in the execution.” He’s very aware that the government has these ideals that they want to progress but it’s very difficult in what is the world’s largest democracy to get things done as planned. This isn’t China, this is a very noisy democracy.