Bright days ahead!

A rare day today for me with 2 articles. It was necessary since both the current affairs would remain “current” only for a while :-).

While the world economies have been plunging, India was affected, but not as bad as compared to the rest. India is still looking ok to attain around 6% growth. This is significant as compared to the World bank forecast that the world would see 0.89% growth this year. However India managed to keep in the limelight - all for the wrong reasons! Last 3-4 months have been quite fatigued for India. Mumbai terror attacks, initially failed & prolonged diplomatic pressure tactics over Pakistan, Satyam scam & to top it all – 4 Golden Globe awards for the movie “Slumdog Millionaire”! While all the other hiccups are there & will anytime exist elsewhere in the world, the last one really sealed the fact that 2009 is perhaps a rough year for India too.

Generally speaking, many critiques acclaimed “Slumdog…” as a very realistic movie. I think it is a shameful encashment (by a few Indians who were involved in making of this film) by showing quite exaggerated & dramatic scenes of the underbelly of India. This is an insult to the have-nots while the haves (of India itself) are making exaggerated movies, sitting in their living rooms/ multiplexes to watch & laugh at the plight. I have never seen such blatant & misleading (for a few dramatic scenes) depiction of one’s own country by the citizens of the same country! Why are we proud to get awards? Are we proud to have mastered the art of deceiving the vast population of our nation? Are we proud to have started the series of such insane & exaggerated movies to continue getting these awards? What an art at the cost of murdered reality!

In general, the terrorism, scams, diplomatic delays etc. happen in any country. We should not be really bothered too much beyond learning from the incident & moving on. I think we are at that stage of moving on. But for that we really need a good PR machinery in place at all levels! For next year or so, if the trend continues, the PR fiasco might continue. However I strongly feel that India is one of the rare bright spots in the current world forum.

While the entire world is witnessing a financial bloodbath, India has not been so drastically impacted. There is indeed an impact & hence the economy has slowed down from 9% growth to about 6%. However still this is an excellent growth figure for 4th largest economy (based on PPP) on the backdrop of forecasted 0.89% growth for entire world. Impact to India’s economy has been limited due to the prudent policies such as lesser reliance on exports as compared to other emerging markets, tighter regulatory controls & general prudent practices (while lending) by banks in India.

Various aspects that show recently developed strengths for India are mentioned below. Most of these are forward looking indicators & hence cannot be ignored.
1) Diplomatic wins - Nuclear energy deal, Qatar agreeing to invest 5 billion in exchange of security assurances by India,
2) Science & technology - Chandrayan 1 at record breaking cost effectiveness, Shaurya missile test launch, multiple other missiles test completed, launch of 10 satellites using indigenous PSLV
3) Economic strengths - Limited export focus as compared to other emerging/ developed nations (only 15% of GDP), vast domestic market - potential for self sufficiency (except power, oil & natural gas), 4th largest economy on PPP size, one of the highest growth rates despite global shrinkage, increase of productive portion of population while most developing nations are facing negative growth in productive population: 25% of world’s population of under 25 years, 60% of India’s population is < 35 years old, ten Indian citizens in the list of richest persons in the world (as on Feb-08), steady rise in middleclass population that is projected to be around 150 million by 2020, exponentially rising foreign investment.
4) Entertainment – IPL (Indian Premier League) is the biggest & richest cricket league in the world where global cricketers are actively seeking the spots, Mumbai film industry is recruiting globally.

Few other indicators
India’s Balance of trade has been negative. That means imports are more than the exports. The major commodity that we import is crude oil. By & large, size of oil imports (net) has been 70% of the total trade deficit. Due to this fact, loss of money by speculators & real slowdown of fuel guzzler economies have indirectly & immensely helped India ease the situation with Balance of Trade deficit. Speculation money was coming from those economies which are facing the hardest hit of the downturn. Lack of this money as well as decrease in demand for oil by the developed economies has brought down the crude prices by 75%. Indirectly, India (like many other economies in similar situation) is benefitting largely at the cost of others.

There is a theory that Forex reserves (2007-08) USD 300+ billion could have been eroded to just USD 50 billion had FII’s divested at the peak of the stock markets. Theoretically that is true. However were our markets equipped to absorb such a selling pressure? Would the index have been more or less at the same level? In fact the actual trigger for FII sell was near the top of the markets. Which means FII’s really started selling near the top; however it is evident that markets could not withstand that kind of selling frenzy. We are obviously better off any time any giant investors suddenly start selling. However if FIIs got the opportunity to slowly withdraw the money, then it would have probably been a different story with our Forex reserves today. However in that case probably we would not have seen the same peak around 21K sensex. Anyways, whatever could have been the various scenarios, the fact is the India is much better off in terms of Forex reserves & our obligations to FIIs. Much of the FII money has already fled the country which means our liability as a country is now limited. This is a good news!

Along-with the strengths, obviously India has some tough challenges before her such as lack of adequate infrastructure, energy, reducing female ratio, unrest (internal & external) etc. However knowing the Indians’ “never say die” attitude, India can certainly hope to overcome these challenges in the long run. Despite the political dividedness, lack of right political ability/ will & multi-party democracy, this “never say die” & “find a solution by hook or crook” attitude of an average Indian is the one that has propelled the nation to where it is right now.

Bottom line – The global downturn may present an opportunity of the lifetime if we stay the course as a growing economy. This in turn means a huge upside for the individual investors. Invest now (not immediately though) to reap significant rewards later. Would 40,000 Sensex in next 5-7 years be a reality? Who knows? Frankly, I believe in it!