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AMIT ROY: Modi presides over ‘Almost perfect emerging markets story’


Japanese prime minister Shinzo Abe (left) shakes hands with his Indian counterpart Narendra Modi. September 14, 2017. REUTERS/Amit Dave
Japanese prime minister Shinzo Abe (left) shakes hands with his Indian counterpart Narendra Modi. September 14, 2017. REUTERS/Amit Dave
Amit Roy
Amit Roy

India’s prime minister Narendra Modi does not get a good press in India or abroad, what with beef lynchings of innocent Muslims, journalists being murdered apparently for opposing the aggressive Hinduvta agenda, interference by politicians in the way universities are run and demonetisation causing havoc among the poorest.

Yet I would like to believe in the very upbeat message in the Financial Times article last week, written by Merryn Somerset Webb, editor-in-chief of MoneyWeek.

The author starts with an account of the proposed bullet train between Mumbai and Ahmedabad, which will cut the journey time from eight hours to three. It will cost £13 billion and be financed by Japan, whose prime minister Shinzo Abe was in India last week.

“My good friend prime minister Narendra Modi is a far sighted leader,” said Abe.

“Such compliments are a rare thing in politics,” noted Webb. “Perhaps Mr Modi is far sighted. It is certainly true that he is prepared to make decisions that bring short-term pain and hit growth, with a view to long-term gain.”

Two examples were demonetisation and the national goods and services tax (GST). “It has subdued growth across the board but should pay huge dividends as it slashes corruption, simplifies the tax system and boosts revenues.”

“This is all good. But it is just the icing on the cake of an almost perfect emerging markets story. India has fabulous demographics (two-thirds of the population are of working age); a booming middle class keen on consumption; a fast shrinking current account deficit (under one per cent of GDP); a government committed to housing and infrastructure spending (there is a kind-sounding ‘Housing for All’ scheme on the go); and a low fiscal deficit (down to 3.5 per cent).

“It also has a high level of foreign exchange reserves (about £300bn) and inflation looks to be properly under control (about two per cent, compared to around six per cent a year ago).

“India’s stock market looks good too. It is one of the few emerging markets with real depth and breadth. You can get exposure to pretty much any part of the economy you want via a listed company (not all are top quality of course, but that’s not exactly an emerging market specific problem).

“Finally, it is worth noting that India’s stock market is supported by local investors rather than just by the fickle international investors who cause so much volatility in emerging markets (they were the ones who sold so energetically when Donald Trump was elected and when the geopolitics around North Korea started to heat up last month, for example).”

She does list negative factors as well. “That said, when I was asked at the FT Weekend Festival a few weeks ago if you should have exposure to India, I gave a firm ‘yes’ in reply.”

There is much comment from readers on the FT article, both for and against.

One says: “This article aptly captures some of the key strengths of India’s economy – kudos. However, it comes across like a sales pitch with an overly optimistic outlook and fails to highlight the major hurdles facing India, such as a fragile banking system, slowing
investment and potential labour market challenges.”

Another says: “PM Modi is a brilliant politician and if he wins next election in 2019, India will be a top economic, political and military power.”

A third reader agrees: “India is THE story for the coming 20 years”, but a fourth is cynical: “I can only assume the author has been sponsored.”