India isn’t easy to analyze and deal with
February 22, 2024
More or less simultaneously, India has more recently shown up as a new economic superstar in the global financial (corporate) world whereas China rather moved in the opposite direction. Western doubts about China have been increasing. However, this does not mean that India now appears as an easy-handled substitute for economic activities in China. India and China are very different countries in lots of aspects – analytically, commercially and culturally. For this reason, India and China should be treated as different countries also in most commercial respects.
Understanding India takes time
About 20 years ago, I wrote frequently that it would take time learning to understand China. But only in the past few years, most Western corporate leaders and analysts started to watch China with necessary analytical and questioning eyes – many years after the corporate herd run to China had started.
Today, there is again an obvious risk for premature conclusions on another giant country – the “continent” of India. But I am not arguing against Swedish or other foreign activities in India. Having followed the Indian development relatively closely in the past two decades, I feel pretty sure about the conclusion that India has developed into an interesting country for many Western companies. My point is another one.
Instead, my major general concern refers again to psychology which I did in a similar way some twenty years ago when I discussed the issue of corporate herd behavior to China, p 148.
Usually, economic herd behavior can be recognized particularly on financial markets – but it can be spread from there to other business sectors as well. Naïve decisions should be avoided.
Indian shortcomings
Despite the fact that transparency in reality looks better in India than in China, one should not forget that Indian economic statistics have their shortcomings, too – partly caused by the enormous size of the country. Using the rankings of World Economics shows that India and China are located quite close to each other – both provided with the remark that economic statistics should be handled “with caution” (https://www.worldeconomics.com/DataQualityRatings/India.aspx).
The (partly) lagging quality of Indian economic statistics is one of many institutional shortcomings in the fifth largest economy in the world (lately having left the UK behind). By 2027, India hopes to be ranked as the number three economy on this globe.
Usually, corruption and bureaucracy are most frequently taken up as institutional obstacles in India but many other negative examples could be mentioned as well. On the other hand, institutional progress can be noted all the same (see the following official “marketing” remarks, https://www.ibef.org/economy/indian-economy-overvie).
Altogether, Indian improvements in the past few decades should, of course, not be neglected. However, India still must be regarded as a slowly moving country – also when it comes to legislation.
Some of India’s most growth-hindering restrictions have now become more well-known in the Western corporate community. But at the same time, I have the feeling that the macroeconomic analysis of India to a high extent remains undervalued. India has also certain macroeconomic challenges.
Sure, India has managed quite reasonable GDP-growth rates in recent years, at the same time showing good resilience in a worrisome global economic world (which partly can be related to the less globalized economy compared to, for example, the Chinese conditions, and partly to certain structural improvements).
Domestic demand is the real strong driver of Indian economic growth and will remain so, also when considering the enormous improvement needs of the climate, energy, infrastructure, education and living conditions. In the longer run, however, India should also achieve solid fundamentals for export-driven growth.
It seems obvious that macroeconomic shortcomings should be considered as well. Inflation, for example, could be lower. The same can be said about unemployment – unfortunately affecting young unemployed academics as well. The balance on current account on the other hand seems currently in an improving shape.
But in the first place of concerns we find public debt for both the central government and the federal states. Unfortunately, statistics are not always handled very carefully. Financial analysts often only quote central government debt and forget about federal state debt. Altogether, Indian public debt can amount to something like 85 percent of GDP (two thirds for central government debt and about one third for the federal states). In December 2023, the IMF sent a warning to India about possible negative public debt prospects (https://thewire.in/government/imf-warns-india-on-debt-concerns-says-it-may-exceed-100-of-gdp-centre-disagrees). Something to relate to future economic growth.
High Indian expectations – can they be met?
It seems to be clear that India has become much more ambitious in recent years and wants indeed to become a global economic powerhouse – combined with stronger political influence on this globe. Being generally considered as the largest democracy in the world will continue to help a lot in the eyes of Western governments and corporate decision makers. I use to define this special Indian position by using the words “that India has more sympathy points in the West” (compared to the autocratic and still opaque country of China).
So far, India has managed its sensitive relations to Russia quite well, i.e. without particularly irritating the Western hemisphere. But there exists also criticism against Prime Minister Modi’s consequent Hindi right-wing nationalist agenda. However, Narendra Modi and his Bharatiya Janata Party (BJP) – together with their coalition partners of the “National Democratic Alliance” – seem to have good chances to remain in power after the “Lok Sabha”-elections in (probably) April and May this year. Indian polls do not rule out some losses for the current coalition – but most probably without leading to a shift of government. Ongoing good growth prospects and India’s increasing role in international politics should contribute to another term for Modi and his coalition partners.
Strong winds of confidence are certainly blowing through India these days. Thus, India has officially declared to aim at a 7 percent GDP growth in both 2024 and 2025. Furthermore, the government has even set a considerably higher growth objective for the long run – by transforming India into a developed country by 2047!
An overoptimistic objective? Impossible to say such a long time in advance. However, I feel quite sure that the long road to a developed country must be paved by persistent and major institutional improvements and reforms. This is exactly what the Western corporate sector would like to see in the future.
Conclusion: Despite current good growth rates, India should not be regarded as an easy country to analyze and to deal with (see also my article on this topic from April 28, 2023, https://blogg.lnu.se/china-research/?paged=4).
Keep in mind now and in the future: the understanding of India takes time!
Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board