‘an ele­phant start­ing to run’

With china’s econ­omy slow­ing, all eyes turn to in­dia in search of growth

The Daily Press (Timmins) - - BUSINESS - JOE CHIDLEY

When don­ald Trump, who is no stranger to Twit­ter hy­per­bole, de­scribes a meet­ing with an­other world leader as “hope­fully his­toric,” it’s hard not to con­sider it a case of damn­ing with faint praise. but that’s the way he de­scribed his talks with Xi Jin­ping, china’s pres­i­dent, in ar­gentina at the G20 sum­mit last week. and no won­der. days af­ter the sum­mit, what kind of trade truce the two su­per­pow­ers ac­tu­ally struck seems to de­pend on which White house of­fi­cial you lis­ten to, which chi­nese state-con­trolled me­dia out­let you read, or which way the wind is blow­ing. at best, it looks like the U.s. has agreed to with­hold rais­ing the tar­iff rate on Us$250 bil­lion worth of chi­nese im­ports for 90 days while ne­go­tia­tors try to work out a longer-term deal. hope­fully.

in any event, in­vestors who had been hop­ing for even a short-term respite from trade jit­ters — and the gath­er­ing storm of global eco­nomic gloom — didn’t get much of one from the G20. and un­til there’s clar­ity, wor­ries over china’s eco­nomic growth won’t di­min­ish. The in­ter­na­tional mone­tary Fund’s fore­cast for GdP growth this year — 6.6 per cent — will al­ready be the low­est mark since 2001, when china joined the World Trade Or­ga­ni­za­tion. if next year’s imF pro­jec­tion — re­vised down to 6.2 per cent in Oc­to­ber, in part thanks to the Trump tar­iffs — proves ac­cu­rate, the china slow­down will be even more se­vere. From 2000 to 2014, china’s av­er­age an­nual growth was 9.6 per cent; from 2015 to 2019, the av­er­age will be about 6.8 per cent.

With china slow­ing, where can the world turn in search of growth? Well, the man­tle of fastest-grow­ing big econ­omy now rests squarely on the shoul­ders of in­dia, which the imF has dubbed “an ele­phant start­ing to run.” Now the sixth largest econ­omy in the world — sur­pass­ing France ear­lier this year, for what it’s worth — in­dia ac­counts for about 15 per cent of global growth. The imF pegs in­dia’s fis­cal 2018/19 GdP growth (in­dia mea­sures GdP from april through to the fol­low­ing march) at 7.3 per cent, up from 6.7 per cent the pre­vi­ous year. The re­serve bank of in­dia is a lit­tle more op­ti­mistic, pre­dict­ing 7.4-per-cent growth this fis­cal and 7.5-per-cent in the first half of Fy 2019/2020.

and there’s po­ten­tial for more, not only be­cause in the­ory, at least, in­dia should be rel­a­tively in­su­lated from ris­ing trade pro­tec­tion­ism. its work­force is young, and about twothirds of the pop­u­la­tion is of work­ing age. With con­sis­tent fast growth, hopes are run­ning high that the coun­try’s mid­dle class will bloom — some es­ti­mates put it at more than a half-bil­lion peo­ple by 2025. For­eign multi­na­tion­als are re­port­edly pour­ing money into buy­ing up in­dian con­sumer prod­ucts as­sets, one of the rea­sons there have been more in­bound merg­ers and ac­qui­si­tions in in­dia than in china so far this year.

be­yond de­mo­graph­ics, the more busi­ness-friendly poli­cies of Naren­dra modi’s bJP gov­ern­ment can also take credit for in­dia’s pace­set­ting growth. it in­tro­duced a lon­gover­due goods and ser­vices tax last year, and tack­led black money in 2016 with its con­tro­ver­sial de­mon­e­ti­za­tion scheme. crit­ics have rightly charged that the im­ple­men­ta­tion of both was botched, but let’s face it: in a coun­try as po­lit­i­cally, so­cially and eco­nom­i­cally com­plex as in­dia, no good will ever be im­ple­mented with­out some de­gree of botch.

so is now the time for West­ern in­vestors and busi­nesses to turn to in­dia? The po­ten­tial is huge, of course, but so are the chal­lenges.

For in­vestors specif­i­cally, in­dian stocks, which are trad­ing at al­most 20 times earn­ings, are hardly cheap by emerg­ing mar­ket stan­dards. and there are risks to the growth ex­pec­ta­tions un­der­pin­ning that val­u­a­tion.

One of them is po­lit­i­cal. a gen­eral elec­tion will be held next spring, and modi’s re-elec­tion is far from as­sured. The ru­pee has been bat­tered this year as the dol­lar has soared, mean­ing that in­di­ans are pay­ing more, es­pe­cially for fuel. On that note, while in­fla­tion has re­mained largely in check by in­dian stan­dards, the coun­try is a heavy im­porter of en­ergy — if prices rise dra­mat­i­cally, so will in­fla­tion. eco­nomic growth has been strong, but in­come in­equal­ity seems to be on the rise.

an­other neg­a­tive is that in­dia re­mains a very dif­fi­cult place to do busi­ness, de­spite modi’s at­tempts at some re­form. labour laws and ret­ro­spec­tive taxes drive for­eign com­pa­nies into fits. The bank­ing sys­tem re­mains frag­ile and sad­dled with bad debts. cor­rup­tion and slow-mov­ing bu­reau­cracy are con­stant road­blocks. so is the ju­di­ciary. The gov­ern­ment at long last has in­tro­duced a rea­son­able bank­ruptcy law that com­bats the im­punity with which con­trol­ling share­hold­ers can re­nege on cor­po­rate debts — leg­is­la­tion that could go a long way to im­prov­ing bank bal­ance sheets — but pro­ceed­ings in some high-pro­file cases so far have been mired down in the courts, whose back­logs are huge.

and fi­nally, the big­gest chal­lenge to in­dian growth might be growth it­self. in or­der to cap­i­tal­ize on its de­mo­graphic po­ten­tial, the coun­try re­quires mas­sive in­vest­ments in ed­u­ca­tion, in­fra­struc­ture and tech­nol­ogy to build ca­pac­ity. Where will the money come from? Open­ing up to for­eign in­vest­ment is key, and modi has made some head­way to do so, but it’s not clear it’s work­ing: growth in for­eign di­rect in­vest­ment hit its slow­est pace in five years this sum­mer.

so even with china slow­ing, the rest of the world is wait­ing to see how the in­dian growth story un­folds — be­fore hitch­ing a ride on the ele­phant econ­omy.


Shop­pers ride es­ca­la­tors at a mall in Mum­bai, In­dia. The IMF pegs In­dia’s fis­cal 2018/19 GDP growth at 7.3 per cent, up from 6.7 per cent the pre­vi­ous year.

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