ECONOMICS: The Indian Road Show
Far Eastern Economic Review
Dec 4, 1997
If Only . . .
* By Salil Tripathi in Hong Kong
As they brace for weeks--perhaps months--of political instability in
New Delhi, many India-watchers are left speculating wistfully about what
might have been. If the political crisis hadn't come in the way, some
say, the country would have been ideally placed to capitalize on the
East Asian crisis.
"This was expected to be a good time for India," says Mark
regional economist at Peregrine Research Institute in Hong Kong. Foreign
investors looking for alternatives to East Asia's plunging markets may
have considered India as a good option. But, McFarland says, the absence
of a government "with a sense of direction" in New Delhi will force
investors to postpone investment decisions.
"It's a pity, because India was really beginning to look good in
comparison with the Thailands and the Indonesias," says a South Asia
analyst at a Hong Kong-based brokerage. "Right now, investors' attention
is focused on a few macroeconomic parameters, and India has been doing
very well on most of those counts."
India has certainly avoided some of the traps that have caught
East Asian tigers out. Its current-account deficit, for instance, stands
at a manageable 1.5% of GDP. Short-term foreign debt is low, and
government restrictions have prevented banks from making too many risky
loans. Foreign-exchange regulations shield the rupee from speculators
abroad, and with reserves of $28 billion, the Reserve Bank of India
seems well equipped to defend the currency from an East Asia-style
Also acting in India's favour is its track record of pushing
economic reforms even in times of political crisis--albeit at a slower
pace. India-watchers point out that the country's economic-management
team, led by Finance Minister P. Chidambaram, has been able to keep the
reform process going despite the difficulties presented by a coalition
government of ideologically disparate parties.
Indeed, even while the United Front government teetered on
of collapse in mid-November, it was able to make two important
economy-related announcements--the appointment of reform-minded
economist Bimal Jalan as the new governor of the Reserve Bank of India,
and the decision to dismantle within a few years the
administered-pricing mechanism for petroleum products.
These reforms have been slow in coming, leading some observers
describe India as an economic elephant, as opposed to the nimble East
Asian tigers. But some analysts now argue that this may not be such a
bad thing. "At this time it is better to be an elephant than a
tiger--look what's happened to the tigers," says Uday Kotak, chairman of
Kotak Mahindra Capital in Bombay.
Also unlike the East Asian tigers, India's economy doesn't
heavily on exports; they amount to a mere 10% of GDP. As Andrew Freris,
managing director at Bank of America Research in Hong Kong, points out:
"India is one of the least trade-dependent economies. Its economic cycle
is entirely driven by domestic factors."
And the domestic front has been holding up fine, says Manu
the Singapore-based managing director and head of research at
SocGen-Crosby. "The market has factored in the political disruption, and
you have evidence of economic growth," he says. "Corporate-earnings
growth is strong, demand is strong, the monsoon has been good and rural
demand is rising."
Bhaskaran concedes that India is not "a sexy sell," but maintains
that "the time is good for institutional investors to commit funds" to
the country. If only they can look past the politics.