West Keeps Indian Economy Afloat in Post Cold War World

India runs massive current account deficits. Its imports far outstrip exports year after year. According to the Reserve Bank (RBI) data, in the April-December 2014 period of last fiscal, India's current account deficit stood at $31.1 billion or 2.3% of GDP.



In spite such large recurring deficits, India has built up over $300 billion in foreign exchange reserves. How does it do it? The simple answer is: Foreign money inflows in the form of debt and investments mainly from the West keep the Indian economy afloat.

Sources of FDI in India Source: Financial Express
These inflows have dramatically increased with western support for India in the post Cold War world. Here's how Indian journalist Pankaj Mishra explains the larger western interest driving this phenomenon:

"Seen through the narrow lens of the West’s security and economic interests, the great internal contradictions and tumult within these two large nation-states (India and Pakistan) disappear. In the Western view, the credit-fueled consumerism among the Indian middle class appears a much bigger phenomenon than the extraordinary Maoist uprising in Central India".  

Here's how the Asian Development Bank (ADB) describes the rising inflows of foreign, mainly western, capital into India:

"Gross capital flows have increased nearly 22 times from $42.7 billion in 1991-92 to over $932.3 billion in 2010-11. As a share of GDP, this amounted to an increase from 15.5% in 1991-92 to 55.2% in 2010-11. Much of the increase in financial integration occurred between 2003-04 and 2007-08. Given the impressive economic performance indicated by close to 9% growth rate, higher domestic interest rates and a strong currency, India's risk perception was quite low during 2003 to 2007. Furthermore, this period was associated with favorable global conditions in the form of ample liquidity and low interest rates in the global markets—the so-called period of Great Moderation."

Many other economies have been growing faster and producing higher investor returns than India. So the returns do not justify the increased capital flows. Such flows are driven much more by the changing geopolitics of South Asia region and the world since the end of the Cold War in early 1990s. Without these inflows, Indian economy would collapse and India would be at IMF's door seeking last resort loans.

Lesson: Geopolitics drive economy. It's the reason for over a trillion dollars of western capital flow into India since the end of the Cold War. It also explains China's massive $46 billion investment commitment in Pakistan agreed during President Xi Jinping's state visit to Islamabad.

Related Links:

Haq's Musings

India's Soaring Twin Deficits

Xi Jinping's Pakistan Visit

How Strategic Are China-Pakistan Ties?

India Pakistan Economic Comparison in 2014

Pakistan's KSE-100 Outperforms India's Sensex

India's IT Exports Highly Exaggerated

Is India Fudging GDP to Show Faster Growth Than China?

Comments

Riaz Haq said…
Sources of FDI in India:


A comparison of the available FDI data to M&A data for India reveals an entirely different picture (figure 2). Countries like the US and the UK together make up 50% of M&A acquisitions into India, and Japan is responsible for another 10%. This triad is effectively responsible for three-fifths of FDI inflows into India (of the M&A variety at least). This provides us a more useful geographic breakdown of who is actually doing the investments in India.
A sectoral analysis of FDI inflows suggests that, on average, between 2000 and 2012, more than 35% of FDI inflows have gone into services, telecom and construction sector, with pharmaceuticals, chemicals and computer sector each receiving about 5% of the country’s total FDI inflows over the corresponding period. However, M&A data at the sectoral level for the same time span suggests telecom and pharmaceuticals (and healthcare) have attracted over one-third of the foreign M&A acquisitions in India. Of late, pharmaceuticals has attracted a greater share of M&As, with the sector taking about 20% of inbound M&A acquisitions between 2010 and 2013 (figure 3).
What does the foregoing discussion imply for policy? Obviously, first and foremost there is a need for better appreciation of the actual sources and destinations of FDI to and from India as well as the sectoral composition of FDI flows. In fact, while not discussed here, as Indian companies invest overseas more aggressively, better quality data on gross inflows and outflows at country and sectoral levels are needed.
Much more attention is also needed with regard to FDI quality at a more disaggregated level (i.e. new FDI versus retained earnings and greenfield versus M&A). While it is important for India to attract FDI, it is pertinent to ask the question whether a policy to attract FDI should be careful in distinguishing between the kind of FDI it wants to attract. All FDI are not the same and are not attracted by the same factors. The prime objective must be to align FDI with national development objectives, consistent with being an open economy.

http://www.financialexpress.com/article/fe-columnist/fdi-inflows-who-is-investing-in-india-and-in-what-sectors/28737/
Riaz Haq said…
MUMBAI—A large pile of debt on the books of India’s big infrastructure companies is complicating Prime Minister Narendra Modi’s plans to boost the country’s economy and improve its woeful roads, electric grids and other public works.

The companies that build big projects owe more than 3 trillion rupees ($48 billion), the result of a failed effort by the previous government to get businesses to help improve India’s infrastructure. The total amount of debt for Indian infrastructure companies is at its highest in more than a decade, affecting the overall economy because banks, fearing the loans won't be repaid, are reluctant to lend to other companies.

Debt levels have risen across Asia in the past five years and are now higher than they were before the Asian financial crisis in 1997. The borrowing has taken different forms in different countries. In China, giant state-owned companies borrowed the most, in Thailand and Malaysia, consumers took on debt, while in Japan, the government boosted its world-leading borrowing.

High debt levels could limit India’s ability to help drive global growth at a time when China is slowing and many of the world’s economies are weak. Foreign portfolio investors have poured $42 billion into Indian stocks and bonds over the past year, leaving them vulnerable to cracks in the country’s economy.

In India, overall debt levels are relatively low. But the sector struggling the most with its borrowing is also one that Mr. Modi is counting on to juice the economy and boost the country’s productivity. Instead, the companies are now focused on reducing their debt.

“At this point, we are not able to commit more equity to new projects,” said Ankineedu Maganti, managing director of Soma Enterprise Ltd., a south India-based developer of roads and other infrastructure projects. “We’re still trying to recover from the past.”

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In 2014, bank credit to infrastructure was 14% of overall credit, and now infrastructure companies account for among the biggest portions of the bad and stressed loans on the books of Indian banks.

The bad debt has made banks less willing to lend, weighing on the overall economy, according to a Finance Ministry report in December. “The ripples from the corporate sector have extended to the banking sector where restructured assets are estimated at about 11-12% of total assets,” the report said. “Displaying risk aversion, the banking sector is increasingly unable and unwilling to lend.”

Banks have been pushing infrastructure companies to sell assets and pay back debt. But India’s insolvency laws make it unattractive for lenders to push companies into liquidation, so the standoff is likely to continue.

http://www.wsj.com/articles/indias-debt-pile-up-complicates-growth-plans-1430758983
Riaz Haq said…
#India's August exports shrink for ninth straight month, fall 20.7%. #Modi #BJP http://toi.in/SejmIb

NEW DELHI: Contracting for the ninth month in a row, India's exports plunged by 20.66 per cent in August to US $21.26 billion, widening the trade deficit.

READ ALSO: Devaluation of yuan will affect India's textile exports

The significant slump in country's exports is attributed to global slowdown and declining commodity prices worldwide.

In August 2014, the merchandise exports had amounted to US $26.8 billion. The last time exports registered a positive growth was in November 2014, when shipments had expanded at a rate of 7.27 per cent.

Imports too declined by 9.95 per cent to US $33.74 billion in August this year due to high gold imports, leaving the trade deficit at US $12.47 billion, according to the data released by the Commerce Ministry.

However, the trade deficit has narrowed in August as compared with July this year, when the figure stood at US $12.81 billion.

In August last year, the deficit was US $10.66 billion.

Gold imports rose by 140 per cent to US $4.95 billion in the month under review from US $2.06 billion in August last year.

The main exporting sectors which reported decline in exports include petroleum products (fall of 47.88 per cent), engineering (29 per cent), leather and leather goods (12.78 per cent), marine products (20.83 per cent) and carpet (22 per cent).

Exporters expressed concerns over the continuous decline.
Riaz Haq said…
#Credit Rating: #India Doesn't Deserve To Be Equal To #China #China rated close to #US, #India near junk via @forbes

http://www.forbes.com/sites/panosmourdoukoutas/2017/02/05/india-doesnt-deserve-to-be-equal-to-china/#6e2c485d76b8

India doesn’t deserve to be next to China — when it comes to credit rating agencies that is.

That’s according to all major credit agencies, which give China a near perfect score — close to the US — and India a near junk score. Fitch, for instance, gives China A+, and India BBB- (see table).

China’s and India’s Credit Rating

India’s credit rating lag behind China is also reflected in credit markets, where the Indian government has to pay almost twice as much as China to borrow money for ten years—see table.

That’s certainly upsetting to India’s government officials, who blame credit agencies for favoring China over India. Specifically, they are critical of the agencies for failing to lift India’s credit rating despite its improving economic fundamentals, like robust economic growth rates and fiscal discipline.


At the same time, they point to the fact that the agencies have failed to lower China’s rating in spite of deteriorating fundamentals like – the slowing down of the economy and soaring debt to GDP ratio.


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China has a recent history of current account surpluses and enormous foreign currency reserves, while India has a recent history of current account deficits and moderate foreign currency reserves. This means that China lives below its means, while India lives beyond its means.

That’s a situation that may become worse with Narendra Modi’s free cash for everyone, which is expected to turn India into next the Brazil.

Persistent current account deficits make India more vulnerable than China to the next global crisis – one that, should it occur, will shift the tides of foreign capital flows from emerging countries back to developed countries—a big concern for the credit rating agencies and foreign investors that rely on them.

The bottom line: To move next to China in the credit rate scale, India must learn to live within its own means.
Riaz Haq said…
How #China beats #India hollow in trade and dominates #Indian homes, #markets #economy #trade http://economictimes.indiatimes.com/news/economy/foreign-trade/china-dominates-indian-homes-markets-and-economy-as-trade-deficit-widens/articleshow/59611452.cms via @economictimes

China seems to be grabbing most of it (solar panels). “The US and Europe are taking measures to protect themselves against Chinese dumping. We (Indians) have instead offered them a direct train to the Indian market. The government must ring fence Indian firms to allow them to grow,” says Chaudhary.

Miles away in Delhi, Rakesh Kumar Yadav shows you another Chinese-flavoured world. He is the president of the Federation of Sadar Bazar Traders Association. The umbrella platform for The umbrella platform for 83 other associations with 35,000 wholesale traders does business worth over Rs 3,000 crore annually and employs at least 100,000 people directly and indirectly.

About a decade back, the traders often used to source products — toys, plastic buckets, idols of Indian gods, among others — from domestic manufacturers. In toys alone, Yadav knows many Indian manufacturers who employed 500-plus people and were their suppliers. “They have all shut down and now import from China. Cheaper and better Chinese imports have wiped out the domestic industry,” says Yadav.

On the border, India is trying to ward off Chinese aggression. In the cold Himalayan plateau, temperatures have shot up as an old political rivalry heats up. India and China are sparring over the Doklam tri-boundary area (the third country being Bhutan), near Chicken’s Neck which connects India’s north-eastern states to the rest of the country. Shrill calls for a boycott of Chinese goods are getting louder, with the Rashtriya Swayamsevak Sangh (RSS) and its affiliate, the Swadeshi Jagran Manch, ..

Read more at:
http://economictimes.indiatimes.com/articleshow/59611452.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Riaz Haq said…
#IMF says #India vulnerable for depending on foreign money to finance public #debt, #trade #deficit http://ecoti.in/w-xtyZ @economictimes

India needs to remain vigilant as greater reliance on debt financing and portfolio inflows could create significant external financing vulnerabilities, a recent IMF report has said.

The The International Monetary Fund (IMF) in its report titled 'The 2017 External Sector Report' further said other risks to the Indian economy stem from global financial volatility and 'longer-than-expected cash normalization' following the currency exchange initiative.

"Like other EMs, too too great a reliance on debt financing and portfolio inflows would create significant external financing vulnerabilities. Therefore, there is need to remain vigilant to safeguard the Indian economy.

"...India's economic risks stem from intensified global financial volatility including from a faster-than-anticipated normalization of monetary policy in key advanced economies, longer-than-expected cash normalization following the currency exchange initiative, as well as slower global global growth," the report noted.

India's Monetary policy framework has been strengthened, the report said, adding, "but further supply-side reforms and continued fiscal consolidation are key requirements to achieve a low and stable rate of inflation in the medium-term as well as to keep gold imports contained."

Emphasising that continued fiscal consolidation is needed, which includes implementation of the goods and services tax and further subsidy reforms, the report s ..

Read more at:
http://economictimes.indiatimes.com/articleshow/59848585.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst


Riaz Haq said…
The great Indian trade-off
Sluggish exports leave India needing to curry favour with investors
Perennial domestic weakness, and America’s recent protectionist turn, make it hard for India to sell more abroad

https://www.economist.com/news/finance-and-economics/21742008-perennial-domestic-weakness-and-americas-recent-protectionist-turn-make-it-hard

In the 12 months to March 2018, $303bn of Indian goods ended up overseas. That was up on the previous year, but still short of the $310bn achieved in 2014, when the Indian economy was a quarter smaller. Imports, meanwhile, have increased to $460bn, pushing the merchandise deficit to $157bn last year, up from $109bn in 2016-17 and its highest level in five years. A surplus in services such as IT outsourcing helps reduce the overall trade deficit by around half, but even there imports are growing faster than exports.

The shortfall is swollen by the rising price of oil, lots of which India imports (and some of which is also sold on as refined products). The surge from around $30 per barrel in early 2016 to over $70 now goes a long way to explaining the rise in India’s current-account deficit, which is expected to reach 2% of GDP this fiscal year, triple last year’s reading. Gold imports, used for saving or jewellery, have their own unpredictable rhythms, but also deepen the deficit.

The current trade lull extends beyond gold and oil, however. Exporters across the economy are being squeezed by the poor implementation of a goods-and-services tax that came into force last July. Perhaps 100bn rupees ($1.5bn) of refunds due to exporters once they can prove they have shipped their wares abroad is being held up by sclerotic administration. That is working capital which small-time exporters cannot easily replace.

Worse, a $2bn suspected fraud by a diamond dealer in February has resulted in regulators banning certain types of bank guarantees that exporters use to ensure they get paid promptly, exacerbating their funding problems. These snafus come as many firms are still recovering from the ill-advised “demonetisation” of November 2016, when most banknotes were taken out of circulation overnight. The move snagged local supply chains, giving foreign rivals opportunities to fulfil orders that would have gone to hobbled Indian firms and to gain market share in India itself.

Those woes come on top of perennial frailties. Crippling red tape means most Indian firms are small: the country lacks the mega-factories hosting thousands of workers making T-shirts or mobile phones that are common elsewhere in Asia. All but a few firms lack the heft to participate in global supply chains. A relatively strong rupee in recent years has not helped.

Unwilling to enact labour and land-acquisition reforms that might foster larger firms, the Indian government is instead shielding its industry from foreign competition. In recent months it has imposed tariffs on a dizzying array of goods, from mobile phones to kites. Though those will no doubt help stymie imports, it is just as likely that trade measures imposed by other governments will hobble India’s exports.

For it is India’s misfortune that Donald Trump’s America is its biggest source of trade surpluses. Mr Trump’s administration has multiplied the salvos against India, whether decrying supposed export subsidies, making it harder for Indian IT workers to get visas or accusing India of artificially weakening its currency. Unlike many American allies, India has not been exempted from imminent steel tariffs.

India would be seriously damaged by any further escalation in trade conflicts. It needs hard currency from exports not only to finance imports and economic growth, but also to repay external debts. These have swelled to around $500bn, or roughly a fifth of GDP, more than 40% of which is due in less than a year.
Riaz Haq said…
#BoycottChina? Who hurts more? #China’s exports to #India account for just 2% of #Chinese total exports. 30% of India’s #automobile components, 80% of #Pharmaceutical active ingredients, 50% of #bicycle parts come from China. https://thewire.in/trade/china-goods-boycott-atmanirbhar-bharat via @thewire_in

Trade figures suggest that India is the biggest importer of Chinese consumer goods. India imports almost seven times more from China than it exports to it. India has huge trade deficit with China – its largest with any country. In 2018-19, India’s exports to China were mere $16.7 billion, while imports were $70.3 billion, leaving a trade deficit of $53.6 billion.

It needs to be acknowledged that China’s exports to India account for only 2% of its total exports, so even if Indians boycott all the goods imported from China, it will not make as big an impact on China. Data also suggests that China is India’s largest trading partner, but the trade is heavily skewed in favour of China. Thus initiating a trade war when Indian manufacturing ability is limited is not going to favour India.

The range of goods that we import from China is massive: consumer durables such as electronic goods, smartphones, industrial goods, vehicles, solar cells, and essential pharmaceutical products including tuberculosis and leprosy drugs and antibiotics, among many others.

In 2017-18, almost 60% of India’s import requirements of electrical and electronic equipment was met by China. In our smartphone industry, out of the five bestselling phone brands in India, four are Chinese – Xiaomi, Vivo, Realme and Oppo. These four brands combined dominate over 60% of the smartphone market in India. On the other hand, 30% of India’s automobile components are met from China and about 90% of the country’s toy market is occupied by Chinese products. Similarly, 50% of the demand in the country’s bicycle market is met by imports in which China has a large share. Thus, some of the key sectors of the Indian economy are critically dependent on China.


Talking of Chinese investments in our tech space, investments have seen a massive spike in recent times. A report published by Gateway House, a think-tank associated with the Indian Council on Global Relations, estimates $4 billion of Chinese tech investment in Indian startups. The Alibaba Group alone has strategic investments in Big Basket ($250 million), Paytm.com ($400 million), Paytm Mall ($150 million), Zomato ($200 million) and Snapdeal ($700 million).

Similarly, another Chinese group, Tencent Holdings, has investment in Indian firms like Byju’s ($50 million), Dream11 ($150 million), Flipkart ($300 million), Hike Messenger ($150 million), Ola ($500 million) and Swiggy ($500 million). Additionally, these Chinese firms are not the sole owner of these platforms. Many Indian and non-Chinese investors hold majority control in most of these companies, making it difficult to classify them as Chinese or non-Chinese. These insights negate any immediate ideas of rhetorical boycott calls without acknowledging the associated benefits India reaps from this relationship.

Trade data also goes on to demonstrate that India exports less to China (mainly raw materials) and imports more (mainly electronics and other manufactured goods which are in high demand). Statistics reveal that India’s pharma sector has critical dependence on Chinese imports used in drugs manufacturing.

India’s potential to manufacture hydroxychloroquine (HCQ), which was in a great demand recently as a possible cure for COVID-19, greatly depends on the Active Pharmaceutical Ingredients (APIs), or the raw materials used in the manufacture of these medicines or formulations. China is one of the leading producers and sellers of APIs, raising an alarm for us before we boycott Chinese products.
Riaz Haq said…
#India's Current Account #Deficit Grows to $8.1 billion, or 1% of #GDP in Jan-March 2021. Net foreign portfolio #investment was $7.3 billion, compared with a decline of $13.7 billion a year ago, mostly reflecting purchases of #Indian stocks. #economy #Modi https://mail.google.com/mail/u/0/?ogbl#inbox/FMfcgzGkZGdGQmzDbCKPzXlPrfwVZJnF

India’s current-account deficit widened more than expected as the trade gap expanded and the country saw lower private transfers from abroad.

The shortfall in the current account, the broadest measure of overseas trade, was $8.1 billion, or 1% of gross domestic product, in January-March, the Reserve Bank of India said in a statement Wednesday. That compares with a median estimate of $7.5 billion in a Bloomberg survey of 15 analysts.

Key Insights
India’s balance of payments surplus last year hit a record, according to data going back almost a decade, as the Covid-19 pandemic decimated trade
Wednesday’s data, which covers a period before India’s second wave of cases, saw net services income rise on the back of higher earnings from computer, transport and business services, the RBI said
The underlying reason for the deficit was “primarily on account of a higher trade deficit and lower net invisible receipts than in the corresponding period of the previous year,” the RBI said
Get More
Imports were higher during the quarter from a year ago while exports lagged
Net foreign portfolio investment was $7.3 billion, compared with a decline of $13.7 billion a year ago, mostly reflecting purchases of Indian stocks
Riaz Haq said…
India runs perennial trade deficits. Unlike China's, India's US$ reserves are not built by trade surpluses. India is heavily dependent on foreign debt and direct and portfolio investments for its US$ reserves.

As long the West sees India as a useful counterweight to China, the western money will continue to flow into India.

Here are a couple of excerpts from The Hindu Businessline on this subject:

https://www.thehindubusinessline.com/opinion/the-flip-side-to-building-forex-reserves/article35526054.ece

"Ample reserves are a source of comfort, but there are costs in managing them as well as risks due to debt and hot money flows"


"In BoP parlance, capital flows include equity flows (mainly foreign direct investment and portfolio investment) and debt flows (essentially consist of external commercial borrowing or ECB, NRI deposits, trade credit and portfolio debt investment). As per the IIP, debt liabilities account for nearly 48 per cent and carry the risk of debt service (repayment and interest payment). Portfolio equity investments are known as “hot” money or speculative money and as on March 2021, these flows accounted for 23 per cent of total liabilities. Thus, the forex reserves build-up has the potential risks of growing debt liabilities and facing the vagaries of “hot” money"
Riaz Haq said…
Russia and India reportedly halt talks over using rupees for trade, with Moscow preferring to be paid in Chinese yuan

https://ca.sports.yahoo.com/news/russia-india-reportedly-halt-talks-223027035.html

Russia and India have suspended negotiations over using rupees for trade, Reuters reported.

Moscow, with a high trade gap in its favor, believes accumulating rupee is "not desirable."

China prefers to be paid in Chinese yuan or other currencies.

Russia and India have suspended negotiations over using rupees for trade between the two countries, with Moscow reluctant to keep the Indian currency on hand, Reuters reported Thursday.

The halt in talks deals a blow to Indian importers of cheap Russian oil and coal who were looking forward to a permanent rupee payment mechanism that would help bring down costs for currency conversion.

Russia, with a high trade gap in its favor, believed it would have an annual rupee surplus of more than $40 billion if a mechanism were enacted. Moscow felt that accumulating rupee is "not desirable," the report said, citing an unnamed official with the Indian government.

India's finance ministry, the Reserve Bank of India and Russian authorities did not immediately respond to requests from Reuters for comment.

Russia wants to be paid in Chinese yuan or other currencies, a second Indian government official involved in the discussions told Reuters. Moscow has increasingly turned to the yuan to move away from the US dollar after Russia was hit with Western sanctions for invading Ukraine in February 2022.

India began exploring a rupee settlement mechanism with Russia soon after Moscow launched war against the former Soviet state. No reported deals have been conducted using rupees, Reuters reported.

A currency dispute between Russia and India left deliveries of Russian weapons to India on hold, Bloomberg reported last month. The stalemate froze more than $2 billion in payments from India.

One factor that contributes to some countries not needing to hold rupees is India's share of global exports of goods, which runs at about 2%, the Reuters report said.

Riaz Haq said…
Geopolitics is shrinking India’s risk premium | Reuters


https://www.reuters.com/breakingviews/geopolitics-is-shrinking-indias-risk-premium-2023-05-09/

India is also benefiting from worsening relations between Washington and Beijing. Companies are looking to shift supply chains out of the People’s Republic, while money managers need a place to deploy long-term funds with fewer risks of financial sanctions.

In some cases, the pivot is stark: Apple suppliers Foxconn (2317.TW) and Pegatron (4938.TW), for example, are building factories in Karnataka and Tamil Nadu. JPMorgan analysts reckon India will make one in four iPhones within two years, even though manufacturing costs are higher than in China. Ontario Teachers’ Pension Plan, Canada’s third-largest retirement fund, closed part of its China equity investment team based in Hong Kong in April, seven months after opening an office in Mumbai.

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MUMBAI, May 9 (Reuters Breakingviews) - Indian tycoons and financiers are sitting back as global business comes to them for a change. Apple (AAPL.O) CEO Tim Cook, Microsoft (MSFT.O) boss Satya Nadella and Blackstone (BX.N) President Jon Gray have all visited India this year. They are lured by a country whose potential as an alternative investment destination to China increasingly outweighs the local challenges of doing business.

Visitors see many attractions. India’s $3 trillion economy is forecast to grow by 6.5% this fiscal year, continuing to outpace the rest of the world. Plentiful imports of cheap Russian oil are keeping inflation in check. Meanwhile, the workforce of the world’s most populous country offers low costs, high numbers of technology engineers, and hundreds of millions of people who speak English.


Executives and investors also see a business-friendly government that is likely to remain in power for the next half-decade. Opinion polls suggest Prime Minister Narendra Modi will win a third term next year: the biannual Mood of the Nation survey, published in January, found 72% of respondents rated Modi’s performance as good, up from 66% in August. If he wins re-election with an outright majority, businesses would not have to worry about unpredictable coalition politics.

Yet India is also benefiting from worsening relations between Washington and Beijing. Companies are looking to shift supply chains out of the People’s Republic, while money managers need a place to deploy long-term funds with fewer risks of financial sanctions.

In some cases, the pivot is stark: Apple suppliers Foxconn (2317.TW) and Pegatron (4938.TW), for example, are building factories in Karnataka and Tamil Nadu. JPMorgan analysts reckon India will make one in four iPhones within two years, even though manufacturing costs are higher than in China. Ontario Teachers’ Pension Plan, Canada’s third-largest retirement fund, closed part of its China equity investment team based in Hong Kong in April, seven months after opening an office in Mumbai.




India appeals as more than a manufacturing base, though. Its economy also dangles the promise of Chinese-style growth. GDP per capita was $2,379 in 2022, less than one fifth of its eastern neighbour. Over 1.2 billion people have mobile phone connections; half of which are smartphones. Morgan Stanley analysts and strategists expect India to become the world’s third-largest economy and stock market before the end of the decade.

India remains a tricky destination for international companies and investors. New Delhi has a long-standing fondness for import tariffs and is infamous for wrangling over tax with multinationals including Vodafone (VOD.L) and energy group Cairn.
Riaz Haq said…
Last week’s stellar revival in Adani Group stocks has helped India reclaim its position among the world’s five largest stock markets.



https://qz.com/adani-put-india-back-in-top-five-stock-markets-list-1850484425



India lost its fifth position to France after the US-based Hindenburg Research in January, accused the country’s ports-to-power conglomerate Adani Group of “brazen stock manipulation” and “accounting fraud,” Bloomberg reported today (May 29). The allegations triggered a sell-off in Adani stocks, dragging the indices sharply lower.



However, as of May 26, stock market capitalization stood at $3.3 trillion in India, driven by foreign fund inflows into Indian shares—and a sharp recovery in Adani stocks. 

Foreign investors bought shares worth $4.5 billion in May so far, a little more than a two-fold increase from last month, according to India’s National Securities Depository. Adani’s listed entities added around $15 billion to their market value last week, recovering some of their post-Hindenburg losses.

Now France has been pushed out of the top-five list again after the country’s stock indices lost more than $100 billion in market value last week. This was caused by a sell-off in shares of luxury goods companies such as LVMH Moet Hennessy Louis Vuitton and Vivendi, due to fears of a slowdown in China and the US.


Investors are choosing India over China
India’s prospect as one of the world’s fastest-growing economies is alluring. 

Rival China, on the other hand, seems to have taken a backseat due to a stuttering economy. Beijing’s isolationist Covid-19 policies, turmoil in its real estate industry, and a harsh anti-trust campaign against the country’s valuable tech firms have crushed sentiments for Chinese assets, economists say.

Mark Mobius, founder of Mobius Capital Partners and a market expert, also sees India as a viable alternative. “You’ve got a billion people (Indians), they can do the same thing that the Chinese do. They can do the same kind of manufacturing and so forth,” Mobius told Fox Business in March.


Last week, Christopher Wood, strategist at Jefferies Financial Group, increased the weight of Indian stocks in his Asia Pacific portfolio, excluding Japan, Bloomberg reported. This reflects the dismay among investors when it comes to the Chinese stock market.
Riaz Haq said…
From Google Gen AI

India's current account deficit widened to $13.4 billion in Q4FY22, which is 1.5% of GDP. The capital account deficit was $1.7 billion in Q4FY22, which was the first deficit since the Taper Tantrum episode in September 2013.
The current account tracks the flow of imports and exports.
A current account deficit occurs when the inflow of foreign currency from exports is less than the outflow of foreign currency from imports.
The capital account tracks the flow of assets and liabilities.
A capital account deficit occurs when the debit items are more than the credit items. This indicates a net outflow of capital from the country.
The sum of the current and capital accounts is always zero. This means that when a country has a deficit in its current account, it necessarily has a surplus in its capital account and vice versa.
India generally has a capital account surplus because it attracts a large share of foreign investments.

https://prepp.in/news/e-492-capital-account-indian-economy-notes

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