India update

I moved to India in June from the US, so have developed a personal view on the situation here, if it interests you:

At a macro level, we have seen a gradual dampening of growth (down from 9% forecasts for 2009 a few months ago to about 5% to 6% now. The IMF projects it at the lower end of the range and the self-serving politicos claim the higher end. Some sectors like IT and BPO (about 15% of GDP) which are directly export linked are expected to suffer but domestic consumption continues. Sectors like Telecom and Consumer Goods (non-durables) are growing well.

At a more micro level: Anecdotal evidence suggests that firms and families are beginning to review discretionary spending. So new car sales are down. What had emerged as the fastest growing aviation market is hurting badly as vacations abroad are no longer the talk of house parties. Malls are busy but primarily at eating establishments. Stock markets are down 65% from their year ago highs. However, there is rampant optimism that rural consumption, some sectors like telecom and a resurgent IT/BPO sector will see the country through the global crisis.

Jobs: Some multinationals have been shedding jobs here since they effectively used India as a back-office to a crumbling front-office in the West. But domestic (especially public sector) banks are hiring. The largest employer in the country is (to my amazement) the federal government and we are heading into election season here. Couple that with stringent financial controls on banks and insurance companies and I feel we have enough dykes built around the economy to hold out for a few months at least.

What could go wrong? India’s emergence as an Asian tiger has been fueled primarily by foreign investment. We have had our own Enron here recently which doesnt help stock market valuations. A couple more of these and foreign investors will exit this market in a hurry. The local currency (Indian Rupee) is down 30% since I moved here in June closing at about 52 INR/USD on Friday. That is another impediment to FDI here since every dollar generating returns in rupees has to produce 30% just to break even. And yes, if the rest of the world gets a lot worse, then all this wont matter. We will be back to a closed, socialistic, primarily agrarian economy.

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