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The India Question

“Chief among the forces affecting political folly is lust for power, named by Tacitus as ‘the most flagrant of all passions.’ Because it can only be satisfied by power over others, government is its favorite field of exercise. Business offers a kind of power, but only to the very successful at the very top, and without the domino and titles and red carpets and motorcycle escorts of public office.”

Barbara Tuchman, The March of Folly

“The Gita is in many respects a discouraging text…one is struck by the fact that Indian thought seldom if ever, shows any trace of the realism arising from personal commitment to workaday tasks.”

The Speaking Tree, Richard Lannoy

At an event I recently spoke at, a person asked my views on India. It’s a good question. India is now the most populous country in the world, a key part of the geopolitical puzzle, and offers investible assets.  I am curious, have traveled there and organized evenings of live Indian music in my house, but I am not an expert.

One question is how expert it is worth becoming.  There is a lot for an outsider to digest, including complex history and ways of thinking. In China, they eat snakes, in the US, we kill them. A local near Chandigarh, India showed me pictures of him gently re-locating a highly poisonous viper. Similarly, there are YouTube videos of Indians giving water to Cobras during a drought. It’s a different thought pattern.

Today, India is viewed as a potential global China replacement. I’m not convinced. Here is less a definitive answer than a hypothesis.

India today is about Prime Minister Narendra Modi, perhaps the most influential Indian leader since Nehru (in the 50s) or Gandhi.  I was with Modi in the same room, admittedly a large room, and he immediately struck me as a remarkably adroit politician, sidestepping difficult questions the way a cat effortlessly balances on a pointy fence.  This adroitness is more than stagecraft—Modi is shrewdly benefitting from Russia and China’s missteps. But questions remain, such as:

a. Can India reduce the risk of conflict in Asia? 

b. Can India compete with China in terms of manufacturing and meaningfully lower global labor costs?

c. Are Indian assets attractive, which in part relates to what growth rate India can sustain?

My preliminary answer to these questions is “unlikely.” My framework is that Modi is focused on two things-himself and his country, in that order. That framework helps put some of his notable decisions into context.

a) Like China, India is buying sanctioned Russian oil at a discount. This benefits India by lowering input costs and boosting its currency (because India spends less on imports) but harms Ukrainians. You can divide the world into countries that export oil (Russia, Saudi, US) and countries that import it (Germany, China, Japan, India). Normally producers have leverage. Now the tables are flipped because of Putin’s miscalculation and Modi is taking that advantage. To be sure, some of this oil is then re-sold to Europe or the US, so the moral reality is more complex than it appears.

b) Over the course of Modi’s almost ten-year rule, he has pushed through impactful, bold economic reforms that are transforming India. The goal is clearly to make India more efficient. These include cutting corporate taxes, de-monetization (forcing consumers to use electronic cash and thereby reducing graft), and creating universal ID cards, known as the Aadhaar program, which opens up millions to banking and can further accelerate growth.  

c) Constraining an independent press, including censoring a BBC documentary that looked into Modi’s ethno-nationalistic policies, like shifts in Kashmir’s legal status and, allegedly, tacit approval to anti-Muslim riots that killed thousands in 2002 in Gujarati when Modi was the regional chief there. India has roughly 200 million Muslims and the 1947 Partition is a still relatively fresh scar. Muslim support for Modi’s Party, the BJP, is less than 10%.

Modi appears to be using the Orban, Erdogan, Bolsonaro, Trump playbook, which is to find an issue the masses agree with (in this case anti-Muslim bigotry) and the Delhi elite abhors and use it to rally people normally outside the political process. India’s economy is booming, the best cure for endemic poverty, but the cost of smooth highways is a significant budget deficit and religious tension. The Indian musicians I hosted at my house loath Modi, a business person I know is more optimistic and polls suggest Modi is wildly popular.

Does it take a cult of personality or a “guru” to lead India? India is one of the few regions of the world (the US and China too) large enough to have a significant, internally diversified economy. Yet, India’s GDP/capita, while rising, is a mere $2,400, compared to China’s $12,500 and around twenty percent of India’s population is illiterate. The country is more corrupt than China and quite exposed to global warming, which may make parts of it almost uninhabitable in the coming decades.

My caution is due to the fact that:

1.     In terms of reducing tension in Asia, India is non-aligned. This is tied to intricate issues ranging from Pakistan to China to legacy Soviet military technology. Will Delhi oppose China seizing Taiwan, despite feints of support toward the Taiwanese?  

2.     In terms of replacing China, India’s regulatory dynamic (democracy vs. authoritarianism) and work ethic are quite different than China’s, and thus mimicking the outsourcing of China manufacturing (not call centers) seems remote. Regarding the work ethic, think Protestants vs. Catholics or Bhagavad Gita vs. Confucius.

3.     In terms of India’s assets, a Modi boom

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