Does India want this development model? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Does India want this development model? 

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In this issue:
» Global recovery misses one important ingredient
» Foreign retailers still afraid to go solo
» China's economy grows at slowest pace in 15 years
» Foodgrain production to be at record high
» .... and more

India has well and truly entered in election mode. The last 10 years of the UPA government has seen the economy slip to one of its lowest points. Almost all important indicators of the health of the economy have slowly started reaching the danger mark. The slowdown that began with a downturn in fixed investment and manufacturing has spread to services and the rest of the economy in the second half of 2013.

Inflation has remained high for quite some time now. And this has compelled the RBI to keep interest rates firm even as growth has slowed. Corruption has been rampant. There were no meaningful attempts made to ramp up infrastructure. Some policies announced raised a big question mark on whether India is the right place to do business. And not to mention, the government's finances have gone completely astray.

With a vision to give an alternative to the voters for the 2014 Lok Sabha elections, Bharatiya Janata Party's (BJP) prime ministerial candidate Narendra Modi listed out various policies and proposals for the development of the country. In a convention-style speech to cheering party leaders, Modi pledged to improve education and health facilities, create more jobs, and attract more tourists as part of building "Brand India." He called for creation of 100 satellite cities to drive economic growth.

On education front, he called for setting up IITs, IIMs and AIIMs in every state of the country. To combat inflation he will create a stabilization fund and form special courts to try those who hoard goods. On building infrastructure, BJP will develop gas grids and optical fibre networks. Railways will also be modernized and a network for bullet trains that travel at high speeds would be developed.

So does India want Mr. Modi's development model? Mr. Modi is not a major supporter of spending too much towards populist measures. This can be seen in the development of his own state in Gujarat. On the social indicators' front, Gujarat has not really fared too well. Unfortunately for India, the UPA government has been doing just that. Only concentrating on populist measures and letting the economy take a back seat.

Now it is up to the Indian voter to decide if they want pro-business and pro-growth model or pro-masses model. All eyes are firmly on the 2014 general elections.

Do you think that the development model outlined by Narendra Modi is the right model for India? Let us know your comments or share your views in the Equitymaster Club.

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01:12  Chart of the day
For a nation that claims to be the youngest country by the end of the decade, employment is the key to success. In this context, the latest report released by Assocham regarding employment trend in India in 2013 does not offer much comfort. As per the report, of the 32 sectors tracked by Assocham, the job market did not expand in 20 sectors.

The cities in state of Gujarat, which is considered to be one of the most progressive in India, witnessed a year on year decline in new job generation in the range between 6.5% to 19%. However, job scenario seemed much better in the national Capital Delhi and adjoining National Capital Region. Delhi and NCR together accounted for around 25% of the total jobs created in 2013. Sectors like IT and related sectors contributed to a major pie. Around 43% of the jobs generated in 2013. However, on a sequential basis, even these sectors witnessed a 1% decline in the new job generation. Overall, the sectors witnessed a decline of 0.4% YoY. Service based sectors took the lead in job generation with sectors like banking and financial showing maximum rise. Today's chart of the day shows the sectors which saw maximum jobs growth in 2013 as compared to 2012.

Overall, the new job generation declined in 2013. Whatever growth was witnessed was not well spread across the regions or across the sectors. It's time the Government thinks seriously about providing job opportunities to its youth. Otherwise the country's strongest asset may end up becoming its biggest liability.

Sectors which created maximum jobs in 2013 vs 2012?

We have been maintaining all along that the global economic recovery that everyone is talking about does not quite have strong legs to it. And it appears that at least some experts share our concern on this. Like this gentleman on who has argued that the global growth puzzle has one key ingredient missing. And it is nothing but a lack of sufficient demand. You see, the main consumer engine of the world for quite some time now has been the US consumption demand. But the signs aren't quite encouraging here. The average US consumer is busy repaying its loans of the past. Besides, given the uncertainty ahead, it is not likely to go on a consumption binge any time soon. And with the US Government also up to its neck in debt, there's no way it can pick up the slack. So that effectively puts the entire onus on Asia. However, the data isn't encouraging here either. Wages in Asia aren't simply growing fast enough to enable its consumers to consume more. So, in conclusion, it looks as if the global economy seems to be suffering from both overcapacity and over indebtedness. And unless these are cleared from the system, a sustainable recovery may not take hold. Unfortunately, the Governments, with their repeated interventions, are only making matters worse.

The policy bottleneck for foreign direct investment (FDI) in the retail sector was envisaged as the biggest spoiler. However, it turns out that the silver lining behind this cloud is for real. And the incumbent players in Indian textile retailing are the biggest beneficiaries. As foreign retailers refuse to shoulder all the risks, their Indian partners have come to the rescue. Established branded retailers like Trent and Arvind Ltd have successfully entered into joint ventures with foreign partners.

In their case Spanish retailer Zara and US Polo have respectively kicked off operations taking advantage of the local know how of Indian partners. Several other such deals are also on the cards. The partnership has helped foreign retailers get a stronger local footprint in addition to shouldering just 50% of the regulatory risk. We believe that the current scenario is a win-win for both domestic and foreign players. However, a regulatory clarity will help the retail sector fetch more long term investments.

The last decade saw China grow at a stupendous pace that not only made it the fastest growing nation in the world but also lifted millions of Chinese from poverty. It was a growth largely fuelled by exports and China's prowess in manufacturing. But that growth engine has slowed down. Indeed, China recorded GDP growth of 7.7% in 2013. This is the slowest growth it has seen since 1999, a gap of almost 15 years. One of the major reasons for this has been the prolonged recession in the US and Europe wreaking havoc on its exports led model. The current Chinese government has shifted its stance and intends to focus on more quality development and not just growth in numbers.

This means that it could be a while before China's returns to the double digit growth it had seen in the past. For starters, the focus has been more on bolstering consumption back home so that dependence on exports is reduced. In the medium term, this could be a challenge since domestic demand has also slowed down. But in the longer term, this step could yield the desired results. Further, the growth that China saw in the past came at a heavy price in terms of deterioration in the environment. It appears that the current government intends to change this. Hence, a slower GDP number may not necessarily be a worrying factor as long as the Chinese government introduces reforms that will benefit the economic health of the country in the longer run.

The agriculture sector is the backbone of the Indian economy. It provides employment to about 60% of the country's population. As such, growth in this sector not only means better rural incomes, it can also aid in bringing down food inflation which has been plaguing the Indian consumers. As per an article in Livemint, President Pranab Mukherjee is optimistic that agriculture growth rate could touch the 4% level this fiscal. Food production is likely to break all previous records. India has emerged as the largest producer and exporter of rice. We are also the second largest exporters of wheat, sugar and cotton.

While we don't contest the facts that the President has put forth, our point of contention are the facts that he has conveniently chosen to ignore. Agriculture in India is still mainly dependent on the monsoon rains. A couple of bad monsoons could severely disrupt India's food supply. The other big challenge that India faces is supply bottlenecks that result in huge wastages. Unless these problems are correctly addressed, India's agriculture sector continues to remain vulnerable.

After starting the day in the red, the Indian markets moved above the dotted line and continued to hover around in a range bound manner thereafter. At the time of writing, the BSE-Sensex was trading higher by about 73 points or 0.3%. Stocks from the information technology and FMCG spaces are amongst the most preferred today, while those from oil & gas and metals spaces are not in favour. Mid and smallcap stocks were trading positive with their respective indices up by 0.5% each. Stock markets in other parts of Asia ended the day on a weak note with Hong Kong, China and Japan down by about 0.9%, 0.7% and 0.6% respectively.

04:55  Today's investing mantra
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18 Responses to "Does India want this development model?"


Apr 11, 2014

The right development model for India should address the questions like the following:

How can we achieve sustainable and inclusive development of India?
Can one single model be considered appropriate and prove equally successful in all the states/regions, given the proverbial diversity of our nation?
Can we make it a bottom-up approach by democratically engaging the people in the adaptive development process and deliver what they really aspire for?
It should be realized that future of India is urban - This does not imply caring only for metros and big cities, but also providing urban landscape near-uniformly all across states. This alone will create the right economic, social, environmental and political climate for creating equal opportunities for people to find their own paths to prosperity and happiness. Which means, do not let opportunities exist only in urban centres, but remove inequality of opportunities across the urban-rural divide and let rural people pursue their traditional livelihood options while still being able to enjoy urban-like facilities made available very close to where they live.

I have proposed a land and infrastructure reform model called PULSE (Paradigm for Urban Landscaping of States as Eco-regions). Anyone interested may review the complete details at my blog site developmentmodelindia-dot-blogspot-dot-com


Jacob Jose

Jan 22, 2014

If Modi and BJP are pro growth and investment why did they oppose FDI in retail? BJP is an opportunistic party with no clear policy agenda.. Modi of course will make a few Gujarati industrialists richer but what needs to be seen is whether he can regain growth and make sure the benefit reaches all Indians and not just crony capitalists that sing his praises all the time.


Raghuveer Singh Rathore

Jan 21, 2014

Of course, Development Model outlined by Narendra Modi for India will definitely be befitting & beneficial to India as a whole. In fact, Modi is bit hesitant & bit miser playing his cards fully. On the other hand if your expectations are unrealistic, no one can cater them. The Live Example of AAP & its Supremo Kejariwal is hardly hidden by any one.

Pro-masses Model cannot be achieved in a day as like the house-hold saying goes by – “Rome was not built in a day”.

Nevertheless, after Modi’s coming into power as PM, the existing scenario will change altogether. Under his expert & tactful governance, necessary measures shall be taken to curb the inflation & boost the GDP growth. Modi’s Development Vision is unambiguous & practical instead of fairy-tales dreams. Indian Economy in Modi’s Regime will get back to the track & public will feel a sigh of relief and could be seen serene instead of dejected. BSE may see new record highs and people like me will definitely get a booster dose of steroids in Equity.


Dhiren S. Shah

Jan 21, 2014

India wants Mr. Modi's development model .



Jan 21, 2014

It is better to teach how to fish rather provide fish. The populist economic measures is only giving fish in the hands of the needy and expect them to look again to the Government once they finish eating. But from where will the fish come from or who will fish the fish? At this juncture we should be looking at developmental economic policies rather than people oriented populist because the later needs fund and from where it will come?


Ravindra Duvvuri

Jan 21, 2014

I mostly agree with Narendra Modi's development model. But some measures for inclusive growth are also very necessary; not by offering free sops galore like the UPA Govt., but by various affirmative actions which help the poor to lift themselves out of poverty, help in making small farm holdings more sustainable and improving agricultural yields, promoting affordable quality education and healthcare and creating more productive jobs and reducing unemployment. The prevailing culture of mediocrity needs to be replaced by a culture of excellence.


ajit potnis

Jan 20, 2014

at least he has some model to talk about unlike congress which is drifting aimlessly


t v r

Jan 20, 2014

it is the right model. unproductive expenditure needs to be minimised


Rasikbhai Gandhi

Jan 20, 2014

Modi has the full backing of entire BJP leadership who walk on the philosophy of Shri Deendayal Upadhyay who broadly narrated Jan Sangh's philosophy through his Ekatm Manavad lecture series. Which happened to be a broad outline for the overall development of India. And Modi will put into practice with the help all modern technology suitable to modern time. Hence no doubt that India will have far better future than dark period under UPA rule.



Jan 20, 2014

Agree with him, absolutely. Though he can not create magic, he can definitely put us back on the path of fast growth. Ability to take quick decisions, nobody's man, not in favor of populist measures, fearlessness etc. is the need of the moment.

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