Can India ever become a superpower? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Can India ever become a superpower? 

A  A  A
In this issue:
» Is there another oil shock on the cards?
» Property developers in China facing tough times
» RBI cuts CRR by 75 basis points
» China's appetite for steel is reducing
» ...and more!


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00:00
 
China's sheer size and explosive growth has certainly marked it as a superpower in the making. Not that India is far behind, in terms of growth at least. Notwithstanding the current slowdown, India performed remarkably well in the three years before the global crisis. And even though growth slowed down a bit post the crisis, it was still quick to recover. Many Indian companies have made a mark in the international arena as well. And overall, personal incomes of India's population, especially the middle class, have swelled leading to a consumption boom. Plus, there have been increasing voices that it is just a matter of time before India overtakes China in terms of economic growth rate. But can India really upstage China? More importantly, does it have what it takes to become a superpower?

A study conducted by the London School of Economics (LSE) does not think so. The LSE study which encompassed experts in the areas of India's economy, defence, government, culture, environment and society, advises caution in assessing India's claim to superpower status. It states that there are various hurdles which India still needs to deal with. These include the challenge of the Naxalites, the degradation of the once liberal and upright Centre, the increasing gap between the rich and the poor, the trivialisation of the media, the unsustainability of present patterns of resource consumption in an environmental sense, the instability and policy incoherence caused by multi-party coalition governments among others.

Some of these are certainly major issues. For starters, on the income front, although India continues to make headlines on account of a rise in the number of billionaires, it also ranks among the top slot in terms of those having high levels of poverty. Focus on caste continues to exist and there has been too much weightage given to caste politics as well. Then comes the issue of rampant corruption, the elimination of which seems quite a tall order indeed. Security is also an issue.

However, all is not lost. Superpower or not, India still has tremendous scope to grow and the quality of many of its companies is still superior to that of China. What the government needs to do is focus on reforms that will bring in investments and create a climate for sustainable growth in the future.

Do you think India has what it takes to become a superpower going forward? Share your comments with us or you can also comment on Facebook page / Google+ page.

01:19  Chart of the day
 
Today's chart of the day shows the Economist's GDP forecast for various countries for CY12 and CY13. China and India still top the list although India's growth for CY12 has been pegged at 6.9%. That said, growth is expected to bounce back in CY13 and match that of China for that year. The outlook for the Eurozone continues to remain bleak as the region struggles to deal with the debt crisis.

Data Source: The Economist

01:33
 
As the stock market closed for the week and people rushed home to plan for the weekend, the Reserve Bank of India (RBI) was busy working. In a surprise move the RBI decided to cut the cash reserve ratio (CRR) ratio by 0.75% to 4.75%. The CRR is the percentage of the deposits that a bank must keep as cash with the central bank. This unexpected move came in a week before the scheduled monetary policy update. So will next week's policy review be a non event? Or is there further monetary easing in the offing? Well, we believe the RBI may wait for the Union Budget to be released before it makes any concrete decisions.

Tight liquidity was the major reason for the central bank's timely move. This CRR reduction is expected to inject around Rs 480 billion of liquidity into the banking system. This will provide the much needed relief given that advance tax payments are expected to be around Rs 400-600 bn. Credit demand is also expected to pick up towards the end of the fiscal as banks try and meet their year-end targets. The RBI is clearly worried about the slowing growth and tight liquidity. We await the next policy review to unearth more details on its future outlook.

02:15
 
It happened in 2008. Then in 2011. And now, it is threatening to take place in the current year as well. We are talking about another oil shock. The crude oil is tantalisingly placed above US$ 120 currently and many feel that this is the threshold that separates an oil shock from the absence of it. Thankfully though, the rise this time has not been as sudden as in the previous two oil shocks. But policymakers across the globe may want to get complacent at their own risks. There are quite a few dangers lurking out there. None so potent than an attack on Iran or the country's own attempt to choke off strategically important supply points.

Another risk is the Euro zone's reluctance to loosen monetary policy further in response to the sharp hikes in crude prices. This could easily derail its attempts at economic recovery and also perhaps push the entire global economy on the edge of a cliff. Then there is the biggest cat in the bag we believe. The US of A. It is imperative that the leadership of the country keep a calm head in the event of a price rise. Taking actions like cutting petrol taxes and releasing strategic reserves may certainly help in the short run. But it will do no good in the longer term scheme of things. Thus, as the Economist points out, odds of averting a 2012 oil shock depends mainly on the US keeping its cool. Any signs to the contrary and we could be asking for trouble.

03:01
 
Lower demand. Higher funding cost. And operating in an environment that is marked with liquidity tightening. We are referring to the property developers in China. The sector that was red hot just a few years ago, is now facing tough times. The government's moves to control property prices have severely hurt the prospects of several land developers, particularly the smaller and more regional players in the market. So much so that they are now very close to their downgrade thresholds as per the ratings agency Standard & Poor's (S&P). The agency has stated that the low to mid size companies may have trouble in accessing credit in the market. However, this bodes well for the larger developers. Land prices have come down in recent times. As a result, the larger players would be able to acquire more land bank at cheaper rates. At the same time, their better fundamentals would also give them access to cheaper bank funds.

03:26
 
Steel is a very integral ingredient in the building of an economy. Since the level of economic activity is closely linked to steel consumption, it often serves as a good barometer of economic growth. It is worth noting that the Chinese real estate sector is the single biggest driver of global demand for raw materials. China in totality accounts for a massive 40% of the global steel demand. Half of this is consumed by its real estate sector alone. In the last one decade, steel demand in the dragon nation has grown at a rapid pace of 15% annually. Owing to these reasons, the Chinese steel demand is watched very keenly. Any adverse changes therein would have repercussions for international steel prices and the global economy in general.

Now there is some bad news. It is expected that Chinese steel demand would slow down this year. This is on the back of waning construction activity in the country. Even last year steel demand had grown at a modest pace of 8%. A Chinese industry body fears that this year the same could go down to 4%. What will be the consequences of this slowdown? It will certainly hurt a lot of iron ore miners and steel producers as lower demand will also accompany prices falls. Coking coal prices will also come under pressure. But apart from the bad news, there may be some relief as far as commodity prices are concerned. If that could ease inflationary pressures in India and reverse the interest rate cycle, our economy would certainly get lifted out of the lull.

04:16
 
All major global stock markets with the exception of Japan closed the week on a negative note. The US stock markets were down 0.4% during the week. Worries that successful completion of Greece bond swap would trigger insurance payments by banks and financial institutions that sold credit default swaps (CDS) overweighed markets. However, the employment data showed signs of job creation and economic recovery in the US. Overall 227,000 jobs were added in the month of February 2012 with the unemployment rate being 8.3%.

The Indian stock markets were down by 0.8% after witnessing high volatility during the week. Markets see-sawed on the repercussions of key events like election results and Greece rescue plan that culminated during the week. Further, in an unexpected move, at least in terms of quantum, the Reserve Bank of India (RBI) cut the Cash Reserve Ratio (CRR) by 75 bps on Friday. The move will inject Rs 480 bn into the system. Unexpected rate cut is expected to drive the markets next week. Further, with the Union Budget 2012-13 scheduled to be announced on March 16, next week's session is expected to be equally volatile.

Amongst the other world markets, Japan was the only one to close in the green. France was down 0.4% while Hong Kong was down 2.2% during the week.

Data Source: Yahoo Finance

04:50  Weekend Investing Mantra
"If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring." - George Soros
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12 Responses to "Can India ever become a superpower?"

ashok kathpalia

Jun 26, 2012

this could well be an end to the debate -
INDIA IS PROBABLY THE LARGEST OR ONE OF THE LARGEST 1)IMPORTER OF GOLD .
2)HAS THE HIGHEST SAVINGS RATE .
3)INDIA IS THE THE ONLY COUNTRY WITH LEAST DEPENDENCE ON PLASTIC MONEY .
4)INDIA PARALLEL ECONOMY UNPARELLELLED .
5)INDIA IS THE WEST OR AMERICA FOR LL NEIGHBOURING COUNTRIES - BANGLADESH , SRILANKA , NEPAL , BHUTAN , BURMA ,PAKISTAN AND MAY CHINA .
6)INDIA IS THE ONLY COUNRY WHERE DELHI UNIVERSITY OFFERS YOU TO BECOME GRADUATE AT USD 100/- PA ( ANNUAL FEES ) .
7)INDIA IS THE ONLY COUNTRY IN GTHE WORLD WHERE YOU BUY BREAD FOR 80 CENTS A KILO .
8)IT IS THE ONLY COUNTRY WHERE PEOPLE ARE CORRUPT TO THE CORE COMPELLING THEM TO LIVE LIKE POOR WHEREAS THEY DIE LEAVING BEHIND WEALTH FOR WHICH THE IMMIGRANT CHILDREN COME BACK AND LITIGATE .
9)INDIA IS THE ONLY COUNTRY WHERE ALL IMMIGRANTS WANT TO BE BURIED AFTER THEIR DEATH .
10)INDIA IS THE ONLY COUNTRY WHERE THE SYSTEM OF ARRANGED MARRIAGE EXSISTS AND WORKS .
INDIA IS ALSO MAY BE THE LARGEST PRODUCER AND CONSUMER OF MILK AND MILK PRODUCTS .
11)IT IS THE ONLY COUNTRY WHERE ALL GERMAN CAR MANUFACTURERS WANT TO BE .
12)OUT OF THE VETY FEW COUNTRIES WE MAKE MERCEDES AND AUDIS AND FORD CARS .
13)INDIA 'S HERO MOTORS KICKED OUT HONDA MOTORS FROM MOTORCYCLE PRODUCTION AND DECIDED TO GO SOLO AS HERO .
14)A VEGETABLE VENDOR CAN DO BETTER CALCULATION FOR VARIOUS MERCHANDISE HE SELLS YOU TAH THE IIT'S AND THE BEST BRAINS IN THE WORLD .
15)INDIAN 'S WORK RELATIVELY LONGER THAN THE REST OF THE COUNTER PARTS IN THE WORLD .
16)WE ARE SEVERELY DOSORGANISED BUT WHAT HAS ORGANISED SUPERPOWERS ACHIEVED THE BIGGEST BEGGARS ARE THE SO CALLED SUPER POWERS .
17)RECESSION WILL NOT HIT INDIA FOR THE NEXT 10 YEARS INFACT WE WILL BE ABSORB THE WORLD DEPRESSION AS WE ACCEPT OUR GUESTS .
18)THE CUT OFF FOR THE DELHI UNIVERSITY NORTH CAMPUS ARE ABOVE 95 % AVERAGE FOR ANY COURSE .
THE DAY INDIA IS AWAKENED THE WORLD WILL BE FORCED TO BOW .
5)

Like 

A.P.J.Fonseca

Mar 12, 2012

Not even in the foreseeable future. Firstly, wealth has to trickle down to the poor. It is presently being sucked up by middle-men like in the PDS scheme. The justice system is flawed and no ordinary indian can escape the police even if he did not commit any crime. On the contrary a politician or babus can easily get-away scot-free even if he is proved corrupt by a court of law. Witness the case of Sukh Ram former minister. Also these babus and ministers have no conscience whatsoever. They are so shameless like Kripashanker Singh, Suresh Kalmadi, A.Raja etc.,. that when
caught they claim to be totally innocent. I challenge
any Indian who says that we can become a super power before the year 2100.

Like 

Kranthi Mark

Mar 12, 2012

Iam Sorry & Surprised !.
Majority of the reports on India are prepared by out siders who not even have clear idea on indias demographics , geography & How is inside India look like !! , what London school of economics , Harward , wharton etcs... what they know exactly India , they are just filling the pages of their thesis basing on some stupid data which is not even worthy . One financial Dean or guru comes to India stays at Mumbai Taj , Plays gulf in the near 5 Star gulf course and in the evening gives lecture on India at another 5 star hotel !! and our eletronic media covers and highlights the same for their prp. They have to travel in Mumbai local trains to understand India once , Iam sure next time they will be afraid to talk on India , becuase its not decaying infrastucture , there is no infrastuctire . Please stop relying on these foreign designed reports , kindly travel in India meet the common man and understand and use all ur analytics and come to conclusion ???.

Like 

P Kashyap

Mar 12, 2012

India cannot become a super-power atleast in the next 25 years! Why?
Muslim Minorities, who form a significant proportion of the population do not place emphasis for education & career. Control by Mullahs & Imams and their obsession with medeival 7th century Arab laws will continue keeping them out of the benefits that modern society offers. Their women are still under Burkahs and the male members continue their domination merrily. Polygamy is recognised for Muslims in blatant violation of a uniform civil code. Secular education is branded 'unIslamic'.

Next, Politicians' obsession with splitting the Hindu society into castes and each segment demanding quotas. Condition of Dalits in our Society is still pathetic. Even 65 years of independence and third generation of Dalits in the youth workforce has not made any impact. The only Dalit leader Dr. B R Ambedkar, foresaw reservations for 1 generation, but our assinine political class has ensured more and more reservations with no tangible benefits to these 'weaker' segments. Even the Dalit iconic CM of UP, Mayawati has frittered a golden opportunity by fragmenting UP society further and denuding the state exchequer of all the wealth. In typical Nero style, she built Elephants, Kanshirams, Ambedkars and Mayawati statues but forgot to use the same money for uplifting her Dalit constituency.

The educated class has lost its verve to bring in a revolution. This class is obessessed with migrating abroad and enrich itself. They prefer contributing to US & European economies leaving their homeland for good!

The key issues are Muslims, Resevation policy, Greedy creamy layer of the reservationists, apathy of government to take firm action on terrorism and communalism, oxymoronic 'dull educated' class, which is only after money..the list is endless. With these problems not addressed, How can one dream about becoming a economic powerhouse??

Like 

SUJIT BANERJEE

Mar 11, 2012

Dear Equitymaster ,
Since you all have contacts with all these experts through out the world would request you to convey the massage of common man that we also understand economics and express openly through protests ( getting bashed up even protesting against Corruption peacefully at the middle of night by these Politicians who comes asking for VOTE in the name of Democracy - even an IPS officer gets murdered for doing his job honestly taking action against Corrupt politicians interest ) are not scared to speak against the people in power which these ECONOMISTS? (of LSE) are . They are all DHONGI's. Times of INDIA publishes a full page coverage saying " MAOISM breeds out of HUNGER". Rahul Gandhi/Priyanka Vadra( Gandhi family) now have failed to make people of all ( specially UP )5 states FOOL ( ULLUH )and they this will happen in future also and a warning for all parties . They are not saint's . Naxalism / Maoism { brandname given by the so called mouth piece of Democracy ( Hypocracy)} will continue (its not someones pleasure to pick up arms). They are more patriots than these Politicians( Sucking/ Fucking this country and its people).
Jai Hind , Bande Mataram.

Like (2)

Baridbaran Das.

Mar 11, 2012

India posses all the ingredients but do not have a proper environment i.e society to make it a success.

Like (2)

MMCHANDAK

Mar 11, 2012

I STRONGLY BELIEVE THAT THE RBI,HAVING ALREADY CUT THE CRR BECAUSE OF URGENCY OF THE HOUR SHOULD RESCHEDULE ITS FORTHCOMING REVIEW MEET OF 15TH TO SAY ON 19 TH OF MARCH AND CONSIDER THE IMPACT OF BUDGET AND ACCORDINGLY TAKE DECISIVE STEPS/SEND STRONG SIGNAL TO MARKETS, RATHER THAN MEETING ON 15 TH AND DEFERRING THE ACTION,BECAUSE WE NEED TO ACT FAST AND DECISIVELY.

Like (1)

shirish patwa

Mar 11, 2012

I very much doubt the capacity of India becoming a super power.India's growth is very much lopsided.Hardly one percent of its population is owning more than sixty percent of its wealth.It affects the effective demand cycle,its consumption pattern.With equitable distribution of wealth there would be effective demand which work as catalyst in generating more employment opportunities and more wealth.Just compare,one Mukesh Ambani having a home costing Rs 600.00crore ,and,with the same outlay,60000 people owning sweet home of their dream.The level of satisfaction will simply multiply several times.Super power should have super economy.Only one organ in a body is healthy and other organs are weak we won't call it a healthy body,do we?

Like (2)

guest

Mar 10, 2012

Sir,
LSE has missed some other factors in their assessments.Like,We have a minister named Sibbal ,when not flashing his million $ smile,love destroying istitution of repute like IIT or can make a report of CAG type institution appear rubbish.Also have a partner of ruling party called T.C who are still learning how to behave not like opposison member

Like (2)

Zulfi

Mar 10, 2012

Never. Taking a cue from the current political scenario there is absolute no national aspirations. The regional aspirations of various political parties has jeopardised Indias success story.

Like (1)
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