Can India become a global power? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Can India become a global power? 

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In this issue:
» Jim Rogers bets on the demise of a country
» Global wheat prices tumble
» Time for MNC pharma to do a strategy rethink?
» Why oil could see demand taper off...
» ...and more!


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00:00
 
India burst on to the international scene when it recorded 9% plus growth for three consecutive years. This was before the global financial crisis. With China also doing well, both of them began to be spoken of in the same breath as the largest growing economies in the future years. Maybe even become a global power some day. But an article in the Economist suggests that while China has what it takes to become a power to reckon with, India can only hope to 'almost get there.'

For a country to become a global power or a superpower, it has to be able to cast great influence in global politics and display military dominance. India does have strengths. It is a big believer in democracy, has a rich and diverse culture and world class organizations and a strong economic promise.

But when it comes to an active security policy and defense, it lacks any focused strategy. As it is defense spending is quite a controversial topic. It largely gets categorized as unproductive expenditure. This does not bode well if there is not too much left for spending in productive areas. Being situated the way it is, India is compelled to step up its defense spending. Indeed, its rapidly rising defence budget is forecast to be the world's fourth-largest by 2020. Despite this, ironically, the country's image comes across as anything but forceful. This could be attributed to the fact that India's politicians and bureaucrats do not show much interest in grand strategy. Plus, there is some sort of a disconnect in the thinking of the government and the armed forces. Not to mention shortage of military expertise.

Due to a mounting fiscal deficit, the Indian government has come under increasing pressure to cut this down. It being constantly told to reduce wasteful expenditure and step up the pace on developmental activities. We believe that if economic development is important (and it should be), then wasteful expenditure has to be toned down and this includes defense. However, it seems increasingly unlikely that there will be a cut in defense spending. So that being the case, the least the government can do is give some thought to broader strategy. Especially, in terms of how it intends to be stronger on the military front in the global arena.

Does India have what it takes to become a global power? Please share your comments or post them on our Facebook page / Google+ page

01:26  Chart of the day
 
While China's GDP grew at a stupendous rate in the past years, there has been a robust growth in GDP per person as well, if one looks at the average annual growth over the 30 year period from 1982-2011. This played an important role in taking the standard of living in the country up a notch. And as today's chart of the day shows, an almost 10% growth in the 30-year period means that China leads the pack of Asian economies. How does India fare in comparison? Not too well. Although the Indian economy has also grown at a robust pace, it has not necessarily translated into the same kind of growth in GDP per person. This means that not only will India have to grow much faster than its current rate of growth, it will also benefit if the rate of population growth slows down.

Data Source: The Economist


2:01
 
How do you profit if you are convinced a certain country would cease to exist at some point in the future? Well, you would short the nation's currency, isn't it? Or go short its equities or bonds. But what if even these markets are virtually non-existent? Then it becomes really difficult, isn't it? Certainly not for a man who answers to the name of Jim Rogers. For he's found a unique way to bet on the demise of the country of North Korea. As per reports, around 13 rare North Korean coins were snapped up by the ace investor at a recent coin fair. While these coins were mostly made out of gold, a lot of silver coins were also bought by Rogers.

The rationale of the purchase is not that difficult to find. As per Rogers, there is a strong chance that North Korea will stop to exist in its current avatar at some point in the future. Thus, the rare coins that were bought by Rogers would start attracting a hefty price tag. And it is this trend that Rogers tries to take advantage of. Just goes to show that successful investors don't always go after the tried and the tested. They try to sniff out profit opportunity even in the most unthinkable of asset classes.

02:36
 
India has been saddled with excess grain produce for long. Only recently, the government considered exporting wheat. That too to partially combat the current account deficit problem. But it seems the decision came in rather too late. It now seems India will have a wheat glut, worsening its storage problems.

A sharp fall in global prices of the grain has dashed India's export plans. Global prices of wheat have tumbled in the past week below the government-fixed minimum export price of US$ 300 a metric ton. At US$ 270 a metric ton export price, the cost is lower than that at which the government has secured the produce from farmers! Besides falling global prices, optimism over better global output in 2013 have dampened India's wheat export potential. Once again this is a government initiative that has turned out to be a damp squib!

03:01
 
When a particular good becomes expensive you start looking for alternatives. You would either try and cut down on your use of the product or go for an alternative product. A similar thing seems to be happening for one of the biggest commodities in the world. As per Financial Times, the commodity is none other than crude oil. After enjoying decades of high demand that led prices to remain firm, oil is set to see demand taper off. The reason for this is the substitution of oil with natural gas.

With new sources of natural gas, like shale gas, being made commercial, the big oil consuming nations like US are turning to gas to fuel their needs. Countries that are not so rich in natural gas reserves are trying to figure out ways to cut down their oil needs. One such way is by making their automobiles more fuel efficient. In addition to this, they are investing heavily in technologies to make more gas driven vehicles. China has taken the number of LNG driven trucks to 40,000 already. This marks nearly 8% of the heavy duty trucks in 2012. And let's not forget that China is one of the biggest importers of oil. If it continues to invest in such measures, it would eventually come to rely lesser on oil.

A chain of such events will lead demand for oil to slacken. And eventually prices would follow. Though this is not happening in the next one or two years. Nevertheless the day is not far off when oil demand and prices would actually decline. Given India's dependence on oil imports, that day would be a glorious one for us.

03:42
 
MNC pharma companies have always shown interest in emerging markets and India is one such preferred destination. But, over a period of time, challenges for MNC pharma companies in India have only grown. Like the recent back to back rulings that have gone against them. The recent ruling by the Indian Supreme Court dismissed Novartis's appeal for patent protection of its anti-cancer drug Glivec. There is no doubt that these verdicts are in the consumer's interest, as more drugs can be availed at cheaper prices. But there is the other side of the coin too. MNCs have articulated that they are charging for the innovation of a new drug and it was their cost pertaining to the R&D done in order to bring a new drug to the market.

Thus, if such events increase, there is possibility that MNC companies will avoid bringing innovative drugs in the Indian markets. Having said that, the other stronger fact is that the drug pipelines of global MNCs are drying. And hence, emerging markets have become an area of interest. Therefore, in order to survive in the Indian market, MNCs can't completely do away without launching new products. They might have to compromise on the price front and find out new ways to sustain growth in the Indian market.

04:11
 
The developed world has been drowning under the burden of debt. Policy makers have been struggling to find ways to get out of this. Take the case of Francois Hollande, the President of France. During last year's presidential campaign, he had proposed a 75% tax rate on the rich. That is, individuals earning over 1 million euros. But the proposal was rejected by France's judiciary.

Now, he's back at it again. But with some changes. As per his new proposal, he has shifted the burden of payment from individuals to businesses that pay salaries over 1 million euros. What's his rationale behind this? He said that the measure would ensure transparency at large corporations. This is assuming that they are the ones that can afford to pay such salaries.

But will these kinds of predatory tax rates revive the economy? We're skeptical. In a scenario where the economy is already stagnating, this will be a further dampener. For instance, famous French actor Gerard Depardieu moved out of France after Hollande's proposal last year. He assumed Russian citizenship and moved to Belgium. There are chances that such tax rates could push valuable talent pool and businesses to move out of the country.

04:45
 
The Indian stock markets rose above the dotted line and moved higher during the post noon trading session. At the time of writing, the BSE-Sensex was trading firm by about 125 point or 0.7%. Midcaps and smallcaps were however, more in demand as their respective indices were up by 1.1% and 1.5%. Barring stocks from the realty , auto and FMCG packs, stocks across the board were trading higher. Metal and oil and gas stocks were the preferred lot today. As for the rest of Asia, the markets were mixed as China and Japan ended lower, while Hong Kong ended higher.

04:56 Today's investing mantra
"As long as we can make an annual 15 percent return on equity, I don't worry about one quarter's results." - Warren Buffett

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    7 Responses to "Can India become a global power?"

    Nathan

    Apr 2, 2013

    The defense expenditure by itself does not contribute to making India a Global super power. We are relying largely on imported equipment from Russia and the West for modernizing and replenishing our defense needs. In comparison China has built far superior military-industrial capability to become self sufficient in military hardware. Our defense spending has to be focused and corruption free to be effective.

    Like 

    Nathan

    Apr 2, 2013

    More than the defence spending it is the size of the military-industrial sector which actually powers the military. The Chinese have parallel y developed the technology to compete with the global powers. In comparison Indian research and development in military equipment be it tanks, air crafts or naval ships has a poor track record and the external procurement is riddled with middlemen and corruption. In this scenario it is a dream to become global power of reckoning.

    Like 

    santosh arora

    Apr 2, 2013

    we all must treat human as a human. as u know ur pains so u should know others pains. we must share wealth of planet earth equally amoungest humans. we all need 3 things
    1. protecion when u r born & growing
    2. a roof on head
    3. free education to all
    defence spendings must cut. no nation has rights to attack other nations or occupy or dictate terms.
    china & india is leading human rights better then other nation. UN has failed its roll 0n human rights.
    china & india must resolve issue of its borders & be an exaplary to other nations
    no one is above humans & human values

    Like 

    indian

    Apr 2, 2013

    NOPE... you can do better...start calling a spade a spade...???

    Like 

    R.Jayaraman

    Apr 2, 2013

    Given the significant percentage of population below poverty line, lack of infrastructure in all areas of concern,very high levels of corruption among the elected elite and Government servants, 60% of population lacking sanitation facilities, it is a joke that India is aspiring to become a Super Power. At the moment it is a super shit hole. Sorry to use the expression.

    Like 

    Srinivas

    Apr 2, 2013

    NOT until we WAKE Up, and, INCREASE our EFFICIENCY by more than 300%. We are a BUNCH of LAZY & IN DISCIPLINED PEOPLE.

    Like 

    Kuldeep Nayar

    Apr 2, 2013

    Well said. But to expect reduction in wasteful expenditure or defence expenditure by politicians is a pipe dream. Where would they get their kickbacks?

    Like 
      
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