Should India be proud of its billionaires? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Should India be proud of its billionaires? 

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In this issue:
» Corporate debt in Europe set to mature
» Coming crisis will be worse than the 2008-09 crisis
» Global banks becoming more powerful than central banks?
» Govt. needs to stem the slide of the rupee
» ...and more!


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00:00
 
When it comes to number of billionaires, India holds its own in the global arena. Indeed, in 2000, no Indian figured on the list of the world's top 100 billionaires. But by 2011, there were 7 billionaires in that elite club. Only the US, Russia and Germany had more of their billionaires in that top 100 billionaires' list than India.

What this highlights is the strength of India's economic rise. Or does it? Although those aspiring to be rich would like to think that it is healthy capitalism that has contributed to this meteoric rise, it may very well not be the case. Infact, the manner in which these people have made it to the top actually reveals a troublesome trend. At least that is what Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, believes.

For instance, one of India's strengths has been the rise of technology entrepreneurs who have played an instrumental role in putting India on the global map. But this trend is gradually paving way for provincial tycoons who have cut deals with state governments to corner the market in industries like mining and real estate. In other words, rather than capitalist principles, it is government patronage which is the ticket to the billionaires club, a trend which does not bode well for the larger interest of the Indian economy.

There is also the matter of wealth concentration to consider. India's 48 billionaires account for a collective networth of US$ 195 bn. This is a little more than a tenth of India's economy. China fares better on this front. Its number of billionaires is more at 95, but collectively they account for less than 3% of the country's economy. How much churn there is in the billionaires list is also a factor worth noting. In the last 7 years at least, nearly the same people have found a place on the list with hardly any headroom for new entrants. In China, the turnover of billionaires comparatively is on the higher side.

It goes without saying that the government aiming for 9% plus growth on a sustained basis going forward is all very fine. But the impact of this has to be felt across sections of society. Growth in the Indian economy has to translate into improved standard of living for all. Otherwise, growing inequality will only sow the seeds for future unrest. History is a testimony to this fact.

Do you think the billionaires' club in India signals the story of India's economic rise? Share with us or post your comments on our Facebook page / Google+ page.

01:26  Chart of the day
 
That government debt has bloated in Europe is a fact well known. But corporate debt has swelled as well. And a significant chunk of it is set to mature from mid 2012 to end 2016 which is sure to pile on the pressure on cash flows of companies. Not surprisingly, debt of financial companies account for a significant portion of this debt. Today's chart of the day shows that Germany leads the pack in terms of the absolute amount of debt that is set to mature over the next four years. Although Spain and Greece are at the lower end, most of their debt is set to mature by 2014. And given the kind of problems they are in, it is unlikely that they will be able to refinance debt or raise capital easily.

Data Source: The Economist


02:01
 
Marc Faber has said it. Jim Rogers has said it. And now, a gentleman named John Talbott joins the group of people who believe that the coming crisis could even worse than the one witnessed in 2008-09. Talking to Moneynews, Talbott opined that the last crisis was caused by about US$ 3.3 trillion of subprime debt. However, the sovereign debt of the world is currently US$ 30 trillion, 10 times as much. Thus, this is reason enough to believe that the next crisis would make the previous one look like a pygmy. Talbott did not stop here. He further reasoned that first Greece and Portugal faced the wrath of investors and now it is the turn of Spain and Italy. Thus, it won't be long before Germany, France and the US also come in the firing line.

Since the Government's solution to all of these problems is printing money, Talbott rightly argues that financial securities cannot be trusted. Instead, he wants investors to lean towards hard assets such as gold. Our view is certainly not very different from that of Mr Talbott. We also believe that we are living in dangerous times and hence, it would do no harm to have a certain percentage of one's assets invested in gold.

02:41
 
What is common between global banks, rating agencies and accounting firms? The ideal answer would be that their job is to ensure best practices in the financial system. The correct answer is that all their motives are profit centric. Who better to articulate this fact than our frank ex-RBI governor Dr. Y. V Reddy? The gentleman has securing Indian banking from the crisis of 2008 to his credit.

However, he does not mince words when it comes to pointing fingers at the wrong doers. Not for the first time have the Wall Street majors been accused to misusing their powers due to oligopoly. But Reddy believes that they also have an impact on political governance. Not to mention corporate governance. They are therefore instrumental in making deals that lead to cross border tax avoidance. But being more powerful than central banks, global banks are rarely brought to book for misconduct. Most importantly, the conflict of interest in the remuneration of government economic advisors and rating agencies jeopardizes social good. It is time the regulators stop pushing these problems under the carpet.

03:18
 
The Indian Rupee has been in a free fall in recent times. It has been touching new lows. The Reserve Bank of India (RBI) has been blamed for not doing much to stem this fall. The RBI had announced some measures yesterday which were expected to support the rupee. It included raising the ceiling on foreign investments in government bonds. Allowing companies with foreign companies to borrow overseas with a US$ 10 bn cap. Allowing sovereign and pension funds to invest in the Infrastructure Development Fund. Unfortunately these measures fell short of market expectations.

But the RBI has clearly stated that it has done its job. The onus now falls on the government which in turn has promised that it would take further measures to arrest the fall in the rupee. The thing is that a major underlying reason for rupee's dismal performance is the weakness in India's external account. There is a major mismatch in the current account deficit and capital inflow. The only institution that can fix this problem is the government not the RBI. The RBI has done its bit. Now it is time for the government to do its part.

04:02
 
Economists and meteorologists have a lot in common. Both deal with forecasting of outcomes in highly complex systems. While one deals with the economy, the other deals with weather. Unfortunately, their forecasts are seldom close to reality. Even worse, they tend to be highly incapable of forewarning disasters. In other words, their expertise is of little utility. The important thing to understand is that we have no doubt about their intelligence. The problem lies in the nature of systems they deal with. There are so many changing variables in the economy as well as the weather. It is almost impossible to predict with much accuracy what will happen in the future.

Yet in order to keep their jobs, they tend to share their forecasts every once in a while. Just some weeks back, the Indian Meteorological Department (IMD) had forecasted a normal monsoon. But the rain gods haven't been too benevolent in the last few weeks. As of 21 June, for instance, the rain was 24% below the long-term average. The IMD has now said that the rainfall is likely to be slightly less than initially forecasted. Whatever be the case, the point that we want to highlight here is that investors should not pay much attention to what economists and meteorologists say.

04:45
 
In the meanwhile, the Indian equity markets have been very volatile in today's trade. At the time of writing, BSE Sensex was up by 33 points (0.2%). Sectoral indices were trading mixed with power and banking stocks leading the list of gainers. Barring, Indonesia and Hong Kong, Asian stock markets displayed negative investor sentiments.

04:56  Today's investing mantra
"Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed." - Benjamin Graham
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3 Responses to "Should India be proud of its billionaires?"

R.Ramaswamy

Jun 27, 2012

The article is a little confusing.In the beginning you talk of 7 billionaire & after that you talk of 48.It would have been nice to have dclared the names of the 7 billionaires.

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saby chacko

Jun 26, 2012

It is regarding the IMD ( indian meteorological dept) i would like to comment upon through this small article.
I have travelled around the world and have always been saying that our personnel working with the IMD requires training abroad to interpret the satellite maps provided to them to predict the weather correctly. If i am not mistaken, this subject has been taken up once by one honourable MP in the lok sabha.
I have seen the worst weather forecast by our IMD people and farmers or anybody can not rely upon it. Why is the govt not doing anything about it??????

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Kuldeep

Jun 26, 2012

Lets be frank and admit it ... if there was no Y2K problem, there would not be so many IT billionaires. IT was floundering with little business till the turn of the century hit the world. Secondly, as the business was small, there was no Government awareness of its potential and the business enjoyed unfettered growth. Thereafter came the Crony Capitalists, the Power Brokers, and what Bill Bonner calls the 'Zombies'. So we have lots of billionaire Zombies who stole from hardworking citizenry and became billionaires overnight.

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