How 8.5% of India's GDP Vanished into Thin Air - The 5 Minute WrapUp by Equitymaster
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How 8.5% of India's GDP Vanished into Thin Air

Sep 26, 2016

In this issue:
» Will Big Investors in Indian Startups Get a Successful Exit?
» Market roundup
» ...and more!

00:00 Chart of the day

Ankit Shah, Research analyst

In The 5 Minute WrapUp issue of 8 December 2015, we drew your attention to the big risks from air pollution...

  • As per the revised estimates released by the World Health Organization (WHO) in 2014, exposure to air pollution was responsible for more than seven million deaths in 2012.

    It is estimated that air pollution leads to one-sixth of all Indian deaths. As per WHO, India accounts for 13 of the world's 20 most polluted cities. And the leader of the pack is Delhi.

So air pollution is certainly a big health risk that deserves your attention on priority. But if you thought that air pollution was not a major investment risk, then you need to rethink.

A recently released report by the World Bank estimates the cost of air pollution on economies. And the numbers are seriously worrying...

  • One of the top risks leading to early death worldwide, air pollution is responsible for more than $5.11 trillion in welfare losses each year. These losses represent the cost stemming from premature mortality caused by exposure to ambient fine particulate matter (PM2.5), household air pollution from cooking with solid fuels, and ambient ozone.

The chart of the day shows the welfare losses suffered by some major economies because of air pollution. At US$505.1 billion (in terms of 2011 US dollars, adjusted for purchasing power parity), India lost 7.69% of its gross domestic product (GDP) in 2013 on account of total welfare losses. Add to that the 0.84% loss in labour output in 2013 owing to air pollution. Do the math. How much did air pollution cost India? 8.5% of GDP!

Air Pollution Eats a Big Chunk Off India's GDP

India's air pollution levels are alarming for two reasons.

First, India's has very low per capita consumption compared to the developed and emerging economies.

Second, India is still largely an agriculture and service-based economy.

If India's per capita consumption were to increase to anywhere close to the global average...and if the manufacturing sector were to pick up in a big way...what consequences would it have on air pollution in the country?

I visited New Delhi and Agra recently, and I contracted a bad cold and cough because of the dust and air pollution. Not that the air in Mumbai is significantly better. But it's worse in these land-locked cities. And because of my poor health, my work suffered. Just imagine how air pollution could impact the country's GDP if productivity continues to suffer because of its health hazards.

Now, that's just one of the big challenges facing India. There are many more. And they have the potential to disrupt our jobs, wealth, and personal lives.

Remember, the mainstream media do not have much incentive to tell you the real truth about India's future. And however much we try, we cannot really know Mr Modi's mann ki baat.

So if you are taking the long-term India growth story for granted, you need to think it over.

Vivek Kaul, one of Mumbai's foremost economic thinkers, has been avidly tracking the ground realities of the Indian economy. And he has a serious warning about 'The Next Big Indian Crisis'...

Vivek believes this requires your urgent attention. So he came to our office in Nariman Point to talk about...

  1. What the next big Indian crisis is all about
  2. How it will impact India
  3. What you should be doing about it right now

We have recorded the entire video for you. Click HERE to watch the whole 58-minute video.

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Crisis in India Is Closer Than You Think...

Bill Bonner and Vivek Kaul, two of the world's most independent thinkers and truth seekers have come together to warn you about a financial crisis.

A crisis that could be as big as the dot-com bust...

And it is headed straight for India!

To find out more about this looming crisis and to get a free copy of Bill Bonner's latest book - Hormegeddon (pay only shipping and handling)... Just click here.

Venture Capitalists (VCs) are in a tough spot these days.

Last decade witnessed the rise of unicorns. Companies like Flipkart, Snapdeal, Ola, emerged from nowhere and made unprecedented changes in the business landscape. The rise of these tech startups has been nothing short of a revolution. And what fueled this revolution was generous financial support by Venture Capitalists.

Until some time back, some of these loss making firms fetched valuations that would put large caps to shame. However, the momentum could not be maintained. Amid a tough competition from domestic and international players, these firms with significant VC backing have been losing their unique standing. Firms like Flipkart have seen a significant mark down in the valuations, making the VCs nervous and doubtful of their own investment thesis.

As an article in Livemint suggests, going forward, the attitude of VCs towards Indian startups will be determined by the future of companies like Flipkart and Ola.

A lot of these firms new age firms are yet to get listed. If these companies manage to get a successful listing, offering decent exits for these VCs, one should not be surprised to see more of VCs rushing towards new age Indian firms.

However, in the absence of sustainable business model, this could be a challenge. But then the way markets have taken to IPOs, it's not a possibility that can be ruled out.

If and when that happens, in our opinion, it is unlikely to be a great deal for investors.

It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors) - Warren Buffett.

Unless these firms find a way to be profitable, a successful exit for VCs could mean a trap for retail investors. To know more about our views on IPOs and their implications for a common investor, do refer to our free report - Handbook of IPO Investing.


The Indian stock market indices are trading in negative territory. Barring metal and oil & gas stocks, major sectoral indices are witnessing selling pressure with stocks from banking and auto leading the losses. The BSE Sensex is trading lower by 277 points (down 1%) while the NSE Nifty is trading lower by 81 points (down 0.9%). The BSE Mid Cap index is trading down by 0.3% and BSE Small Cap index is trading down by 0.2%.

4:50 Investing mantra

" You don't have to really worry about what's really going on in IPOs. People win lotteries every day but there's no reason to let that affect [your investing strategy] at all." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Ankit Shah (Research Analyst) and Richa Agarwal (Research Analyst).

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