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Will you buy India?

Aug 10, 2005

No! The country is not for sale! 'India' here refers to a hypothetical stock and the question pertains to our latest poll, which asked whether people would buy India if it were a stock. The responses were a whole-hearted 'Yes' as almost 83% of those who participated in the poll voted for this option. And why not! The Indian stock markets (represented mainly by the BSE-Sensex) are marking new highs everyday (but for the past three trading sessions) and the mood does seem buoyant. Also, considering that the long-term growth prospects of the economy remain robust, 'India' makes for a strong story. Who will not buy India at this point of time? Foreign institution investors are buying, Indian institutional investors are buying and now the Indian small investors have started buying.

However, while we do agree that India is a long-term growth story, investors should note that challenges are galore in the short and medium term. We still lag other developing nations on the human development indicators like literacy, life expectancy, infant mortality, education and public healthcare. While the governments, both the current and the previous ones have made promises, only a few have reached fruition. Without developments on these fronts, India can never achieve a strong and sustainable long-term growth. Economic theory suggests that the engine of sustainable economic progress depends on the three wheels of growth - human resources, natural resources and capital formation - no matter how rich or poor the country is. Let us study these three factors and understand how India fares on each of them. Understanding them will make clear whether to buy India or not!

Human resources: A country might buy the fastest of computers and the most sophisticated of engineering equipments. However, these can be used only by skilled and trained manpower. This is indicative of the fact that apart from quantity, the quality of manpower plays a major role in a country's long-term sustainable development. India is blessed on this front. India boasts of a talented pool of human resource that is a result of the country's long-drawn approach towards consistently improving its high quality technical education system. However, to sustain this competitive advantage, elementary and primary education standards need to be improved dramatically. We need a political vision for the same, which has been lacking for some time now.

Natural resources: Countries like Canada, New Zealand and Norway have been able to grow primarily on the back of their natural resource base (agriculture, fisheries and forestry). India seems to have done its bit on this front. We are the world's largest exporter of certain food items and precious metals. However, where we seem to have lacked is in the development and proper utilization of our resource base. Nurturing private-public sector partnership could be one way to utilize these natural resources more efficiently.

Capital formation: In the twentieth century, the developed nations focused on attracting capital towards investing in roads, irrigation and power plants. This not only improved infrastructure facilities but also improved productivity. Now, many are of the belief that computer technology and information superhighway will do for the twenty-first century what railways and highways did for the previous one. However, we believe that services are not the only answer to job creation from the long-term perspective. Manufacturing and agricultural reforms are extremely critical.

While the above three wheels of economic progress are necessary to sustain growth for any country, they are all the more important for developing nations like India. Also, if the country has to move towards a higher and sustainable level of economic growth, political vision is of paramount importance. In that case, investors in the Indian growth story do have to take a long-term approach to investing. Therefore, it is important not to get carried away. We still have a long way to go. Buy India, but only for the long-term!


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