Is India a global power?

28 NOVEMBER 2009

At the Washington summit of Prime Minister Manmohan Singh and President Obama, the latter described India as a global power. Yes, India is one of the 4 BRIC countries and yes, it has made great strides in its economy and yes, it holds the promise to become a dominant economic power. That promise, however, can be translated into reality with good governance, both public and corporate, and that is not something very much in evidence.

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Thanks largely to globalisation, it is the four BRIC countries (Brazil, Russia, India and China) that have emerged as potential economic giants. As the Economist of Nov 5 points out these 4 powers were, interestingly, statist power, where Governments were dominant and free markets less open. The fall of the Berlin Wall encouraged, in the absence of a viable option, their shift to free market economics. The rest, as they say, was history.

Of the four it was China that has led the economic race and has become the contender for a gradual shift in global power, such as had occurred post World War II, when the US took over the reins from a war devastated UK. This process would take decades, were it to happen, since China does not (yet) have democratic freedom, which was the hope of globalisation.

The current global stock market rallies in the BRIC countries are driven both by better economic fundamentals (the developed world is growing at 1%) as well as the surge in global liquidity as a means to avert a financial collapse. The stock of financial savings in the developed world is 3 times its GDP and this is largely institutionalised. Prior to institutionalisation of savings, in the 60s (when mutual funds came into prominence) individuals held some 75% of equity and institutions (like banks) 25%; the ratio is now more than reversed. Institutional investors look mainly to maximising profits, and move wherever expected returns are higher. This positions India well. But there are some ifs.

One if is the capacity of the global money flow to be able to absorb it. A few countries have, in fear of creating bubbles, restricted foreign inflows. Brazil has constrained its companies from borrowing and has imposed a tax on FII inflows. India, specifically RBI, is also contemplating such move, which may be sensible. However, the Government is keener to let the markets rise, as there is a pipeline of public sector company stock which they wish to sell. This stock could well absorb more foreign inflows.

The bigger if is in the quality of governance and of planning. The political class is Teflon coated and is never ever brought to task. Madhu Koda, former CM of Jharkhand who is being investigated for amassing Rs 2000 crores in 5 years (even as his father remains a subsistence farmer) is but the latest of many examples where no action is taken. Nor has action been taken against political leaders found by the Liberhan commission to have been involved in the destruction of a mosque; that the report also took 17 years to prepare is another indication of poor governance and accountability. According to a report, some $40 b. are paid in bribes in the 4 BRIC countries! Is it any wonder that the Indian Government is not asking Swiss banks for information, as the US has done?

Such poor governance, of course, impacts economic performance. Let us see its impact on the 30 sensex scrips.

Finance companies (ICICI Bank, HDFC, SBI and HDFC Bank) account for 23.2% of weightage of the sensex. Around 80% of banking sector assets are with public sector banks and Government policy is to hold a majority stake in them. The banks are prudently managed, but, not being subject to pressures of corporate democracy, are slow and steady, and have a far lower P/E multiple than warranted by performance. The Government would not put at risk the safety of India's financial system by reducing its stake below majority in all but, say 3 of the largest banks, but that is a politically tough decision no party would ever take the risk of.

Much of India's household savings is channelized through banks, earning a return lower than the rate of inflation thereby eroding wealth. Just consider the figures for FII and Domestic Mutual Fund investment to date in 2009:

Net investment, in Rs crores
Equity74,193- 3,554
Debt 9,519195,464
Total 83,710191,910

Ownership of corporate holding by FIIs is increasing as Indian mutual funds and investors prefer a safer debt route, despite returns negative to inflation.

In the current year, loan growth is below expectations and the RBI has tightened provisioning norms for non performing assets; hence the scope for this sector leading the next rally is constrained.

The next sector in terms of sensex weightage is the Oil & Gas, with a weight of 17.8% (these weights are free float weightages; thus companies like ONGC or Wipro which have a low float of stock for the public, carry a lower weightage). RIL and ONGC are the constituents. RIL's stock performance would depend significantly on the ongoing dispute with RNRL over supply of gas. Judging, however, by its move to acquire a controlling stake in Lyondell Basel, reportedly for upto $ 12 b., it seems to be sending a signal of confidence. RIL and other private sector companies such as Essar and Royal Dutch Shell have also asked the Government to raise petrol/diesel prices (by upto Rs 3.85 and 3.71/litre, respectively) or else allow them the benefit of subsidy as is being allowed to PSUs IOC, HPCL and BPCL. The latter suggestion is a non starter, given the already out of control fiscal deficit; hence petro product prices are likely to be raised, in phases. As they should be; the subsidy is completely insane not least for the environmental problems it is causing. ONGC's results would also improve thanks to higher crude oil prices and the removal of its subsidy burden for petrol and diesel.

The next sector is IT, with a current weightage of 13.7% in the sensex, comprising Infosys, TCS and Wipro, all well managed companies. Their P/Es reflect better corporate governance. These companies are hoping for a $ 1b. pie from banks as the US economy recovers. However, these companies hit all time highs last week and closed at 5-6% below their highs.

Thus, on fundamentals, these three sectors, accounting for nearly 55% of weightage, seem to be fairly valued; they could move up if more FII money is pumped in after fresh allocations in January.

Cement prices are slated to go up by Rs 5-10/bag because of shortage of wagons, another example of poor planning.

Last week the BSE-Sensex initially rose but dropped after Dubai asked for a freeze on its $80b debt. It ended the week at 16632, down 389 points. The NSE-Nifty ended at 4941, down 110. Should global investors become more worried about Dubai, and its impact on other countries (about a third of India's inward remittances come from the Middle East and Dubai was a significant contributor because of its construction boom, now ended), the sensex could fall to test the recent low of 15,500.

So, is India a global power, capable of sustained economic growth based upon sensible economic policies, and able to thereby attract more of the huge pool of financial assets? Will our political leaders show that they are capable of, and willing to, proceed against those guilty of crimes, never mind who they are or were? Will we be able, then, to become the economic superpower that we are capable of becoming? You tell me.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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18 Responses to "Is India a global power?"


Dec 26, 2009

It's clear from the article that India has potential
to become a so-called 'super power' but for the
rampant corruption and the culture of political

But this worry is nothing but an irony.Because, my
mahan Bharat is already a super power by dint of her
high spiritual wisedom that I am going to just point
out below.

The cycle of corruption cannot be reversed. Corruption
is going not only to stay but to rise in leaps and
bound in mahan(great)Bharat. No strong opposition
party in Indian polity is in site, be it at the center
or at states leaving the ruling parties with a
monopolistic power.

Who will stop whom from amassing money at the cost of
the poor?And why?Who is answerable to whom?Only to
Bhagavan(God)!?Why should anybody be punished for the
crime he or she committed in whatsoever form?Bhagavan
(God)is there, He will definitely do that.Don't worry
be happy. Because,the wrong doer will definitely be
punished by Bhagavan(God), if not in present life in
future life.Every human being passes through several
lives and in every life he earns wisdom and corruption
is nothing but a lesson in the lives of the corrupts.
Another thing, why should we hate the corrupt
politician or bureaucrat or whosoever he may be? We
should hate the act of corruption and not the corrupt
person.He does what is written in his destiny.His
destiny and not he himself is responsible for what he
does.Another thing-it's true that the poor are
suffering like anything due to corruption and greed of
the higher ups of the system.
But don't forget to blame it on the poor
themselves.Why would Bhagavan(God)let anybody suffer
without any reason.They must have committed some sins
in their past life. Don't worry about them.Just run
the wheel of growth. India is already a super power
with such high spiritual thought.


M. S. Mohideen

Dec 11, 2009

Of course we are a 'Super Power'. We are 'super' in everything we do. Take for example the fact that a politician decides to leave a party and form his own and then goes straight towards splitting a state. He uses the "Gandhian" way of 'non-violence' and takes up a fast to death. Immediately our very concerned and upright leaders run to his rescue and agree to the splitting of the state. Of course, one man's life is more important than the country. What is the country if not for the resident who is starving himself to death, right? We all have our own 'super' battles to fight. I am a muslim, others are all 'kafirs', right? And among the muslims too, I am a Sunni, and among the sunnis I am a Hanafi, and among the sunnis and hanafis I am either a Deobandi or a Bareilvi. 'Super' right? I could be anything I want to be in my country. I can become a big business tycoon overnight and become the fastest billionaire of the season. All I need is to grease a few palms and get into the right circles and play the game to take the stocks spiralling high or tumbling down as I wish. 'Super' cool. Who says we are not a 'Super' power? India is shining. Welcome to 'Super' India.


Shibu John

Dec 4, 2009

I hope our great India will become super power but never will surpass the U.S.
US become the super power and biggest economy after IInd world war. Europe and US become strong economies. After 1970, money flowed to middle east countries when then found oil reserves and now worlds one third wealth going to those countries. Now these countries becomes stubborn.

Who knows this recession made by US as fictisious to teach a lesson to middle east countries that they compelled to sell oil at 70 level. Think US is the biggest oil consumer. It is better for them make such things and keep their money with them than buying crude at $147.
"By 2020 - 2030 the worlds power will be natural gas."

Praying to vanish poverty and curruption from our great country.

Shibu John


M Bersohn

Dec 3, 2009

The countryside of India has too many people. The result is a marginal existence there, with extreme suffering. The governments, national, state and village,
must all encourage birth control, not by force but by
patient education. Then India will gradually become less
impoverished and I think, thanks to the heritage of great people like Gandhi, Nehru, etc. India will ultimately become THE greatest country on earth, clearly a global power by its example.


shashi kewal

Dec 1, 2009

Mulraj Sir,

Our Ex President wrote that by 2020 india will be super power... In my opinion for next 100 years we shall forget it..Only GDP does not make any country a super power. GDP value is by virtue of our big population as China is..
Corruption and poverty at root level are two main reason which will not make us super power. Yes important country we will be , but that is because of our size and size of its market .

Every morning we all investor see where Dow Jones is ..
Then where the challenge to Dollar?

I rembeber in 1990s Japan was said to becoming super financial power as US has debt of billions to Japanese companies like Sony...etc but US played such a game that now nowhere Japan is counted in fiancial strength. Same will happen to China and may be to India...


SK Damani

Nov 30, 2009

As there are two sides of a coin, so is life and so is the Indian story. Yes we have improved in the last 10 years.Internet service, the mobile a very common feature,fall in call rates, this website and inter action between your readers like me and an oppurtunity for us to give our views etc., all are good things which we have achieved. We have two huze and big failures/ road blocks. Honest politicians and worse than that the most corrupted bureaucracy.A solution to these two failures would be the ONLY solution to become a super power. As long as the present PM ,Madam and the young RG is amongst us, we should bring to their notice that they have the support of the people if they take step by step initiatives to improve on this two aspects. (unfortunately my party is still digging the grave of Jinnah, though Pakis have forgotten him, my leaders still hope to find "some unnatural power in his grave which will revive our party"- sincere regrets, Kamal ko to kichad may hi dobadiya hai)
And than the other only hope to tackle the above two problem is the Juidiciary. A super fast track court to take up the issues of corruption.(Madu koda - 2000 Crs???) Swift and immediate decisions and despatch to the Jails for "hard labour for every rupe they have gathered by way of corruption" is the answer. AND no transfer to any hospital, Whatever the problem they would be treated in jail and even if they reduce their burden from this earth, itwill be welcome.
Hopefully these could be the answers, which could make India a super power.
Thanks for making available at least asite wherein we can pent-out our emotions and thoughts and feel a bit less stressed.



Nov 29, 2009

The right question could be - "Can it be a global power?", and another "when?".

Indians, when unshackled from the corruption and bureaucracy that keeps them down, can and have flowered, in India and abroad. In all the areas mentioned in my previous post, we can and have made a mark, but (mostly) when we were freed of the nation. So ironic, and so sad.

20 years back, at the start of a 2 year degree program at a college I went to, I listened to Sam Pitroda give us a talk of how his CDOT will reduce the waiting list for phones by half in 15-20 years. In the name of self-sufficiency, he (though meaning well), was consigning us all to the dustbin. Contrast this with what really happened - the sector was opened up, private money and energy and technology poured in, and we now have a phone infrastructure which is (nearly) world class. It is the BSNLs and MTNLs and CDOTs which were "consigned to the dustbin of history", howsoever well meaning and patriotic the intent behind them was. Telecom operators are innovating (one business innovation being the sharing of towers) to make money despite the cut-throat competition.

Despite our independence, we are still slaves, of our mindsets, of the civil service, of politicians. Whereever a declaration of independence has been made, we see world class performance. Anand Vishwanathan, Gopichand Pullela, Geet Sethi, Koneru Humpy - these are the product of individual grit and determination, not the "system".

Again and again, this website says something like "it is high time the government did this or that". Let's face it, the government will never do all the "this and that" that is required. The sarkaar is no longer the mai-baap everyone things will wave the wand and make things happen.

It is each of us who have to make ourselves world-class. Then perhaps, "yatha praja, tatha raaja", and the bureaucracy/polity will also have to change.



Nov 29, 2009

if the INDIAN economy and the share market can be driven by a small FDIS, TO SAY 15Bn. US DOLLARS,THIS IS THE DEBTH OF OUR MARKET. it is very easy to see that some of the analysts are making fool of small investers THROUGH ELECRONIC MEDIA and wish to make their long can it go.i am ,no was, a small invester and invested about 2million INR in indian stocks .i sold my total holding on last friday,never to reinvest in Indian market.YOU
have given a clear message by asking this question to investers. thank you for such articles but i would like you to conclude rather leaving it to readers.GOOD JOB DONE THANK U


Shekhar Vaidya

Nov 29, 2009

I read with interest comments by Manu. I agree with Manu that India would have arrived as a superpower only if its Human Development Index goes up. It is not enough that we have larger number of $-millionaires. The growth must benefit millions of Indians, particularly in rural India.

I feel while polititians will continue to hinder the progress and corruption at all levels will be a big drag, we are moving in the correct direction. A single development of note is RTI. A big improvement will take place if judicial reforms that the government is talking about reduces the litigation period to 2-3 years.

Media, in spite of all its shortcomings, is putting spotlight on our leaders and forcing them to take responsibility for both their acts of commission and ommission. That is why RR Patil had to resign last year after Mumbai attacks (Its sad that he has made a comeback to the same portfolio, but being a decent person, hopefully, he would have learnt from his mistakes and will place correct priorities this time around.)

All in all, I am optimistic about India becoming a global superpower in my lifetime (I am 59 years' young).


PVK, Secunderabad

Nov 29, 2009

I thank you for good info, every sector is well drafted from a common man's point of view and I gladly go with what all is being said. The major financial hurdle is with the PSU's and govt's loosing hold to private, what do we lack....... the popullation-we have, technology-we have, finance-we have, global introduction-we proved what else, the real planning and the tough governance and mandatory accountability law are required only then, we can satisfy ourselves on the issue of global power until, we are still globally pooor infact.

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