Beautiful India, Set Yourself Free
I'd like to share some of my experiences with you on my recent trip to India.
Let's look at India from both a tourist perspective and an investor perspective.
Two disclaimers before I start:
1. I don't "know" India and I don't want to pretend to a higher understanding of India because I drove the countryside for two weeks. I merely observed some things and I will try to put that stuff out here in a somewhat coherent manner. Furthermore, I only travelled in Southern India, covering only 3 of India's States. A person travelling in other parts of the country may see an entirely different picture. Please keep that in mind.
2. When you look at things from an investment perspective you should be critical. But please don't confuse my critical nature with an attempt to disparage India or Indians in any way. I love the people, loved the country, and was blown away by their kindness and the country's beauty. If my tone wavers into angry rant-land it's because I want the best for India's people and I see forces in place that are preventing it.
So without further delay, let's dive right into the details.
We started our journey in a southern port city called Cochin (also spelled Kochi). From there we set off up the coast to Calicut, passed through Wyanad, on our way to Mysore. After a brief stop, we drove to Bangalore. Another short rest and we were back in the car, driving seemingly through every coffee and tea plantation in the country as we wound our way (very slowly) through small towns and villages that few Americans have ever seen as we made our way back to Cochin.
What You Really Want To Know
Let's not beat around the bush. You want to know about the investing climate in India. I'm sorry to sound like a fence-sitter, but it's a mixed bag. Let's take a quick look at reasons for optimism and pessimism:
Reasons to Like India's Economic Future
My travels confirmed my belief that Indians are fanatical about education. Everywhere we went there were education centers. And I don't just mean government schools. Indians, please, take a bow. For whatever reason, they have decided that compulsory education is not enough. Not even close. Even in the poorest areas, we found multiple paths to education, both public and private. Private sector advertisements for education, in everything from English to advanced Cisco and Microsoft certifications dotted every town and village. There is no shortage of opportunity. Government schools appeared to be well attended, and the kids we ran into seemed geniunely happy, well behaved, and enthusiastic.
2. Booming Service Sector
Just like the point above, this is mere confirmation and most astute investors are already aware of India's powerful service sector. The one company that stuck in my mind in Airtel, a communication company that understands the importance of having a Don Draper in its creative department. Those unfamiliar must check out their videos on YouTube.
3. Untapped Natural Resources
India struck me as untapped, and I don't mean that to be insulting. This is difficult for me to express, but the wealth is in the ground and nobody is pulling it out.. yet... for reasons I will discuss in the next section. Even the attempts to tap into India's natural wealth are ....ahem... feudal, at best. The bright side, however, is that the natural beauty and power of India's resouces are still there for the cultivating, should a revolution come to pass. (Or there for "exploiting" if you happen to have been indoctrinated with class warfare nonsense in your higher education experience.)
Reasons to be Pessimistic
1. A Lack of Capital Goods
Drive through the countryside of India and you can't miss the fact that Indian agriculture could use a few good machines. While the service sector in the major cities is booming, the farmers are literally using 15th century technology. This has created a very disjointed economy.
I'm going to save the political rant for later, but here I need to explain some basic and very misunderstood economic facts of life. If you are using hand tools to make products, and I am using the latest machinery, who produces more? I do. Easy, right? So who gets paid more? I do. Easy, right? And who benefits more? The people in my country. Easy, right?
If you don't have any machines, you can't produce very much stuff. It's really that simple. Much more difficult to understand, however, is why India's farmer's are plowing their fields with hand plows and goats, rather than the latest and greatest shiny tractors.
Tractors and the heavy machinery to make tractors doesn't grow on trees. The only way to make a tractor is to invest in capital goods. What are capital goods? Capital goods are the goods that require a large of amount of capital investment to create: the machines of the industrial revolution, the production side of the economic system. India has very few, and those that they have appear to be isolated in the shipbuilding and military arena.
And it's not just the farming sector that is suffering from a lack of machines, which brings me to..
2. Infrastructure Failure
There is no polite way to put this: India's infrastructure is a tragedy. It's hard to have a thriving market economy with daily hour long power outages in major cities. It's hard to have a thriving market economy without a trucking industry. But you can't have a trucking industry if there are no roads. People are not connected at the most basic levels. Goods (particularly food) in India is so expensive for the common laborer. Is it because the capitalists are exploiting them? According to the Indian government, yes. I disagree. Perhaps, it's because the farmer can't produce very much, and when he does, he can't ship it anywhere with ease. When he does ship it somewhere, Indian bureaucrats literally stop him at checkpoints to assess taxes. Yet, we see bumbling government officials in plush offices on Indian television promising poverty stricken Indians that they'll "fix" the runaway food prices. (Read: more regulations and price controls, exactly the opposite of what India needs.)
3. The Incredible Printing Press
India's central bank prints money. India suffers from rampant inflation. Sound familiar? I've talked so much about inflation that I don't feel like going down that road again, but for those curious, India is just as Keynesian as everyone else. They print to pay for their massive welfare state. Prices rise. Indians complain. Politicians act confused. They fix prices. Print more money. Prices rise. Etc.... In other words, India economists are just as stupid as American economists, and India's politicians are just as economically ignorant as America's.
There are two things that socialists never promise: liberty and prosperity. They can't promise those things because there is absolutely no doubt anymore, even among the most hardcore socialists, that they can deliver either. However, there is still some grey areas in which the peddlers of class warfare can make spectacular promises and get away with them. One area is enviromentalism, and that is where India's socialists thrive.
In my travels, I've often noted that there are two things that the State is really good at. One is killing people. The other is gardening. State bureaucrats have a penchant for making pretty parks. I'm undecided as to whether a free market park district would be able to compete. And... I don't really care. What I do care about is that the socialists in India are using environmentalism as a weapon that keeps the average Indian (and especially the average farmer) dirt poor. Oh I'm sure they don't mean to do it, but they do.
Moving past the Enviro-Nazis, India's socialist rulers have accomplished another remarkable feat. They've made India a very tough place to start a new business. According to the Heritage Foundation's Index of Economic Freedom:
The overall freedom to start, operate, and close a business remains restricted by India’s regulatory environment. Starting a business takes an average of 30 days, compared to the world average of 35 days. Obtaining a business license requires more than the world average of 18 procedures and 218 days.
Perhaps now you understand why India has an underdeveloped capital goods market.
Don't get me wrong. Maybe you think that protecting the environment is more important that alleviating soul crushing poverty. I disagree, but maybe that's what you think. Ok, well I think that if Indians didn't suffer from soul crushing poverty, they would be better stewards of their environment Garbage disposal is a major problem and the streets are littered with trash. You can blame the people or you can look at the policies. I prefer to look at the policies.
Finally, I could have said "government" instead of "socialists," but look at an Indian politics with a clear eye. It is overwhelmingly dominated by socialists intellectuals. At one of the government buildings in Bangalore, it reads Government Work is God's Work. Wow. Um, I would like to introduce you to Murray Rothbard.
My last rant concerns Tata Motors, that amazing Indian auto company.
Shall I explain? Ok, I was a big fan of Tata. Here is a company that is mass producing cars for the Indians. What a great untapped market right? But then you go to India and you realize that Indians won't buy the cars. It ain't gonna happen. For starters, the listed price of the Nano is set to be $2,000. That's still about 10 times too high. Until Indian labor gets more productive (see the rant on capital goods), they won't buy these cars. Second, it's impractical. The roads are built for motorcycles, not cars. Until the roads improve, it would be like expecting every person in Queens to want pickup trucks. They don't work in Queens. And cars don't work in most Indian cities (at least in the Southern cities I travelled through.)
Take none of this to mean that Indians don't want cars. I don't know what they want. But neither does Tata Motors.
Ok, enough with the ranting. Let's get to the fun stuff. Here are some tourist tips that can assist you if you decide to visit India.
1. Hire a professional driver for your trip. The price is reasonable, certainly much better than trying to take rickshaw taxis everywhere. We had a good driver and I don't think I would have had such a wonderful time without him.
2. The Hotel Regaalis in Mysore, India provided the best customer service I have experienced in recent memory. Absolutely top notch. Plus, Mysore is a very nice older city. Worth a stop for a day or two to see the ancient palaces and scenic countryside.
3. The dollar goes very far in India. If you feel like you are paying too much, you most definitely are. You can bargain here and there, and you should do so as a rule of thumb. Indians spot foreigners in a heartbeat and jack up the prices accordingly. Just knock 50% off and start haggling from there.
4. Do NOT show any interest in the street vendors unless you are going to buy something. The vendors in India are the most aggressive I have ever seen. My poor mother-in-law was literally followed out to the parking lot, they wouldn't let her close the door of the car, and they were hanging off the passenger side door as we drove away. All because she expressed some interest in a handcrafted jewelry box or something. It was absolute pandemonium for about 15 minutes. And she's a native and speaks the language!
5. If she visit a palace, bring a pair of cheap throw-away socks. They make you take your shoes off and the floors are filthy. I wore flip flops that day. Oops.
6. Beggars are everywhere. It's not your fault. Give what you can if that is what you wish. Just be prepared. If you do give to them, try to keep it concealed. They tend to multiply.
7. Get out of the cities and see the countryside. India is absolutely stunning, particularly the State of Kerala. I can't wait to visit again.
I wish the best for India, but I'm no longer convinced that India is ready for prime time. It's going to take some patience, but the possibility for fantastic growth, a dynamic economy, and a prosperous nation is there. Indians need the economic freedom to save and invest. There have been market reforms recently, but they are superficial Keynesian-inspired measures, not the laissez faire solutions the country really needs. Unfortunately, the average Indian looks around, sees inefficient government and equates that with not enough government, as if somehow inept government is what anarchy would look like. It's a popular fallacy not peculiar to the subcontinent. Plenty of Americas believe in the same economic and political myths as the Indians. If only the Indians can set themselves free, they have the potential to be the most powerful economy the world has ever seen.
David in Qatar