Vijay Kumar Gaba

Continuing from yesterday (see Preparing for chaos -2)

As I said earlier, the world will be a materially different place in five year from now. However, notwithstanding the technological advances and development of advanced forecasting techniques, it may not be accurately predict the contours of the global order in 2025. The learnings from great depression may only inform us that changes will be dramatic. However, these may not guide us about the nature and direction of the changes, because the present circumstances are very different from 1930s.

Given that I am a tiny investor, and my concerns are mostly limited to the local Indian assets, I would like to only assess

(a)   Where India stands in this melee?

(b)   What changes are required in my investment strategy to mitigate the impact of transformative changes that may take place in next 5 years?

I hear lot about a Industrial revolution in India. The government has spoken about many ideas like "Make in India", "Make for India", "Make for World", "Self Reliant India" to emphasize on the need to focus on growth of manufacturing sector in India. In past few months some incentives have been announced to promote manufacturing of mobile handsets. There are proposal to implement similar production linked incentives for chemicals also. Besides, many tariff and non tariff measures have been announced to protect and promote Indian manufacturers of tyres; power tillers; chemicals; arms, ammunition & equipments used by defense forces; etc.

Somehow, I am not able to see how these measures will make Indian economy more competitive globally. The policy on defense production for example is incongruent with the objective. Import restrictions on TV and Mobile sets would be inefficient for consumers and revenue both. The better course would have been to subsidize domestic production for three years to afford domestic producers an opportunity to become globally competitive without impacting the consumers.

I therefore feel that we may not see a significant shift in the growth trajectory for manufacturing and IPR based industries in next few years at least. The growth pattern seen in past one decade will continue, with industries like pharmaceutical, Chemical and Automobile etc further improving their scale and competitiveness quotient.

I am also not feeling any excitement about India becoming a spare tyre to the global industries seeking some safety for the eventuality of China getting punctured. The assumption that the world will be able to ignore China for long and learn to live without it forever seems preposterous to me. I shall therefore be extremely cautious on businesses that are building capacities just on this basis.

Also, given the poor employment elasticity of modern manufacturing, I do not approve of investment in manufacturing just to improve create more jobs.

I am therefore of the view that India is struggling to find a way out this chaos and there is no indication that we are moving in right direction as yet. I shall therefore maintain a cautious stance on my investment strategy for next 3-5 years.

...to continue tomorrow