Vijay Kumar Gaba

In the US, the financial system was on the verge of collapse. Several banks, insurers, and other financial institutions were reporting massive write-downs on their subprime Collateralized Borrowing and Lending Obligations (CBLO). The cost of protecting debt (Credit Default Swaps) was rising sharply. The US administration and Federal Reserve were mostly in denial, at least in their public posturing; even though the Fed had started to cut the benchmark fund rates from September 2007.

Signs of a sovereign debt crisis had started emerging in peripheral Europe. In countries like Portugal, Iceland, Greece, and Spain (popularly called PIGS) treasury default swaps had spiked to indicate imminent default.

The financial markets in the developed world had started correcting sharply. Both equity and bond prices had fallen. The emerging markets were however doing relatively better. The investment strategists at the large global banks were coining terms like BRIC (Brazil, Russia, India, China) and Frontier Markets (including Pakistan, Bangladesh, Bahrain, etc.) to distract investors from the crisis in the developed markets and peripheral Europe. Many of these markets like India and Pakistan had become the best-performing global markets in the October 2007-January 2008 period. Bangladesh and Sri Lanka had also done extremely well.

Despite the financial system in the developed markets collapsing and talks of bail-out gaining currency, a section of the market started forecasting hyperinflation, matched only by the inflation preceding the great depression in the 1930s. The resource-rich Latin America was becoming the hot investment theme. Numerous Latin America and Natural Resource funds were launched to collect billions of dollars in fresh investment worldwide.

This was the time when a renowned commodity guru, Jim Roger forecasted an unprecedented commodity super-cycle. I had an opportunity to meet him in person in the spring of 2008 when he was speaking at the prelaunch event of the Natural Resource Fund by an Indian fund house in Mumbai. In a brief 15-minute interaction, I found his knowledge of economics, global finance, and strategic affairs quite ordinary. He appeared to be a smart trader who would sense opportunity in commodities markets and rotate his positions swiftly.

Nevertheless, all the assumptions of global experts and gurus were demolished in the next 12 months. BRIC and Frontier markets performed the worst. Commodity markets went into a long (almost a decade) bearish phase. Investors who relied on these experts lost money, despite the financial stability returning to most troubled countries. Smarter investors who ignored these experts and invested in Greek and Italian bonds at 60c to a dollar raked in the mullah.

I find that the global markets are in the same position as they were in 2007-2008. Experts in their wisdom are making a variety of forecasts.

For example, numerous experts are forecasting the trajectory of Fed rates in 2024 and 2025; even though there is no empirical evidence of any correlation between Fed decisions and experts’ forecasts.

One renowned global strategist has reportedly forecasted a 25% correction in Indian equities if the incumbent regime loses power in the 2024 general elections. Disregarding the fact that there is no empirical evidence of any correlation between political regime and stock market performance in India.

Similarly, there are forecasts of Bitcoin topping US$1,00,000/per coin; gold outperforming financial assets; and Japanese equities doing better than Europe and the US.

There is an intense debate over the US economy skirting (no recession), slithering (soft landing) or collapsing (hard landing) into a recession. The debate on the end game for mountains of debt developed markets have accumulated over the past 15 years, more particularly in the past three years is also intense.

For a tiny investor like me, the situation is very tough. After reading zillions of pages of research, I discovered almost no one (analysts, economists, strategists, government officials, central bankers, et. al.) has any clue about how the situation is evolving. Everyone seems to be arguing from their biases and experiences; and praying to god that their prophesies come true so that they can tell the world “I told ya so”.

The Fed chairman is no exception to this. As you would hear from him tonight, he has literally no control over prices, growth, geopolitical situation, and markets. Regardless, there is an entire industry that will try to establish a correlation between what the Fed says and what happens in the market thereafter.

I have therefore decided to read research reports only for some useful data points and indications towards future trends. I shall avoid the forecasts, conclusions and recommendations, till I find strong evidence of clarity emerging.

From the developments, events, and engagements in the past two decades, it is evident that India has been making credible efforts to sustain an affirmative engagement with the global community. These efforts include opening the Indian economy to the global business community; actively participating in global alliances and forums; developing social and physical infrastructure; committing to global agreements in the areas like economic cooperation, climate change, transparency in fund flows & investments, crime prevention, terrorism, etc.

These efforts have been made at three broad levels –

(i)    At the state level through suitable changes in policy framework. This includes, inter alia, deeper strategic alliances with Western countries (civil nuclear deal, QUAD, etc.); bilateral (free) trade agreements, liberalized FDI regime; BRICS and G-20 cooperation; etc. The vaccine diplomacy during Covid was a significant effort in wider global outreach by the Indian state. The Indian state’s resolute refusal to align with any side in the ongoing Russia-Ukraine conflict is widely cited as a good example of its strategic efforts to stay non-aligned while protecting its interests.

(ii)   At the private enterprise level through deeper and wider engagement with global businesses. This includes deeper and wider engagement with global technology leaders and innovators; making large-scale investments in foreign countries (Corus, JLR, Novelis, to name a few); providing competitive manufacturing platforms (mobile and white goods manufacturing) to global brands; partnering with global leaders to produce/Service in India for India and world; etc.

(iii)  At the individual level through the deeper and wider engagement of Indian citizens (or persons of Indian origin) with the global community – business, governments, civil society, academia, scientific research, art, and culture. The number of students admitted to various courses in foreign universities has risen exponentially; so has the role of Indian professionals in the senior-level management of top global enterprises.

These efforts have indubitably earned wider acceptability for India’s official narrative across the global socio-political spectrum.

However, it cannot be denied that India’s internal struggle to redefine its socio-economic identity as an “ultra-nationalist free market economy with a socialist overtone” has allowed various interest groups and lobbies to challenge the credibility of India as a democratic secular system with equal opportunity and progressive outlook. These interest groups have been building a strong narrative to dissuade the global communities from further deepening their engagement with the Indian state. This narrative could have influenced global opinion to some extent, as reflected in a much slower pace of progress in trade, FDI, VISA regulations, technology transfer, nuclear cooperation, etc. I also see the recent spurt in separatist movements, like the Khalistan movement, adverse press coverage during the prime minister’s foreign visits, etc. as an extension of this trend only.

These interest groups appear to have the tacit support of the local politicians, intelligentsia, civil society members, etc. who are either opposed to the policies, methods, and style of functioning of the incumbent government; or are struggling to find a space for themselves in the scheme of things.

In this context; I find the India narrative in the recent issue of The Economist (July 15the-21st, 2023). The 78-page issue has the following 7 mentions of India. The economic mentions are all bracketed with China which has over 100 mentions in the magazine.

1.    At least ten people were killed in election day violence in West Bengal. The Indian state went to the polls to choose rural councils. Dozens of people have died in violence in the state since the election date was called a month ago.

2.    In a setback to India’s ambition to become a global hub of chipmaking, Foxconn, best known for assembling the iPhone, pulled out of a $19.5bn joint venture to develop semiconductors at a factory in Gujarat. The deal had been announced with much fanfare last year. Press reports suggested the project had been held up by the government’s dithering on state support.

3.    India’s central government is subsidizing a Micron factory in Gujarat to “assemble and test” chips, spending an amount equal to a quarter of its annual budget for higher education.

4.    India’s attempt to boost its mobile phone industry appears to have brought mainly low-value assembly work. The lesson from South Korea is that national champions must be exposed to global competition and allowed to fail. The temptation today will be to protect them, come what may.

5.    While he is gradually being welcomed back into the Arab world, Mr. Assad hopes his multifaith policy will help him end his isolation elsewhere. Yoga has helped him strengthen ties with India.

6.    Vietnam, which is hardly friendly towards China, has adopted some of its methods for controlling data. Authoritarian regimes are not the only ones to slide toward digital protectionism. India insists data must be stored locally: to give its law enforcement agencies easy access, to protect against foreign snooping, and as a way to boost investment in the tech sector.

7.    India’s “Make in India” strategy hopes to boost the industrial share of the economy to 25% of value added by 2025. In China and India industry’s share of economic output appears to be roughly where it was three decades ago, but even in these countries, it has slipped in recent years.

Despite the efforts of local officials and strong geopolitical incentives for Apple to move away from China, India has struggled to become anything other than a destination for the device’s final assembly

The oft-lauded superior productivity growth of manufacturing—versus services as well as agriculture—comes with caveats. Economists have found that financial, it, and legal services can boost productivity elsewhere, including in industry. According to the IMF, the gap between manufacturing and services productivity growth has shrunk in many countries since the turn of the millennium. In China and India, its direction has flipped, with service productivity rising faster.

The following podcast of The Strait Times, featuring Mr. Sanjay Baru, a geo-economist and commentator who was Media Adviser to Prime Minister Manmohan Singh also makes an interesting listening in this context.

‘Closet Nehru’ Modi has played Indian foreign policy well