India's Economic Woes

India appears to be in for a rocky time ahead. Not only have the economic problems as a result of unrestricted capital flows, they have appointed free marketeer in chief Rajan to the CB. To bastardise a quote from Galbraith “With Rajan as your economic adviser, you have nothing to worry about from a few hundred million hostile Pakistanis.”

Why is there a violent withdrawal of capital?

QE has been flagged to be decreased over the next few months, so foreign investors (mostly Wall Street backed) have pulled their funds from emerging markets worldwide and taking their profits with them. As the rupee slides, it also makes sense for them to pull their money out before suffering currency depreciation (sell fulfilling prophecy). When it drops enough and conditions change, they’ll charge herd like back in again and boost it up again. This kind of behaviour is par for the course in emerging markets. The hedge funds combine forces and invest into specific sectors en-masse, boosting both the currency and those sectors stocks. They get the locals excited who also chip in their bit, further boosting valuations, then a couple of year later when things look a bit iffy or when it suits them they pull the money out en-masse. Because their movements of money are so big they can affect the currency exchange rates.

India runs a current account deficit (unlike China for example), so it’s financial system is particularly unstable. As the rupee drops, the cost of imported commodities like oil and foodstuffs soar, causing inflation, which then also causes huge headaches for politicians, and there is the potential for civil unrest.

Personally I think it may be a good time to invest in India, while it goes through some growing pains.

Excellent article.

I know I’m blowing my own horn but I think my description of what happens is much better than her rather sparse article.
There is also not always a ‘rising current account deficit’, as anybody who has ever studied China or some of the other export led economies would have known.

I hear they’re doing nice lines in sweat shops and sex-slavery…could be nice little earners Rodney…

Shouldn’t you be off to the pub or tipping yer hat to the nearest German?

No pubs on the sub-continent sham…plenty of spivs however, of both western and local variety, playing Del Boy on the back of other people’s misery…enjoy…

Oh you didn’t like the assumptions I made about you? :angry:
Shouldn’t you be off for a cartload of turf right about now? BD

There are no pubs or turf on offer in the part of the globe in which I am based…mores the pity…but as I said, there is an abundance of tiresome spivs who spout about ‘investment opportunities’ based on little more than a preponderance of slave labour-type conditions…

So investing in India is equal to keeping people in poverty, get off with your false morality. You think the world runs on charity? Ask the Chinese what they think of that.
Why are you equating a nation of 1.3 billion people with sex slavery and sweat shops only. Have you ever even been to India? I guess not. … 19048.html

India’s greatest problem lies in its levels of structural inequality that are wholly unsustainable in a society that wishes to move towards modernity (70/75% of people live in real poverty while others are some of the wealthiest people on the planet)…its still in Marie Antoinette territory and with current levels of (mainly male) migration to cities more and more eyes are being opened to the folly of the old beliefs of caste and creed. Yet the wealthy have zero interest in spreading their wealth (again based on caste and creed beliefs).

If and when the new middle class begin to feel the pinch and have their Bangalorean illusions taken from them things may get messy.

Could the inequality lead to some sort of civil war ?

Im not really qualified to answer that but there are currently ongoing low level conflict-type scenarios playing themselves out in Kashmir, which borders with Pakistan, as well as the north eastern and more central areas which have strong Maoist insurrectionary presences. Its also not that long ago that there was a Tamil Tiger presence in the south. Throw in the ever present threat of Al-Qaeda-types in all major Indian urban conglomerations at all times and you’d have to say that there is a constant potential for regional chaos…something on a nation-wide level however might be more difficult to contemplate.

In essence, the scale of the place probably mitigates against a wider cohesive nation-wide movement ever coming about. Its bigger than Europe with more languages, cultures and religions. In modern times, it more or less didn’t ever exist until the British arrived and made it governable as a singular political entity. In economic terms, its basically numerous (for the most part) non-intersecting economies existing side by side, often even within the same city…so basically, more and more low level chaos (if that’s possible) is probably the most likely scenario…higher and higher population levels with less and less women in the mix (google Indian female foeticide for reasons why) … but in a country with a cache of nuclear weapons as well as aspirations to send a shuttle to Mars while at the same time people starve on the streets of the capital city, one would have to say that anything is probably possible…

Probably not, it the “natives” turned hostile towards the elite, they would probably just pay for extra security to put down any aggression. The Indian caste system is so engrained into their psyche that such an uprising is not very likely.

Indeed and most of those insurgencies have been ongoing for decades. The Naxalites, Darjeeling, various bands of dacoits etc. They mirror the corruption of political life in that most become a means for an alternative method of gouging.

I think the potential for inter-communal violence is quite large (as it has been for years).

As you say, the caste system is deeply engrained and the new ‘middle’ class are still engrained in it. The scheduled castes really still don’t get a look in outside government quota jobs. The knowledge economy simply provides a new barrier since the third-level education requirement for entry is expensive.

Alternatives to the current system? Slow grinding change? Sometimes progress, sometimes not. … tears.html

My company do business in India and collegues who have been there all report ( apart from being appalled at the poverty and frustrated by the burocracy) similar amazment at the total lack of decent infrastructure to support the much trumpeted development aspirations - they all reckon that BRIC should be properly spelled without the ‘I’.