"India is the next China." This is what you hear from many armchair investors, but is it? To answer this question I spent last week traveling through India and in short, India is not what it seems. The "Incredible India" jingle fresh from the CNN ads forever replaying in my brain as I traveled the country, I found "incredible" is a great word to describe the country. Incredible, however, in the sense that the country is not what it seems on the surface. On the surface it seems like a vast country rich with fertile soil and water. It seems like a country with the second largest population bursting at the seams with growth, hungry for imports. It seems like a country with a stable government with a mandate for economic reforms. Beneath the surface, however, India faces major challenges.
The famed investor Jim Rogers once commented that anyone who thinks India is a great investment has never been to India. In the span of a week, I explored the cities of Chennai, Mumbai, Chandigarh, Agra and New Delhi. I experienced a small taste of India's famous bureaucracy and learned a lot about its political and religious divisions.
The bad news is the country is very much divided. Along religious, socioeconomic, ethnic, cultural, and geographical lines, Indians are divided. I learned from the people in Chennai that they not only do not understand the Hindi spoken at the federal level, they resent the films made in Bollywood as looking down upon the poorer cities of the east. Poverty was rampant, infrastructure was poor with Chennai largely flooded when I was there.
Mumbai was by far the most developed city that I saw, however, the poverty even more stark than Chennai. The very poor live in tents on streets in between high-rises. This was a scene I saw nowhere else in the country. Slums are pervasive. The streets were teeming with people and traffic. Infrastructure is very dilapidated; however, there were also major construction projects underway. The main railway station was like stepping back in time with hundreds of laborers carrying large bags of fish on their heads into the station, all the while leaking fish juices everywhere. No security or station officials stopped them. Lighting throughout the country was nonexistent to spotty at best and Mumbai was no exception.
Delhi was trapped under a thick smog from fires started by surrounding agricultural zones where farmers torched their fields to ready them for the next planting season. Breathing was incredibly difficult and getting around wasn't much easier. Traffic was horrendous all over the country, worst of all in Delhi. Having lived in both New York and Istanbul, I never thought I would see worse traffic, but I did. Little to no roadway improvement projects to remedy the traffic situation were visible although some subway construction was underway.
The residents of Delhi told me an interesting story that speaks volumes about India. Nearly 70 years ago, Hindu residents of Ayodhya placed statues of one of their gods, "Rama," at night in a 430-year-old mosque. The next morning they claimed it was a miracle and that the statute of Rama laid claim to what was previously a Hindu temple, nearly half a millennium ago. The Hindu administrators shuttered the mosque until both sides could come to an agreement. Fifty years later, in 1992, Hindu nationalists along with the current ruling party, the BJP (Bharatiya Janata Party), organized 150,000 Hindus to attack and destroy the century's old mosque. In the ensuing violence, tens of thousands of Muslims and Hindus died. The courts took up the issue and 25 years later charges indicting members of Prime Minister Modi's government of inciting the violence were filed this summer.
According to residents of Delhi, the BJP wins elections by stoking religious tensions and riling up the 80 percent of the population that is Hindu. Obviously those charged deny all allegations. Whomever I spoke to said the same thing and that India is very much a tinderbox on the verge of continued sectarian violence at the urging of politicians ready to reap political rewards.
I was in China 13 years ago and remember the feeling I had. It was obvious that something special was going on. In the decade that followed, China's growth has been nothing short of astonishing. Infrastructure projects, like the high-speed rail system, have made China the envy of countries everywhere. The standard of living of the people has increased dramatically and a middle class has emerged. I didn't have the same feeling in India. The main difference between the two countries is that the Chinese leaders are not constantly campaigning and trying to score political points with the electorate. In India, political posters are everywhere and democracy has become India's worst enemy. With one-quarter of the population illiterate and more than half living in abject poverty, democracy has failed India. Politicians have used religious differences to get elected and allowed corruption to paralyze the country.
Modi's policy of demonetization, forcing the black-market economy to step into the light, has slowed growth. He has failed to create job growth and India's economy post-demonetization, is performing worse than when Modi's predecessor, Manmohan Singh, was in power. The institution of a new value added tax in July added to difficulties India's businesses already face. With a now infamous 37 mandatory online tax filings, investors fear the new India is too difficult to conduct business in. Farmers have caps on the sizes of their farms and the government, in some states, restricts agriculture to only those who currently own a farm. Hardly a liberal economy.
India is like the China of 20 years ago in that it has a long way to go on its path to development. India could grow for the next 30 years and still not be developed. The only problem is that the political will in India now is nothing like that of China in the year 2000. Perhaps India will be the next China, but only if it undergoes some major changes first.
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