Friday, November 26, 2004

Prospects for India

Another one of my occasional post not directly related to takeovers.

I am just back from a 10-day visit to India and all I can say is that it is nowhere near China in terms of progress. If you are betting big time on the country, I would recommend that you don't.

Even in Bangalore, the government is almost non-existent and the infighting among the parties that make up the government is embarrassing. The IT boom in India has nothing to do with government support - the boom has come despite the govt!
I even heard very unintelligent comments from politicians against foreign direct investment in the country.

In the past the reforms in India were forced by economic shocks, external and internal. The country needs another shock to move from its current state. And I think that will come in the form of IT companies' exodus from India to destinations like China, Vietnam, Philippines where the the states are more responsive to infrastracture demands. The infrastructure in India is pathetic and while some smart people do recognize the need for rapid progress on that front, nothing really is happening on the ground. The least the govt can do is to open up the sector to full private sector participation. That is unlikely to happen, the public reason being "security considerations". The real truth is that a lot of politicians/contractors in India have turned themselves into multi-millionaires in the last 50 years by gobbling up funds meant for infrastructure projects and they are not willing to give that up so easily.

Certain sectors in India will continue to see rapid growth driven by rising income levels. But these will be sectors where the government has taken a backseat and allowed true competition. Examples :

  • Mobile services : the mobile network in the country is now incredible. In a small town like mine, there were 4 private players competing aggressively. It has come to such a stage that people have stopped applying for landlines, since it is still dominated by brain-dead govt bureaucracy. This revolution is for real. Phones with cameras and custom ringtones are everywhere. The penetration is impressive.
  • Cars / 2-wheelers : Every major car manufacturer has underestimated Indians' disposable income. I guess it has something to do with the average international tv coverage on India usually showing just handicapped beggars.
  • Private sector airline players : Last time I had 4 choices to fly to my small hometown. This time the choice was 3, with some of the earlier players winding up and some new players emerging. Here again, the competition is impressive. The service was great, compared to the national airliner, which is losing customers at a rapid pace. The private airline I was flying even allowed 4 different ways of e-checkin using a cell-phone!

The interesting thing to note about the foreign players is the relative absence of US and European players, while Korean/Japanese and even Chinese companies are expanding rapidly. By the time the Americans and Europeans wake up it will be too late!

The American absence is not surprising given the general ignorance / disinterest of other cultures/countries here. Here is a sampling of questions that I get asked everytime I announce that I am going to India :

  • Do they have cars/tv in India ?
  • Can you fly all the way to your hometown ? Really ? (The truth is that, thanks to the British, my hometown's aiport is probably older than San Jose's!)
  • Are there beggars/snakes/elephants in India ? Well the National Geographic channel should help you there! Believe it or not there are lots of places in India where you can easily spend a day without seeing a beggar/(an) elephant/snake.
  • Are there cell-phones / internet / PCs in India ? No, but the stone-tablets are equally state-of-the-art!

The above queries were from "educated" tech workers - I dread to imagine the questions from an average guy from Nebraska!

At all my stops, I saw Korean businessmen! Samsung/LG/Hyundai ads now blanket even the smallest towns. There is something to learn from the Koreans!

If you are looking for rapid overall growth over the next 20 years, you should invest in China (after the present breakneck pace takes a breather). You can still play the above sectors I mentioned, in India. Some are represented by ADRs in NYSE/Nasdaq, and for others you have to invest directly or go through an international fund.


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