The world is watching the ongoing election for India’s federal government, the biggest voting exercise ever, with 814 million people eligible to vote. Narendra Modi is seen as the next Prime Minister (PM). In anticipation of a major expected positive shift in the economy, Indian stock market has gone to its highest ever. The rupee has been strengthening.
Is India, a laggard, ready to make its presence felt? Should the investment community pay attention?
The outgoing PM, Manmohan Singh, who has never won a popular election—ironically, in the biggest democracy of India, is seen as weak, and as a puppet to the Gandhi dynasty. He is being blamed for choking India’s economic growth, stagnating infrastructure, and for heading a government that has faced a series of financial scams. A mere 10 years back, he was seen as a hero, a decisive figure, and an extremely honest technocrat, educated at Cambridge. Singh was then India’s hope. Western media couldn’t stop showering their praises on him.
People can conveniently reorganize the history, seemingly rationally, to conclude whatever they are emotionally in favor of today. For investors, the key is not to fall for euphoria, but to stay anchored to reason.
A movie, “Bhoothnath Returns”, has recently been released. In it, a ghost returns back to earth. He fights criminals, helps sort out infrastructural problems, and then stands for political office. The last half an hour is devoted to encouraging people to vote. This movie is likely to get a tax-free status for its “social contribution.”
People often erroneously believe that movies show the culture of a society. In reality, movies tell you about the fantasies of the populace. Having watched it recently, among the applauding audience, I can garner two things… Indians are hoping for a strong, almost mythical figure to come to their rescue. The only individual contribution that they see making to the good of the country themselves is through voting.
Enters Narendar Modi.
Modi is seen as a strong, decisive figure. He is seen as pro-business, having successfully lead high-growth of the province of Gujarat, which he rules. Alas, most of this is nothing but clever marketing of the right-wing, Hindu nationalistic party, BJP, and a lot of good luck.
Gujarat has always been a frontrunner in India, given its relatively entrepreneurial and business-minded culture. It has also been relatively safe, with a populace with a relatively higher work-ethic. The low-hanging fruits of high-technology revolution led to high-growth in Gujarat, as it did in most other developing nations. A coincidence has been seen as causality. Gujarati lobbyists in the US have then packaged all this very nicely to attribute it all to Modi’s brilliance.
Gujarat has indeed done well, but it might have done better without Modi. He was seen as behind the massacre of Muslims that happened in 2002. That massacre was responsible for bringing India to the verge of major communal tensions. The US government has since banned Modi from visiting the US. Europe has recently removed similar restrictions on him, perhaps because criminality gets washed away in the holy river of democracy.
Would Modi be able to create cohesion in the society, as the ghost in “Bhootnath Returns” did, or would Modi create more fragmentation? Assuming him to be honest, could he singlehandedly get India rid corruption? Or corruption finds deep roots in the society and in its lack of work ethics? Or should Indians do self-reflection rather than seek an external source of comfort? Alas, the secular religion of democracy has blocked Indians from any possibility of self-reflection or personal responsibility.
Having been to 60 countries, I have yet to find a place more corrupt and chaotic than India is. There is so much corruption that I have never met an honest public servant. The private interactions lack the concept of people following contracts. Indians have stayed naive and gullible. There is garbage everywhere and the air chokes, despite a serious lack of industrialisation. The GDP is a mere $1,504 per person.
Anecdotally, India has done best when it had a weak government. Weakness created circumstances for the society to avoid being emotionally dependent on the government.
I am challenged with the steep curve of the Indian stock market as evidence of how well India is doing. Most people fail to realize that stock market performance can happen for many other reasons other than economic. High, chronic inflation, with serious restrictions on capital convertibility leaves Indians very limited options to secure their wealth from inflation, let alone to invest profitably. Most importantly, if adjusted for inflation, Indian stock market has actually done badly.
My big fear is not only that not much will change, but the fact that communal tensions might rise significantly if Modi is elected. His Hindu fanatic supporters have already started making noises. I cannot predict in details the outcome of Modi forming the next government, but the ingredients going into its recipe don’t look very palatable to me. Most of the positivity in the market is ill-founded. I would happily short-sell the Indian stock market.