There are two Indias. One, as represented, most recently, by the stupendous acquisition, for $12 billion of Anglo-Dutch Corus Steel by Tata Steel, one fifth its size but a far more efficient steel producer, and by the entrepreneurial energies of millions of Indians, wanting to charge ahead and take on the world.
The other, as represented by a decreasing minority of officials, holding back progress, messing up things and diffident to progress.
Fortunately the former India is in the forefront as evidenced by the upgrade, after 15 years, of India to investment grade status by Standard & Poor. This would ensure that Indian firms can access more funds from global markets, just as Tata Steel has done to acquire a firm far bigger than it. The BSE sensex rose 121 points last week, to a new high of 14403, and the Nifty 25 to 4183.
Interestingly, two telecom firms contributed 113 of the 121 point sensex rise, namely, Reliance Communications (60) and Bharti Airtel (53). The telecom story is an example of Indian manufacturers and service providers’ ability to produce goods and services for a billion people at an affordable cost.
Just like Tata Steel is one of the lowest cost producers of steel, so are telcos which are able to provide the cheapest calls yet produce stunning results (Reliance Communications profit for Q3 was up 32 per cent to Rs 924 crores and it added 1.4 million subscribers in December, second to Bharti’s 1.7 million). It has planned a $2.5 bioon capex programme and may make an overseas offer to part fund it.
The other India is holding growth back. Though regulator TRAI recommended allowing MVNOs (mobile virtual network operators, such as Virgin, who don’t own infrastructure but only the brand, and buy spectrum from others), the Department of Telecommunications is living in Jurassic Park! It maintains that allowing MVNOs will lead to hoarding of spectrum.
Quite the contrary! Trading of anything leads to its better utilization so it would result in a better use of scarce spectrum! DOT has also objected to mobile number portability, introduction of which would provide better customer care for fear of losing a customer now locked in because the number belongs to the operator and not to him. This India is obscurantist.
India’s GDP growth forecast has now been increased to 9 per cent, thanks to a 6 per cent growth in agriculture sector, compared with the 3.9 per cent forecast earlier.
This is just scratching the potential of the agro sector. As Mukesh Ambani explains in an interview in a leading website, agriculture provides 28 per cent of our GDP but supports 60 per cent of the population.
Productivity is low, because of fragmented land holdings and poor storage and distribution infrastructure that lead to a huge wastage in transportation (one third).
Just as in the IT sector, which started by exploiting an arbitrage opportunity between Indian IT manpower costs and developed country costs, so, too, in agriculture, there is, to start with, a huge arbitrage opportunity. Potatoes, for example, are 20 times more expensive in the US as in India.
With proper infrastructure, and with proper inputs, the farm productivity could increase manifold, even with the disadvantage of fragmented holding. Imagine what that would do to GDP growth, and the continuation of the India story would be assured. Imagine the consumption boom if farm income went up, as it should, given that 60% of people earn 28% of income.
This optimism is counterbalanced by the appalling state of our roads, the criminal indifference of a police and a political class that helps cover up gruesome crimes and the policy diktats that hark back to an age of controls.
The market is on a roll. Buy on any dip, especially if pre-Budget nervousness causes one.
J Mulraj is a veteran commentator on markets