India: 1600 political parties in search of stability
I flew into Delhi from Korea, arriving at 2 a.m. My suitcase had been sent on a separate flight from Seoul, via Shanghai, so there was some uncertainty about whether it would arrive on time as well, but within half an hour I was en route to my hotel. At that time of the morning there was not much traffic but later in the day it would be a totally different story!
Over the next few days I visited various European clients based in and around Delhi. Travelling between appointments easily took two to three hours. With the heat (42⁰ C!) and especially the traffic it was impossible to fit in more than three or four appointments a day, even in an air-conditioned taxi. Indian traffic is not for the faint-hearted, with a cacophony of horns, unrelenting cyclists, tractor drivers, rickshaws and 30-year-old buses driving against traffic (!) to keep you alert as you overtake to the left or right. In a bid to reduce the noise there are road signs and bumper stickers everywhere saying: 'Don't blow horn'. Our taxi also had one but during our trip the driver’s left hand was glued to the horn. Of course it helped us get to our next destination a lot faster…
In this latest blog, Jeroen Plag, head of Client Coverage Asia, Americas & UK at ING, writes about his recent visit to India, where the country’s 1.2 billion inhabitants recently went to the polls to elect a new government. The international companies Jeroen visited in and around Delhi are hopeful the new government will bring clarity and stability to this huge market with its enormous potential.
Most international companies have a presence in India, some of them for quite a long time already. With more than 1.2 billion inhabitants, they simply can’t afford not to be here, although patience and perseverance are definitely required. Corruption, lack of infrastructure and political clarity are familiar topics for discussion among our clients here. Yet during my visits to the local subsidiaries of mainly European companies, there were clearly more positive undertones noticeable. First there was the appointment of the new president of the central bank, Raghuram Rajan, who has contributed a lot towards financial stability, and then came the elections.
A record 551 million Indian people went to the polls over a five-week period. That’s a turnout of 66,38%. Everyone that voted was marked with an ink stamp that only disappeared after several weeks – scrubbing didn’t help. This was to prevent fraud. It also had another advantage: everyone with ink on their finger could park for free at the Delhi mall and even received a discount in some shops! Previously the turnout for elections in India has been low, but it seems they have found the right remedy.
Investing in infrastructure
The most likely winner of these elections, at least according to the exit polls, is the present governor of Gujarat province, Narenda Modi, or simply NaMo. He has a good track record in Gujarat, where he has done a lot for businesses. His party, the BJP, is a people’s party that also held power between 1998 en 2004, investing heavily in infrastructure.
A vote for BJP in these elections was also a vote against the ruling government and NaMo won’t have it easy should he take control. In a country with so many people, issues and more than 1600(!) political parties – including the Lovers, Stay Awake and Pyramid parties – compromise seems inevitable. It is obvious an absolute majority would help get things done in India. Investors seem to have priced in this outcome by taking profits on their positions on the Indian rupee and the local stock market. A scenario in which NaMo does not get the absolute majority could lead to a lot of volatility on the Indian financial market…
European investors optimistic about India
Back to the client visits where, aside from political preferences, everybody’s main hope is for clarity. Two big European companies in the telecoms and food & beverage sectors recently announced they are increasing their investments in India. However, the most important topic remains clarity; in the area of tax law but particularly on infrastructure investments for the long term. The country has an abundance of possibilities and a massive market, but it lacks a clear direction and an effective implementation of its goals.
One person with a definite goal was the unflappable cowherd who steered his cows across the two-lane motorway as the honking traffic raced by. To keep such a cool head in the scorching 42 degrees heat is truly admirable!
Follow Jeroen on Twitter: @JeroenPlag
Initially published by Dutch daily 'Het Financieele Dagblad', with permission re-published by ING.