I've recently begun reading The Growth Map by Jim O'Neill. Jim O'Neill is Goldman Sach's top Economic advisor, and Chair of Goldman's Asset Management Group. He is most notable for coining the term BRIC, an acronym for Brazil, Russia, India, and China, four countries whose economies he predicted would boom within the first two decades of 2000. So far, O'Neill has been right on, each BRIC economy has increased by tens of billions of dollars, and growth has been (near) double digits year after year. However, the growth in China, India, and Brazil has begun to slow down, causing many investors to be worried, and pull out their cash.
India. With a population of over 1.1 billion people, and largely undeveloped, many investors are calling India the next China. India has a huge supply of labor, and that labor is cheap. It's certainly cheaper then US labor, and around as cheap as Chinese labor. In the early 2000's, many American companies began outsourcing their labor to India, because they could pay the Indian workers less then a tenth of what they could pay American workers, and the work output was a higher quality. Investment banks outsourced a large portion of their analysis/back-end office work, firms outsourced their software development, IT help, and call centers. All the business going to India actually encouraged more American companies to invest their money in India.
Taco Bell, Pizza Hut, Papa Johns, and Apple began setting up stores in India. Then came the banks, JP Morgan, Goldman Sachs, Citi Bank, and Wells Fargo. This boosted the Indian economy; foreign money was pouring in at an unprecedented rate, people were being hired 'left, right, and center', and exports were increasing. As parents were becoming wealthier, they could afford to send their children to study, work, and vacation abroad (primarily to America and Europe), thereby helping the American and European economy. But soon, most of India's top students, primarily doctors, engineers, and scientists, went off to live in America and Europe, where they would be paid more then when they were in India.
India's corrupt government became greedy and began increasing taxes, thereby decreasing spending. The government attempted to adjust for the decrease in spending by increasing government spending through infrastructure upgrades, and printing more money. As a result, the inflation rate almost doubled. From 2006-07 inflation was 7%, from 2009-10 inflation increased to 12.4%, and is now at 10.7% in 2013 (April - June). The high inflation and taxes scared away foreign investment, and the GDP growth halved from 9.3% in 2010 to 5% in 2013. The unemployment rate rose, spending fell, and the rupee (India's currency) fell 17% in just 2 months (compared to USD). In addition, Moody's downgraded India's debt return/bonds by two ratings. Investors took their money out of India, and put it back in America, where the growth rate was higher and more stable.
For this year, India's economic outlook is bleak. However, I do anticipate a recovery on the rupee. I was in India over the summer and did extensive research and reading on India's economy and market. During this time, I discovered that geographically and economically, India's economy is poised to take off. International trade with China, America, and Europe will definitely increase. Foreign spending in India will also increase. Many American companies have finished expanding in America; almost every house has two cars, several laptops, several TVs, and several phones. In order to keep American investors/Wall Street happy, the companies must increase their revenue by investing abroad, since America is tapped out (less future growth). India is one of the best markets to expand to. Those 1.1 billion people will need cars, phones, TV, computers, and Internet Access. American companies have had the money, and the time advantage in developing those technologies to the point that they are years ahead of Indian companies. For example, most Indians have basic Nokia phones, and survive on 20 KB download rates. A low cost/cheap iPhone would take the market share out of Nokia's hands, and change it from basic flip-phone to smart phone. Smartphones need good satellite/Internet access, which Verizon and AT&T have perfected. Investors will invest in Indian stocks (Sensex market), giving Indian companies the capital to expand and purchase newer/better technology that will allow them to provide service for hundreds of millions of Indians, hence increasing their profits/revenues.
Although I predicted an Economic recovery next year in India, I acknowledge that drastic changes need to be made in the federal government. The largely corrupt government is using up money (personal bribes), and not spending enough. Billions of Rupees were planned to be spent on tens of thousands of infrastructure projects, yet only a handful have actually been started. Infrastructure is very vital to help boost the Indian economy. The problem with the infrastructure/roads in India is that many of the cities (Bangalore, Bombay) were built by the British a hundred years ago to be mainly used as British Navy bases with small population. Since then, the cities have grown exponentially, and little thought has been put into strategic road development that will be able to handle thousands of more people in the future. As a result, traffic jams are very frequent, and last for hours, which hurts the economy.The government also needs to regulate businesses, because there are many monopolies that are hurting small businesses and slowing down growth and innovation. Airtel, India's primary mobile phone service, is a prime example of a large monopoly that needs regulation. Airtel is one of India's only phone carriers, and because no other company is able to put their 'foot in the door' or offer any competition, Airtel can increase their prices, and decrease their spending on innovation. As a result, Internet speeds in India remain very slow, causing some American companies to stop outsourcing business there. McGraw-Hill Financials listed that as a primary reason for their decrease in outsourcing to India, in combination with difficulty communicating due to poor networking/phone services.
India. With a population of over 1.1 billion people, and largely undeveloped, many investors are calling India the next China. India has a huge supply of labor, and that labor is cheap. It's certainly cheaper then US labor, and around as cheap as Chinese labor. In the early 2000's, many American companies began outsourcing their labor to India, because they could pay the Indian workers less then a tenth of what they could pay American workers, and the work output was a higher quality. Investment banks outsourced a large portion of their analysis/back-end office work, firms outsourced their software development, IT help, and call centers. All the business going to India actually encouraged more American companies to invest their money in India.
Taco Bell, Pizza Hut, Papa Johns, and Apple began setting up stores in India. Then came the banks, JP Morgan, Goldman Sachs, Citi Bank, and Wells Fargo. This boosted the Indian economy; foreign money was pouring in at an unprecedented rate, people were being hired 'left, right, and center', and exports were increasing. As parents were becoming wealthier, they could afford to send their children to study, work, and vacation abroad (primarily to America and Europe), thereby helping the American and European economy. But soon, most of India's top students, primarily doctors, engineers, and scientists, went off to live in America and Europe, where they would be paid more then when they were in India.
India's corrupt government became greedy and began increasing taxes, thereby decreasing spending. The government attempted to adjust for the decrease in spending by increasing government spending through infrastructure upgrades, and printing more money. As a result, the inflation rate almost doubled. From 2006-07 inflation was 7%, from 2009-10 inflation increased to 12.4%, and is now at 10.7% in 2013 (April - June). The high inflation and taxes scared away foreign investment, and the GDP growth halved from 9.3% in 2010 to 5% in 2013. The unemployment rate rose, spending fell, and the rupee (India's currency) fell 17% in just 2 months (compared to USD). In addition, Moody's downgraded India's debt return/bonds by two ratings. Investors took their money out of India, and put it back in America, where the growth rate was higher and more stable.
For this year, India's economic outlook is bleak. However, I do anticipate a recovery on the rupee. I was in India over the summer and did extensive research and reading on India's economy and market. During this time, I discovered that geographically and economically, India's economy is poised to take off. International trade with China, America, and Europe will definitely increase. Foreign spending in India will also increase. Many American companies have finished expanding in America; almost every house has two cars, several laptops, several TVs, and several phones. In order to keep American investors/Wall Street happy, the companies must increase their revenue by investing abroad, since America is tapped out (less future growth). India is one of the best markets to expand to. Those 1.1 billion people will need cars, phones, TV, computers, and Internet Access. American companies have had the money, and the time advantage in developing those technologies to the point that they are years ahead of Indian companies. For example, most Indians have basic Nokia phones, and survive on 20 KB download rates. A low cost/cheap iPhone would take the market share out of Nokia's hands, and change it from basic flip-phone to smart phone. Smartphones need good satellite/Internet access, which Verizon and AT&T have perfected. Investors will invest in Indian stocks (Sensex market), giving Indian companies the capital to expand and purchase newer/better technology that will allow them to provide service for hundreds of millions of Indians, hence increasing their profits/revenues.
Although I predicted an Economic recovery next year in India, I acknowledge that drastic changes need to be made in the federal government. The largely corrupt government is using up money (personal bribes), and not spending enough. Billions of Rupees were planned to be spent on tens of thousands of infrastructure projects, yet only a handful have actually been started. Infrastructure is very vital to help boost the Indian economy. The problem with the infrastructure/roads in India is that many of the cities (Bangalore, Bombay) were built by the British a hundred years ago to be mainly used as British Navy bases with small population. Since then, the cities have grown exponentially, and little thought has been put into strategic road development that will be able to handle thousands of more people in the future. As a result, traffic jams are very frequent, and last for hours, which hurts the economy.The government also needs to regulate businesses, because there are many monopolies that are hurting small businesses and slowing down growth and innovation. Airtel, India's primary mobile phone service, is a prime example of a large monopoly that needs regulation. Airtel is one of India's only phone carriers, and because no other company is able to put their 'foot in the door' or offer any competition, Airtel can increase their prices, and decrease their spending on innovation. As a result, Internet speeds in India remain very slow, causing some American companies to stop outsourcing business there. McGraw-Hill Financials listed that as a primary reason for their decrease in outsourcing to India, in combination with difficulty communicating due to poor networking/phone services.
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