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Few of Them Were To Be Trusted Within Reach of a Trowel and a Pile of BRICKS, Part III

In our final piece on the emerging economies, we delve into India, a nation with enormous potential.
Michael McTague, Ph.D., is executive vice president at private equity firm Able Global Partners in New York.
Michael McTague, Ph.D., is executive vice president at private equity firm Able Global Partners in New York.

Image: Guenter Butschek, CEO and Managing Director; Rajendra Petkar, President and Chief Technology Officer, Tata Motors

March 2021 — Myth Buster

In our final piece on the emerging economies, we delve into India, a nation with enormous potential. Despite its strengths, India faces as many challenges as other members of the BRICS group (Brazil, Russia, India, China and South Africa). Let’s begin on a positive note with India’s greatest strengths in the marathon race to reach emerged status.

  1. A solid track record of private industry and a taste for wealth.
  2. The overall structure of business enables competition and a search for excellence in products and services.
  3. A large portion of the population speaks English.

These features offer a good start. To the extent that each of the BRICS is battling to get to the finish line first, the others can make their own cases. While India excels, speaking English is much more commonplace in China and Russia now than ever before and South Africa offers many English speakers. Brazil (February 2021 Myth Buster) possesses strong natural resources – greater than India – and is trying to straighten out its problem with corruption, which hampers business growth. Russia moves slowly toward a true level of business competition and is more welcoming to private industry than in earlier decades. China is building up financial reserves and trying to broaden its reach in southeast Asia. So, all the BRICS are moving ahead in their own ways.

Challenges India Faces

India, however, faces many of its own stumbling blocks. Here are several:

  1. A large percentage of people living in poverty.
  2. A significant split between rich and poor with those at the bottom of the financial scale not moving ahead rapidly.
  3. The country is not blessed by great stores of natural resources.

As we saw in our discussion of Chile (January 2021 Myth Buster), moving a chunk of the populace out of poverty strengthens a national economy. This is a challenge across the BRICS. In India, its huge population of poor people will be a difficult barrier to financial success. 

With few natural resources, India is one of the world’s largest importers of oil. Combined with the large population, this proves to be an expensive burden. India has done an excellent job of becoming a major oil refiner, however, which it exports to its trading partners.

All of these issues make India dependent on the bigger, wealthier and better-endowed-with-resources countries. All emerging nations proved highly vulnerable to the coronavirus pandemic. If the US, the euro zone and Japan are hurting, India suffers even more. From April through June 2020, the economy shrank by almost one quarter. As a result, internal and external investments declined and stocks of Indian companies dipped severely.

As business observers know, it is difficult for the wealthier countries to undertake bailouts and to fund safety nets for individuals and businesses. For a nation of 1.4 billion, it is nearly impossible. Unemployment reached over 20% in the middle of 2020. As is the case across emerging markets, safety nets are few and far between. The safety nets that exist may also be bitterly contested by a great number of people. In the home country of the Ganges River, a few hundred dollars a month is available to some unemployed workers to cover health care and all other living expenses.

India’s Major Corporations

Major corporations in India by market capitalization all of whom are looking to 2021 as a year of economic rebound include Reliance Industries, State Bank of India, Oil and Natural Gas Corporation Ltd. (among several other oil companies) and Tata Motors (NYSE: TTM ). We saw in the previous entries that huge countries are serviced by companies that deal with banking, food, transportation, heat and other basic services for their massive populace. 

Emerging nations do well when they export high quality goods and maintain a positive balance of payments. India does very well in exporting refined petroleum, pharmaceutical products and automobiles among other products. India is one of the world’s biggest exporters of refined petroleum. Actually, this oil is first imported, then refined and exported. This industry, however, is almost entirely owned by the government. The export of small automobiles is a significant success for India, which is able to serve many other large countries with a taste for small vehicles.

Given the cruel effects of the pandemic, no emerging nation will perform well for the foreseeable future. India has been experiencing a sharp rise in coronavirus cases again since mid-February, back to levels not seen since November 2020. When the large economies recover, India should be able to chug along and keep up its good efforts in manufacturing. Its major long-term trading partners are the US, United Arab Emirates and China. India holds a positive trade balance with the US, a very good sign for an emerging nation. 

This look at India demonstrates the great potential of this prominent member of the BRICS. It also highlights the vulnerabilities that all emerging nations face. All of these developing giants are subject to the ups and downs of the wealthier nations with which they engage. When a nation has been operating with minimal wealth for a long time – as shown in how the pandemic has ravaged national economies – it is very difficult to hold the fabric together.

We also saw in this series that countries that move steadily, that build up their middle class, manage their natural resources and tighten the urge to spend on an array of costly projects face a happier future than those that veer off wildly.

Next month picks up a new Myth Buster series.

Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.


Equities News Contributor: Michael McTague, Ph.D.

Source: Equities News