South Asia
When most people think of South Asia, they think of India and Pakistan. The region also includes Afghanistan, Bangladesh, Bhutan, Nepal, Maldives, and Sri Lanka. South Asia is surrounded by the Indian Ocean to the south, and other parts of Asia to the north, east, and west. On the topic of business and finance, we primarily concern ourselves with India, the world's seventh-largest economy. It's closest economic competitor in South Asia is Pakistan, coming in with a world ranking of 43. While we may focus on India, that doesn't change the fact that Pakistan is a nuclear power, with these two historic enemies (India and Pakistan) each controlling around 100 nuclear warheads. While war between the two is not inevitable, both sides have made cavalier claims about their ability to operate in both a conventional and nuclear field of combat.
With 1.3 billion citizens, India is the second most populous country in the world. Its economy has been touted as one of the fastest growing in the world, but a look under the rug reveals some ugly cracks in its fissure. About 17% of India's GDP is generated from the country's agricultural sector, which employs 60% of the labor force. Over 50% of GDP now comes from the services sector (especially telecom and I.T.), as developed nations have gravitated to the well-educated but poorly paid workforce. Relations between the United States and India have remained relatively friendly, despite the latter's long-standing relationship with the former Soviet Union. Any U.S. overtures to Pakistan, India's sworn enemy, are met with disdain by New Delhi. Roughly 80% of Indians are Hindu, 14% are Muslim, and 2% are Christians.
With 1.3 billion citizens, India is the second most populous country in the world. Its economy has been touted as one of the fastest growing in the world, but a look under the rug reveals some ugly cracks in its fissure. About 17% of India's GDP is generated from the country's agricultural sector, which employs 60% of the labor force. Over 50% of GDP now comes from the services sector (especially telecom and I.T.), as developed nations have gravitated to the well-educated but poorly paid workforce. Relations between the United States and India have remained relatively friendly, despite the latter's long-standing relationship with the former Soviet Union. Any U.S. overtures to Pakistan, India's sworn enemy, are met with disdain by New Delhi. Roughly 80% of Indians are Hindu, 14% are Muslim, and 2% are Christians.
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Semi Foundries
India 18 Mar 2024 |
"Friendshoring": India wants to become a global foundry leader
American companies may be at the forefront of semiconductor design, but the actual production of those designs takes place overwhelmingly outside of the United States at factories known as foundries. Nearly 50% of all chip production takes place in Taiwan—which China continues to claim as its own, 25% in mainland China, 15% in South Korea, 6% in the US, and 2% in Japan. India says it wants to shake up that mix within the next five years. Why aren't there more foundries in the United States? Time, money, and cost effectiveness are three reasons. It takes somewhere between $10 billion and $15 billion to get a new plant up and running, and the process takes between three and five years. This is why companies from Intel to AMD to Apple design their chips in house but outsource production to companies such as Taiwan Semiconductor (TSM $141). India's minister of electronics and IT, meanwhile, believes his country can become one of the top global foundry destinations within the next five years. Citing tension between China and the West, he has been courting tech companies from around the world with a simple message: "India is a "trusted value chain partner" open for business and ready for investment. US chip designer Qualcomm (QCOM $169), which just opened a new factory in Chennai that will employ some 1,600 workers, is buying into that narrative. CEO Cristiano Amon said his company plans to double its investment in the country. Even Asian fab giants are getting in on the act. Hon Hai Precision Industry, otherwise known as Apple chip supplier Foxconn, said it will invest over $1 billion in new operational facilities in India. The country certainly has a lot of catching up to do in the tech arena, but a dedicated effort over the next five years could certainly vault it into a top-tier producer—a push which the United States and other Western countries should fully support. Especially considering the fact that China will never give up its claim over Taiwan, and it is simply a matter of time before the communist country makes it move. Through its aggressive actions and incendiary rhetoric over the past five years China has proven it cannot be relied upon as a trustworthy partner going forward. The genie is out of the bottle: countries will continue to diversify away from the Chinese mainland, and India, which just became the world's most populous country, will be one of the major beneficiaries of this seismic shift. |
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Sino-Indian Relations
05 Jun 2023 |
The expulsion of each other's journalists is just the latest flashpoint in the deteriorating relations between India and China
"The enemy of my enemy is my friend?" Sadly, considering India's tight relationship with Russia's Putin, that saying doesn't really apply with respect to India's ongoing Cold War (which is, at times, hot) with China, but it is fascinating to watch from a distance. The latest flare-up comes after each country kicked out the other's journalists, with India denying visa renewals to Chinese state media personnel, and China quickly reciprocating. Tensions between the two neighbors, which share a 2,100-mile border, have been steadily growing over the past several years, marked by border conflicts and economic disputes. Not long after the Chinese-borne pandemic began, a deadly clash took place in the Himalayan Mountains along a stretch of land claimed by both countries; specifically, the Aksai Chin region. Twenty Indian soldiers and an unknown number of Chinese troops were killed in the fighting, marking the lowest point in relations between the two countries in decades. According to a senior Indian military official, several of the soldiers were killed by clubs embedded with nails. It doesn't take much for a hyper-sensitive China, emboldened by a growing economy, to react violently to perceived threats. In addition to aggressive behavior along the Indian border, the country has claimed a number of disputed islands in the South China Sea as its own, alienating southern and eastern neighbors in the region. The CCP has also expressed outrage at the existence of the Quadrilateral Security Dialogue, a geopolitical group made up of the United States, Japan, India, and Australia. It claims the group's purpose is to encircle and isolate the country, though the stated goal of the Quad, as it is known, is to monitor illegal fishing, maritime militias, and the secret shipping of goods such as weapons. China's inferiority complex with respect to its role on the world stage is troubling. The more it feels slighted, the more the country's military is apt to act in an irresponsible way, as highlighted by the recent border dispute. Unfortunately, India's close relationship with Russia illustrates the nuanced approach the US must take when forming strategic alliances in the region. As China's economy matures, it will become impossible to maintain the high growth rate it displayed as an emerging market. The arrogance of the country's ruling class will prevent them from accepting that fact, which will lead to ever-growing tumult in the region. For the international portion of any investment portfolio, we see greener pastures outside of both China and India. |
India is banning China's top apps, and that will have a big impact
(30 Jun 2020) Some in the media love to point out that China is a nation with 1.3 billion citizens. All well and good, but population doesn't equate to economic might. In fact, it would be fairly easy to argue that it hurts—all the more mouths to feed. Additionally, we will continue to argue that technology will be the great driver of economic growth going forward, so it is paramount that the world's largest economy, the United States, maintains its technological advantage. Speaking of technology and population, it should be pointed out that China's regional nemesis, India, also has 1.3 billion citizens, and that country's government just slapped a big setback on China's tech push: it has banned 59 of the communist nation's largest apps over cybersecurity concerns. Among the apps are TikTok, which currently has more users in India than anywhere else outside of China. The apps on the banned list are now blocked from download in India, and already-downloaded apps will stop working by early next week. Make no mistake about it, this action will a powerful and deleterious effect on these prize Chinese entities. India is where China was about 15 years ago—an emerging market just waiting to flourish. There is one big difference between the two: India doesn't have world domination as a stated goal ("China 2025").
(30 Jun 2020) Some in the media love to point out that China is a nation with 1.3 billion citizens. All well and good, but population doesn't equate to economic might. In fact, it would be fairly easy to argue that it hurts—all the more mouths to feed. Additionally, we will continue to argue that technology will be the great driver of economic growth going forward, so it is paramount that the world's largest economy, the United States, maintains its technological advantage. Speaking of technology and population, it should be pointed out that China's regional nemesis, India, also has 1.3 billion citizens, and that country's government just slapped a big setback on China's tech push: it has banned 59 of the communist nation's largest apps over cybersecurity concerns. Among the apps are TikTok, which currently has more users in India than anywhere else outside of China. The apps on the banned list are now blocked from download in India, and already-downloaded apps will stop working by early next week. Make no mistake about it, this action will a powerful and deleterious effect on these prize Chinese entities. India is where China was about 15 years ago—an emerging market just waiting to flourish. There is one big difference between the two: India doesn't have world domination as a stated goal ("China 2025").
India proves the media's tired narrative on China is false
(16 Jun 2020) Here is the tired and worn media narrative: China was well on its way towards eclipsing the US as the world's largest economy—something the other countries of the world were fine with—when the US came along with its destructive trade war. Sorry, media, that false narrative continues to crumble. Even before the pandemic, a majority of nations around the world had a bitter, firsthand taste of China's unfair trade tactics and bullying behavior. Countries from Vietnam to India have had a longstanding animosity toward and distrust of Beijing. The latest example comes to us from the border region between India and China. A seven-week military standoff between the two countries along the disputed Himalayan border turned deadly, as India confirmed that at least 20 of its troops have been killed. China is blaming New Delhi—specifically the government of Narendra Modi—for the escalation, but China has been increasingly exerting its control over regions from the South Sea to Taiwan to Hong Kong. In fact, the catalyst for this most recent deadly incident was probably the deployment of Chinese troops to an area between western Tibet and Kashmir; an incendiary move which caught India off guard. China despises the fact that India has been aligning itself more with the United States recently, and this may have been part of a larger strategy of intimidation against the Modi government. With both countries holding a population of roughly 1.3 billion people, it is in the best interest of the United States to support the economic expansion of India—the world's largest democracy. Expect increasingly alarming stories of China's regional ambitions over the coming months and years. Unlike with India, China's economic growth does pose a direct threat both to the region and the globe.
(16 Jun 2020) Here is the tired and worn media narrative: China was well on its way towards eclipsing the US as the world's largest economy—something the other countries of the world were fine with—when the US came along with its destructive trade war. Sorry, media, that false narrative continues to crumble. Even before the pandemic, a majority of nations around the world had a bitter, firsthand taste of China's unfair trade tactics and bullying behavior. Countries from Vietnam to India have had a longstanding animosity toward and distrust of Beijing. The latest example comes to us from the border region between India and China. A seven-week military standoff between the two countries along the disputed Himalayan border turned deadly, as India confirmed that at least 20 of its troops have been killed. China is blaming New Delhi—specifically the government of Narendra Modi—for the escalation, but China has been increasingly exerting its control over regions from the South Sea to Taiwan to Hong Kong. In fact, the catalyst for this most recent deadly incident was probably the deployment of Chinese troops to an area between western Tibet and Kashmir; an incendiary move which caught India off guard. China despises the fact that India has been aligning itself more with the United States recently, and this may have been part of a larger strategy of intimidation against the Modi government. With both countries holding a population of roughly 1.3 billion people, it is in the best interest of the United States to support the economic expansion of India—the world's largest democracy. Expect increasingly alarming stories of China's regional ambitions over the coming months and years. Unlike with India, China's economic growth does pose a direct threat both to the region and the globe.
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India
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Modi's reelection in India is good news not just for Indian markets, but also for overall geopolitical stability. (20 May 2019) We have often made the case that little will keep the Communist Chinese government in check more than a strong and growing India—a parliamentary democracy and staunch ally to the United States. Which is why the Communist Party of China (CPC) can't be happy about the outcome of India's national elections. Prime Minister Narendra Modi, a fiscal and military hawk, appears headed for another five-year term as the country's leader, and the benchmark S&P BSE SENSEX index, the "Dow 30" for India, is having its best day since 2013—up nearly 4%. While Modi's ruling Bharatiya Janata Party (BJP) may lose its outright majority in parliament, its relatively strong coalition will almost certainly remain in charge. This should mean a continued march towards the privatization of the nation's industrial base, which will encourage further foreign direct investment in the economy. Modi and his party were swept into power in 2014 on promises to modernize the country and make it a competitive place to do business. India's economy, now growing at a rate above 6.5% per year, surpassed Russia's in size back in 2014 and, at $2.6 trillion, is poised to surpass that of the France's this year, which would make it the sixth-largest in the world. Most geopolitical analysts continue to underestimate India's potential to become a world economic superpower. Massive reform—underpinned by a general acceptance of free market ideals—is still required for this to happen, but the country continues its slow march forward. A Modi loss would have represented a major setback to this effort.
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India
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If Turkey is causing the problems, why did India's rupee just hit an all-time low against the US Dollar? (14 Aug 2018) If you want to trade your Indian rupee in for a US dollar, you will now be given just $0.15. That is the lowest the rupee has ever traded against the greenback, but why is it falling? It has little to do with India and nearly everything to do with Turkey and the emerging markets (EM) crisis. While the Reserve Bank of India made moves on Monday to help stabilize the national currency, spooked investors are seeking safer havens in US dollars and other "safe" currencies. To be sure, a weaker currency helps a country's export business, but it also decimates consumers in that country—they must now pay more as their currency is worth less. Consumers in India are really getting pounded at the pumps. Nearly 40% of all oil consumed in the country comes in the form of diesel, and taxes account for over 50% of the price-per-liter of fuel. Add the weakened rupee to the mix and you have an explosive situation of voter anger across the country. So far, Prime Minister Narendra Modi has been able to weather the storm, but the gas tax situation will need to be addressed soon. Especially if the rupee continues to be worth less and less at the pumps.
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India’s impressive renewable energy push will help US firms
We expected good things when India elected Narendra Modi as the nation’s 15th prime minister back in 2014. So far, the “Ronald Reagan of India” has not disappointed. With no shortage of bold economic plans, Modi has set a goal for the country to generate 100 gigawatts of solar power by 2022. Pretty impressive, considering the US expects to hit the 45 GW range by 2017.
India is committing $100 billion, at least on paper, to its solar energy push over the next decade, but the recipients will be foreign, not domestic, players. This is bad news for the country’s inefficient and uncompetitive solar panel companies, but great news for the likes of American firm First SolarFSLR and China’s Trina Solar. Were this China, the government would be protecting the inefficient locals from the big, bad foreign competitors. But Modi wants real economic growth for his nation of 1.3 billion inhabitants, not phony growth via protectionism. Unlike China, and Germany for that matter, India got rid of its anti-dumping policies with respect to low cost solar panels.
Solar firms in the US, from Elon Musk-backed SolarCitySCTY to First Solar to St. Louis-based Sun EdisonSUNE have been knocked around like a sparring partner in a heavyweight title fight over the past six months, but don’t count them out just yet. Sun Edison is sitting at $1.60 per share, but the company will pony up $4 billion to partner with Indian power provider Adani Enterprises to build the biggest solar panel factory in India. This one plant could generate 7.5 GW of annual production when completed.
The irony of China dumping cheap solar panels on the world while millions of Chinese fall victim to pollution-related illnesses would be comical, were it not so sad. India’s strong relationship with the US, however, should bode well for America’s solar panel industry as that country strives to meet Modi’s grand energy plan.
Reprinted from the Journal of Wealth & Success, Vol. 4, Issue 2.
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America Must Question its Relationship Status with India
(18 Dec 2013) Mail service is not what it used to be. Not only do we now have to walk down the block to get our letters (a friendly guy in an actual uniform delivered it to our doorstep when I was a kid), but our box also contains, at times, someone else's post. On three different occasions, for example, I received the India Times newspaper in our slot. In our postman's defense, I guess "Hazell" does look a lot like "Rajagopal." Upon unfolding the paper, I didn't have to open the gossamer, ink-drenched pages to see the America-bashing. On the cover of each of the three issues I found at least one article with a smarmy or outright bizarre comment about the U.S. Those issues of the India Times came to mind when I heard the story of a low-level Indian diplomat being arrested in New York, and the petulant response delivered by the Indian government.
At the center of the controversy is Devyani Khobragade, an Indian consular officer in New York. Accused of committing visa fraud and making false claims to a government agency, Khobragade was arrested by law enforcement shortly after dropping her child off at school. After posting bail she was released, but the story of the scorned diplomat has been reverberating throughout India.
Like a group of school children spreading a story, the details of exactly what happened seem to grow more outlandish with each recount. The Indian press is now telling of how Khobragade was strip-searched, and then placed in a jail with "common criminals and drug addicts." The diplomat, for her part, appears to be fanning the flames of discontent. Her position in the United States does not grant her the special immunity reserved for higher-level diplomats working in the country, and a U.S. State Department spokesman, Marie Harf, briefed reporters that everything about the arrest appears to be in order.
It appears that the Indian government is as responsible as the country's press corps. It has ordered the immediate dismantling of all security barricades on the streets around the U.S. embassy in New Delhi, and began calling in American diplomats and ordering them to turn in their government-issued identity cards. It is almost as if the government is wishing a nefarious act to take place against Americans in the country. One high-ranking Indian official called the act in New York "barbaric and despicable," and demanded an immediate apology by the American government. A senior member of the Bharatiya Janata Party indicated that the government should fight back by arresting "same-sex companions of American diplomats" in accordance with the ruling by India's Supreme Court that made homosexuality illegal.
One interesting comment made by an Indian government official was that America must stop treating India as a "banana republic." This comment is telling in that it shows an insecurity about the country's position as a major trading partner. Stability is key when it comes to forging trade alliances, as one nation must count upon the other nation to respect the agreements set forth. The hyperbolic response over a low-level diplomat's arrest should raise some concerns in D.C. If the actions taken against her while in custody were wrong, then procedures should be changed for anyone under those circumstances--not just diplomats. As for India, considering the truly heinous crimes committed against women in that country, many of which have made the world headlines of late, it is time to get their own house in order instead of creating a straw dog out of an isolated incident halfway around the world.
Wal-Mart's Pullback in India Reveals Labyrinth of Complex Rules for Foreign Companies
(2013.10.09) Wal-Mart (WMT) announced it was ending a much-anticipated joint venture with Indian retailing conglomerate Bharti Enterprises, Ltd. This split exemplifies the trouble U.S. firms are having as they try and navigate New Delhi's byzantine rules for foreign investors.
Wal-Mart said it planned to continue operating its 20 wholesale stores in the country, but that it would wait for changes from the government before expanding further in the region. For example, Wal-Mart's 20 Best Price Modern Wholesale cash-and-carry stores serve small businesses, and this type of wholesale operation has much looser government standards and requirements. Bharti will take over the Easyday joint venture chain of convenience stores and supermarkets; this type of direct-to-consumer model comes with ultra-strict requirement for foreign firms, such as a demand that 30% of the products and services sold emanate from small local providers. This type of requirement is anathema to Wal-Mart's highly efficient supply chain model.
Like many emerging markets, India is struggling with the balance of old and new: nationalists would like to see Indian companies in full control of the economic spectrum in the company, yet this will not be possible if the nation of 1.2 billion people wishes to enter the modern worldwide marketplace. With $400 billion in retail sales each year, it is amazing that the landscape is still dominated by Indian mom-and-pop stores. Foreign firms would love to tap into the enormous growth potential, but are leery of getting caught in the confusing web of government regulations.
It appeared that India was easing up a bit when it began allowing foreign firms to own up to a 51% stake in supermarkets. However, foreign interest quickly realized that virtually every aspect of their company would be regulated, from how their buildings look to how they stock the shelves. Instead of seeing 1.2 billion potential customers, investors need to consider how the Indian culture dictates the manner in which they spend their rupees.
Any opinions expressed are those of Penn Wealth Publishing, LLC and are current only through the date posted. These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results.