Don’t Sleep On India

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I’ve just returned from a two-week visit to India. The above epigram was offered by several of my guides on different occasions. It captures the essence of India perfectly.

Many people are completely put off at the thought of visiting India or are repelled when they get there. They focus on the dirt, air pollution, smells, overcrowding, swarms of beggars and street vendors, cars honking in the cities and lack of sanitation in the countryside. Their delicate western palates are no match for the spicy Indian cuisine (normal) and the super-spicy version (readily available). That’s all true.

Others (myself included) love India. I first visited over 40 years ago. Some of the complaints are just life in a developing economy. You’ll find noise and pollution from Santiago to Saigon (and not that long ago in Los Angeles). The smells are often delightful scents of spice and incense. The crowds are dressed in saris and silks that have hues of red, blue and saffron you won’t find anywhere else in the world.

Honking is actually encouraged (to a point) as a way to let the driver ahead know you are overtaking. Traffic lanes have been obliterated or are simply ignored on most city boulevards. It’s every driver for himself but that just adds to the buzz and excitement. It seems chaotic but drivers actually do pay attention and avoid crashes if only barely. As for the food, I couldn’t get enough of it. When waiters warned me of the heat quotient, I told them to bring it on. They politely smiled and made sure I got the hottest dishes available.

Too Big to Ignore

It’s really the third part of the epigram that hits home. Regardless of your view, you cannot ignore India in any geopolitical analysis or portfolio allocation. India has the largest population of any country in the world at 1.4 billion people (having recently surpassed China). India has the seventh largest landmass of any country after Russia, Canada, China, the U.S., Brazil and Australia. It is one of only nine countries in the world with nuclear weapons. It shares borders with China and Pakistan, both nuclear powers.

While India is smaller than China, it has ample arable land to feed its population. China is mostly desert, mountains or high plateau none of which are suitable for agriculture. Much of China is at latitudes of 45° N or higher (Manchuria) and is also too cold most of the year to grow food. The Chinese Han heartland in the southeastern third of the country is the rice basket, but China still imports enormous quantities of food.

In contrast, India stretches from the tropics (Kerala is 8° N) to the Himalayas (New Delhi is 29° N), most of which consists of prime agricultural climate and soil. India is an agricultural powerhouse – it imports almost no food, growing all it needs. It’s also a technology powerhouse as home to tech giants like Infosys, Tata Consultancy Services, Cognizant and Wipro. Yes, by every measure India is too big to ignore.

My visit was not confined to the monumental temples and luxury hotels. I walked the streets and ghats of Varanasi with millions of pilgrims there to put the Ganges River to sleep and wake it the next morning. I spent time with locals in Dharavi, sometimes called the world’s largest slum although Indians take offense at the word slum. (That said, Dharavi was the filming location for the Bollywood-style film Slumdog Millionaire, which won the Oscar for Best Picture in 2008).

Dharavi is about one-square mile in the heart of Bombay with a population of about one million people. That population density of one million per square mile makes it one of the most densely populated places in the world.

Poor But Bustling

The dirt, lack of sanitation and unsafe working conditions in Dharavi were undeniable. Still, what impressed me most was the sheer energy of the place. Thousands of small businesses, including many manufacturing operations, were thriving. They were all hole-in-the-wall arrangements. Labor costs were minimal, regulation almost non-existent and many appeared unsafe with open fires, exposed machinery and dark working conditions. Remarkably, it is estimated that annual revenues from the businesses in Dharavi exceed $1 billion.

I photographed this cardboard recycling business located in the heart of the Dharavi area of Bombay. It is one of thousands of small, independent enterprises many of which I encountered in my time there. Other businesses include plastic scrap recycling, baking, laundries, textiles, machine tool manufacturing, motorcycle repair and many more. The residential quarters were tiny (about 100 square feet per family) but the vicinities included schools, temples and streetside barbershops.

Dharavi is poorer than much of the rest of India, which is a poor country on the whole with about $2,700 per capita annual income. This compares to China at about $13,000 per capita annual income. But the Chinese figure hides an extremely unequal income distribution in which a relatively small percentage of the citizens make substantial incomes while the vast majority make far less.

At the same time, the low per capita income figures for India make my point. If some of the poorest people in the world with minimal education, no infrastructure and no capital can produce $1 billion annually from Dharavi, imagine what’s possible when you combine that resourcefulness and energy with even basic factors of production.

Of course, much of India is well past the takeoff point. India is best thought of as a country of 1.4 billion people of whom about 300 million are leading a relatively comfortable life in major cities like Bombay and New Delhi while 1.1 billion are in rural or urban poverty of the kind I saw in Dharavi. Taking a morning walk along Marine Drive in Bombay, which curves along a natural bay observing the first-class hotels and extensive art deco apartment buildings (far more numerous than South Beach in Miami), there would be little reason to think you were in an especially poor country.

Of course, India is poor but 300 million middle-class citizens is a population almost the size of the United States. Again, that’s the point. A U.S.-sized middle-class population already exists in India with 1.1 billion more people waiting to join the ranks. The growth potential is almost beyond comprehension.

The key to unlocking that growth potential rests with public policy. Clearing up land titles for residents of the poorest areas, improving infrastructure especially housing and transportation, offering free tuition and free meals to students and healthcare are the foundation. Beyond that, India needs to keep its big brain technical workers at home instead of watching them head off to the U.S., Australia and Canada. Reducing corruption is also critical. although it’s not realistic to expect it will disappear completely.

A Go-To Investment for the Future

The Indian government under Prime Minister Narendra Modi is making progress in all of these areas. The school lunch program in particular is not only for nutritional reasons but is also to make schools a magnet for children who might otherwise be sent by parents to beg on the streets.

One aspect of Indian society that surprises outsiders is how well the many ethnic and religious groups get along. There are 26 official languages in India with over 300 principal dialects. That’s real diversity, not the DEI kind. From any point in India, a 100-mile journey will deliver you to a place where a different language is spoken. One positive legacy of the British colonial period is that English is widely spoken and is a unifying factor for business, civic society and government.

Despite the history of animosity between India and Pakistan (the original Muslim “homeland”), Hindus and Muslims get along extremely well inside India. There are over 200 million Muslims in India, more than Pakistan itself and more than any country in the world except Indonesia. The two principal religious groups get along well and there is also respect for Parsis, Sikhs, Buddhists, Christians and Jews. India is a predominately peaceful society that disdains war but is quite prepared to fight one if attacked. The spirit of Gandhi is alive and well.

It is noteworthy that President Trump’s first meetings with foreign heads of state included Indian Prime Minister Modi and Japanese Prime Minister Ishiba, both of whom were received at the White House. The U.S., Japan and India are three of the four members of the Quadrilateral Security Dialogue (the Quad) along with Australia. Trump met with these Quad leaders before he met with traditional allies such as France and the UK. This shows the importance of this security dialogue designed to bottle-up China inside the barrier islands of the Western Pacific and to outflank China’s land routes through Myanmar (Burma) and Pakistan. Europe is yesterday’s news. The future is with our new allies in Asia.

What this cultural and political mosaic amounts to is one of the best investment opportunities in the world. India may have short-term hurdles along with the rest of the world as global recession and trade wars loom. But Modi’s pragmatic relationship with Trump and India’s enormous growth potential now being unlocked make India the go-to destination for foreign direct investment for the foreseeable future.

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