India is a nation in transition. While many millions still live in abject rural poverty, many millions more are living modern middle-class lifestyles, working full time, driving cars, going to college and buying homes. Even though economic reform has been slow coming to the subcontinent, the last decade or two has seen dramatic improvement and growth in the Indian economy.
Although still grappling with the urban/rural divide and other issues facing most emerging nations, India is stepping up to take its place among the leaders in the global economy. The February 2014 newsletter of strategic research firm IndusView highlights a number of investment-related topics of current interest in India.
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Interest rates and inflation
It is a generally held public view that increasing interest rates slows down growth and acts to counteract inflation. This relationship generally holds true when the inflation is caused by an overheating economy. However, inflation that is caused by rising commodity prices cannot be so easily reined in, and raising interest rates in these circumstances can even be counterproductive.
Bundeep Singh Rangar, chairman of London-based advisory firm IndusView, explains. “When the RBI increases its interest rates, it’s as if it is using a bobcat to calm the herd. A belief that raising interest rates will rein in inflation that’s propelled by cost factors is dangerous and ineffective. The only effect will be to suppress growth, something India’s economy cannot afford.”
M&A picking up among Indian startups
The IndusView February newsletter also notes that there has been an appreciable pickup in M&A activity among startups in India over the last few months. It highlights the fact that Indian technology companies are creating innovative products, and that is getting the attention of global corporations eager looking to find fresh ideas and skilled workers.