India Gets Better, Modi Gets Worse
Naming a stadium after yourself is a bad sign. Suppressing the internet is worse.
National leaders naming stadiums after themselves is never a good sign. Laws suppressing the internet are a worse one. Indian Prime Minister Narendra Modi managed both last week while the world’s attention was elsewhere, like on rising U.S. bond yields and panicked stock markets.
This wasn’t just any stadium either. The largest cricket ground the world has ever seen, seating 110,000 spectators in Modi’s home state of Gujarat, will bear his name. “World’s largest stadium dedicated to the world’s largest personality!” one of his flunkeys tweeted approvingly. Boy oh boy.
The draft internet legislation, which Modi’s IT minister unveiled February 25, is a more serious matter. It would allow the government to quash any content that threatens the “unity, integrity, defense, security or sovereignty of India.” If that brush weren’t broad enough, “causing incitement” could also merit removal. Oh, and sites or carriers would have to identify “the originator” of offensive information, just in case police wanted to contact them. This big social media chill doesn’t come from nowhere. It looks like Modi’s response to protesting farmers, who have organized with irritating effectiveness via Twitter in recent months.
Investors’ response to Modi’s accelerating strongman tendencies is simple: Who cares? Indian stocks are hot. The iShares U.S.-traded ETF (ticker: INDA) is up more than 20% over the past six months, compared to 14% for Chinese equities and 10% for the S&P 500.
The optimism is not unfounded. India is an object lesson in the principle that investors buy companies, not countries. Two of the top five stocks are IT outsourcers that depend on global tech demand, not the domestic economy: Infosys (INFY) and Tata Consultancy Services (TCS: India). Most of the other top 10 are private-sector banks, led by Housing Development Finance Co. (HDB) and ICICI Bank (IBN). They are plugged into the richest quarter of the Indian population, whom Bain & Co. counts as middle class. They can expect mushrooming demand from this group of 350 million for mortgages, investment management and the like, without worrying about the 1 billion or so less fortunate Indians for the moment.
India has also gotten enormously lucky with the Covid-19 epidemic, and no one is quite sure why. Reported cases and deaths have plunged more than 80% since a peak last September. Explanations range from a young population (median age 27) to previous disease exposure or herd immunity in densely populated cities. Modi’s crude lockdown program, which saw migrant workers driven out of cities with no notice, doesn’t get much credit.
Government will affect markets in the long run, though. Modi’s fans may see him channeling Xi Jinping to make disorderly India hum (and investors pour in capital despite genocide in Xinjiang and other political crimes). But India, with its 22 official languages and obstreperous federalism, can never be China. Its path forward is as the massive anti-China, leveraging bottom-up entrepreneurship and deep, friendly ties with the global tech/finance centers in the U.S. and U.K.
More apt analogies for Modi’s path are Vladimir Putin in Russia or Recep Erdogan in Turkey. Both started out as reformers, bringing some welcome order and modernization out of chaos and stagnation. Both deteriorated into personality cult figures enabling a kleptocracy of their old friends. Both largely wrote their countries off the world investment map over time. (Remember when the “R” in BRICs stood for Russia? Seems like a long time ago.)
Analogies are imperfect, and a similar fate for India is far from sealed. India is much younger and poorer than Russia, with GDP per capita that can double or triple before approaching a “middle-income trap.” It’s more educated than Turkey, in pockets, with world-beating potential in IT, pharmacology and other industries of the future. It’s too big not to be central to the global future.
Investors are treating Modi’s more-than-creeping authoritarianism, and still-more dangerous antagonism of India’s 200 million Muslims, as a sort of personality quirk that won’t interfere with his country’s predestined growth and progress. That may be too complacent.