The emerging economies of Brazil, Russia, India and China, or BRIC bloc of countries, represent 40 percent of the world’s population and together, a growing economic force. Chris Devonshire-Ellis is traveling to the four BRIC nations to observe the impact these countries are having on one another, and the impact they are having on the world. In this third article he focuses on India.

By Chris Devonshire-Ellis

MUMBAI, Oct. 16 – In my time working in Asia, I have noticed certain cities acquire a “buzz”; a palpable sense of excitement, of achievement, a sense of being where all the action is. Hong Kong had it in the early days of China’s awakening in the late 1980’s, then after the British left the feeling traveled north and went to Shanghai for a few years. Last summer, albeit briefly, it was in Beijing, but this elusive specter of inherent success doesn’t stay permanently, and it has now crossed the ocean, headed west and is in Mumbai.

That it should be in Mumbai at all seems rather fanciful, but here it is. The streets are packed, restaurants are full, the nightclubs are booming, and a party-like business atmosphere exists. Everywhere in India it is the same, a feeling of “can do,” an awakening, and an abiding belief that this time, India really is going to take off. Everyone has a mobile phone, the stock markets are booming, and businessmen are either constantly on the phone to New York, London, Dubai or Shanghai, or are pouring into India from all over the world. Yet just a year ago, it seemed all so different. The terrorist attacks on Mumbai I had thought at the time may well scare off foreign investment. Yet after the city had licked its wounds, mopped up the blood and mourned its victims, the sheer resilience of the Indians kicked in.

The Taj Hotel, which was badly damaged, reopened for business within six weeks. Leopold’s Café, with bullet holes and grenade explosions still carved into the walls and floor opened after just a week. The Taj requires reservations to get in, and Leopold’s has queues outside waiting for a table. It’s not a macabre sense of hanging out where so many died, it is a sense of getting on with life, remembering what happened, but refusing to be cowed by the perverted. Unlike China or Russia, India wears its heart on its sleeve, and when they get determined, there is little anyone can do to change their mind. This is India’s time. And the buzz is most apparently here.

There are many reasons for this however. India has long been seen as bureaucratic, slow, and inefficient. One word is often used to describe it: democratic. A country that has been unable to produce a working government majority over the past two decades is hand bound by that same democratic process to move slowly, to horse trade, with the end result being stagnation. However, the Indian psyche needs a kick up the backside every now and then. Excitable, yet often endlessly patient, India has needed China to move ahead to permit it to sense its own moribund nature and finally, to act.

Curiously however, one of the reasons India is now so vibrant is partially because it has lagged behind. As China moved on, and developed a massive export mechanism to fund its growth, it generated a huge reliance on overseas buyers. That China is hurting now as a result is quite apparent. India however has been slower off the mark. Its economy relies on exports to less than half of the extent China does, and its domestic consumption is far higher. While the streets and restaurants in Shanghai are quiet, in Mumbai it is hard to get a table.

There are however more similarities between China and India than meets the eye. Institutional structures are very similar, although this is now changing. Centralized, social state planning took place in India following independence from Britain, and in shades of the Great Game that Britain had played out with Russia before the Second World War, it was the Soviet Union who India turned too for advice in their newly independent restructuring of the economy. China too, continues to have massive centralized State planning. But while India’s experiment of marrying that to a democracy has failed, China continues with the one party state. Recognizing the inability to forge an alliance between centralized governance and the democratic process, the Indian Government is now getting out of business, and is trying to implement more aggressive reforms through privatization.

Finally, the electorate has recognized this as the way to go. With the Congress Party making all the right noises, and quite obviously hampered in attempts to forge ahead while constricted in government by the prime opposition BJP Party, the voting population revolted in May of this year and awarded the Congress Party a full mandate to govern for the next five years. Manmohan Singh, the light blue turbaned Sikh prime minister, became the second PM to be reelected in over 40 years. Congress has responded by pushing through India’s first major tax overhaul also in 40 years, has set aside billions of dollars for infrastructure development, and has actively been pursuing private capital as a partner to both redevelop the nation and allow the private sector to invest and get rich while doing so. Public-private partnerships are the key words here, and with the government providing up to 30 percent of infrastructure project financing, the rest of the world is now waking up to the implications.

The result has been dramatic. Institutional investment has been pouring into the stock market, which has risen 78 percent in just six months. Share offerings in companies that are involved in infrastructure development are selling out in minutes and are ending up massively oversubscribed. Foreign direct investment is now pouring in. India has finally turned its notorious lack of infrastructure from being the problem into being the opportunity. The buzz is now in India. And of all the BRICs, it is this one that is poised to be the investment darling for the next two decades.

This article has been revised to reflect the following correction:
The BJP Party is India’s prime opposition party and also encouraged privatization. Prime Minister Manmohan Singh is the second PM to be reelected in over 40 years.

Comments are welcome

Next week: Brazil

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Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and lived in China for 21 years. He is now based in Mumbai. He may be contacted for incorporation, tax and due diligence advice about investment into India at india@dezshira.com.