MARKET PERSPECTIVE

By J Mulraj

Jan 11-17, 2025

A correction was due, but our leadership should govern seriously

Image created by FOTOR, using AI

There were several reasons for the recent drop in Indian stock markets. The BSE Sensex dropped from 79943 on Jan 2, to 76330 on Jan 13, a drop of 4.5% in 12 days. Fresh sanctions were imposed on Jan 10 by OFAC (Office of Foreign Asset’s Control) on Russian oil producers like Gazprom, as well as on several ships, transporting oil despite sanctions, called the dark fleet. So investors feared a rise in crude oil prices. On. Jan 15 foreign portfolio investors sold a little under $8 b. of equity. India’s GDP growth estimates are being cut, and its currency is sliding against the US$, thus negating hopes for an interest rate cut.

But, besides the external factors, the governance of the country, and the focus of its leadership, needs to be strengthened. Especially when compared to its leading regional rival, China.

Look at China’s recent achievements.

Chinese scientists have innovatively manufactured an essential component for hypersonic missiles, using stainless steel, a far cheaper and more accessible than the tungsten alloys hitherto used.

China also unveiled two new 6th Generation Stealth Fighters, giving it air superiority over India.

Meanwhile, Indian ministers were wasting time debating the GST rate at which popcorn should be taxed! None other than the Finance Minister ‘clarified’ (hah!) that since sugar was added to make caramelized popcorn, it was considered a sweet (not kidding – she said it! Popcorn as a sweet is ludicrous) and so should be taxed at a higher rate!

No wonder the bear came to the Indian stock market and sat down, eating popcorn, as depicted.

It is well past time that the Indian polity gets serious and starts to look at the technological trends that will shape the future.

China is far ahead in the development of humanoid robots, for example. These will boost productivity in manufacturing, will help countries like China overcome its demographic challenge, and will be a force multiplier in warfare. China has the largest industrial manufacturing base in the world, supplying products to the whole world. It’s trade surplus exceeded $1 trillion, even as India continues to have a trade deficit. China is building a dam, bigger than the Three Gorges Dam, which threatens water flow to Arunachal Pradesh. China’s most popular sweet is Mooncake, not caramelised popcorn. (Since mooncake contains both salt and sugar, it may be a challenge for NS to tax it…namkeen or mithai? but the Chinese seem to have cracked it).

It is essential for our polity to study history and spot the policy mistakes made earlier, that stunted economic growth. Both India and China were at comparable levels of per capita income till the late 70s. Then, President Deng Xiaoping was bold enough to free Chinese entrepreneurs, famously stating that he cared not if the cat was white or black, so long as it caught mice. The growth in the Chinese economy took off, making China far wealthier than India.

India, in the 80s, did make some reforms, which increased its GDP rate from the so called ‘Hindu rate of growth’ of 3% pa to around 5.6%. Reforms were half paced, eg industrial licensing was dispensed with for projects investing ₹ 500 million in a backward area or ₹150 m elsewhere. It was only after a severe financial crisis in late 80s that major economic reforms were undertaken by Dr Manmohan Singh, as Finance Minuster, with political backing of PM Narasimha Rao.

The then Indian political leadership lost a decade in lost opportunity by not pushing for faster reforms, as China did.

Forty Five years later, we are paying the price for that caution, diffidence and petty vision.

If our current leadership doesn’t study, and learn from, earlier mistakes, and doesn’t prepare India for the coming technology disruptions, then, sadly, after 45 years, we may be comparing ourselves with, say, Burkina Faso!

In global news, Israel and Hamas, after a public threat by Donald Trump, vowing that all hell would break loose if they didn’t reach a deal before his Jan 20th inauguration, did arrive at a tenuous ceasefire deal. Hostages taken by Hamas will be exchanged, in phases, with prisoners captured by Israel. Will the deal hold? There are already rumblings in the Israeli polity. The Right wing Israeli Minister for Security, Itamar Ben-Gvir, has threatened to resign. PM Netanyahu has roped in other parties to support him; Israel is a hodge podge of several small parties.

Next week will see the inauguration of Donald Trump as President for the second term. Belying his bulk, he will hit the ground running. He will issue permissions for fracking, bringing down the domestic price for gasoline, and will pressure both Russia and Ukraine to end that unnecessary war. He will have his DOGE team to slash wasteful Government excesses and will simplify procedures and permits. He will encourage disruptive technologies to be introduced, to improve productivity and cut costs. China will, too. Those nations who aren’t preparing themselves for the future, but debating popcorn instead, will fall behind.

It’s in your hands, Mr Modi!

Last week the BSE Sensex ended at 76619, down 759 over the week.

India has a lot going for it, for sure. Its leaders will have to deliver, and prepare for the disruptive future. The tough questions it would need to be answered, and prepared for, would include – whether to permit FSD, full self driving vehicles, which will reduce accidents, even if at the loss of jobs of drivers, and whether to build, and use, humanoid robots which will boost productivity, but at the cost of manufacturing jobs.

The dilemma is, that if we don’t, India may drop behind the economic race.

It’s not an easy call, but one that needs to be prepared for, and taken.