Dear Reader,
The annual 5-day jamboree of the world’s moneymakers and policymakers at Davos is winding up as we write this newsletter. The gathering, hosted by the World Economic Forum, has little to show for real progress beyond endless discussions if past shindigs are observed. Indeed, at best Davos is an offsite for government officials and businessmen and at worst, it resembles the physical form of social media platform X (twitter) if Hallmark had taken it over instead of Elon Musk.
This Financial Times article titled 'In remembrance of Davos times past' presents the growing irrelevance of the platform. But for now, the Swiss Alpine town presents a place for India and developing nations to hard sell themselves.
India is going all guns blazing to position itself as the destination for business, investment, and the next big thing: Artificial intelligence. Minister for Electronics and Information Technology Ashwini Vaishnaw is convinced India will be a major semiconductor chip manufacturer in five years. Heads of business conglomerates have done their bit in drumming up their support for the economy and, also getting a large platform to network for their businesses. You can catch all that happened and was said through our extensive coverage of Davos here.
India’s central bank Governor Shaktikanta Das is also presenting the economy’s prospects in his own genial way. Das said India’s growth momentum will sustain, and real GDP growth could surprise around 7 percent. Unlike the jawboning of government officials, Das’s statements do not come out as an attempt at self-praise but rather are rooted in data. Macroeconomic data has been robust for the Indian economy in recent times and the proof of the pudding is the rise and rise of the Indian stock market.
In short, Indian leaders want the world to take that leap of faith towards its growth promise.
Back home too, Das and his deputies have chronicled the economy’s strength in the Reserve Bank of India’s monthly bulletin. “The international confidence on India’s prospects is at a new high; it is an opportune time to make this India’s moment and work towards strong, sustainable and inclusive growth,” the state of the economy article in the bulletin said. It can easily double up as a pick-up line at a platform such as Davos.
For all the schmoozing at Davos on economic progress, the unease on current geopolitical tensions is apparent among leaders. Ebullient financial markets, falling inflation, and the absence of recession are not enough to dispel the fears that stem from the ongoing wars in Europe and the Middle East. This FT article titled Geopolitical risks overshadow economic optimism in Davos by Sam Flemming captures the mood at Davos that seems bereft of what the economic backdrop would inspire.
In fact, stock markets are ignoring the event and focusing on geopolitics amid worries that bets of better growth and rate cuts have become far too aggressive. That explains why equities across the world are advancing, but are yet to show their best behaviour. Indian markets have been hit by an unhappy set of earnings from one of its blue-chip banks, HDFC Bank. The troubles of HDFC Bank may not speak for the whole economy, but there are pockets that should worry investors. Ananya Roy in her piece explains that the current market shake-up is a result of deeper worries than one bank’s disappointing performance.
Even as India’s growth prospects are expected to be driven by a virtuous investment cycle, policymakers are still unable to explain the sharp deceleration in private consumption which contributes more than half of gross domestic product. If Indians, among the biggest consumers in the world, are not consuming, there is a reason to worry. An investment-led growth model has its limitations and unless consumption demand is generated, what the economy would be stuck with is excess capacity.
Davos shows an India that is affluent, that consumes luxury goods, and goes after wealth creation. But there is another India that lines up for free food, employment under government schemes and subsidies. This too has been growing in recent months. As R Srinivasan writes in an aptly titled India: A marketer's dream or Piketty's nightmare?, policymakers must address the growing inequality in growth which could only worsen from here.
Davos has made it evident that India is a marketer’s dream. But it must avoid the nightmare of worsening inequality if it wants investors to take that leap of faith.
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(republished from the FT)
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Aparna Iyer
Moneycontrol Pro
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