The pecking order is clear to see in Britain’s treatment of the Chinese premier compared to the Indian Prime Minister
Telegraph.co.uk
Tom Stevenson
November 14, 2015
Indian Prime Minister Narendra Modi was given a “rock star” welcome in Wembley this week, but not a state banquet Photo: AFP / Getty
The recent visits to London by China’s Xi Jinping and India’s Narendra Modi reveal a lot about Britain’s relationships with the world’s biggest emerging markets.
The pecking order is clear to see, with the Chinese premier enjoying a full state banquet and overnight stay at the Palace while India’s Prime Minister has had to slum it at Chequers and settle for lunch rather than dinner with the Queen.
In part that reflects Britain’s curiously unfulfilled commercial relationship with India. In 2014, Britain’s exports to the sub-continent were barely more than £2bn, less than many European countries with far less historic reason to expect close ties. Some British companies that have invested in India remain mired in bitter tax disputes.
David Cameron’s first overseas visit as Prime Minister in 2010 saw him lead a huge delegation to Delhi, but there has been little to show for it in the intervening five years.
Despite these diplomatic nuances, Mr Modi’s “rock-star” appearance at Wembley on Friday illustrated the strong cultural ties between Britain and India. There are more Indian-born people in the UK than any other foreign nationality. Indian companies own important British icons from Jaguar cars to Tetley tea.
The warmth felt towards India by many people in Britain is matched by investors’ enthusiasm for the Bombay stock market.
At the end of a difficult year for emerging markets, India stands out as a beacon of opportunity in the developing world. For contrarian investors, in fact, the consensus around the Indian investment opportunity is a source of concern.
For a few reasons, I think investors are right to view India as the emerging market of choice.
First, unlike many developing countries, India is not a hostage to the ebb and flow of the Chinese economy. As a net importer of commodities, India is a beneficiary of today’s low metal and energy prices.
China may be India’s second-biggest destination for exports but it is way behind the US as a destination for Indian goods and services.
Second, India’s economic development is years behind China’s, with enormous potential for catch-up. While the Middle Kingdom suffers slowing growth as it navigates a difficult transition from an export and investment-led economy to one fuelled by domestic consumption, India’s potential growth keeps rising.
Goldman Sachs recently predicted that India could grow at an average of 9pc between 2016 and 2020 if it makes progress on structural reforms to its labour market, infrastructure and education.
Even assuming, perhaps realistically, that Mr Modi’s ability to cut red tape is constrained by India’s unique blend of bureaucracy and vested interests, growth should settle at 8pc. China could well have slowed to 5pc or less by the end of that period.
As with China 15 or so years ago, the numbers illustrating the Indian investment case are breathtaking. Mobile phone users jumped from three million to 950 million between 2000 and 2014.
Internet use is following a similar trajectory, up 50 million in the first six months of this year alone and heading towards 670 million by 2020. Mobile internet is enabling India to leapfrog the era of physical retail and banking infrastructure.
When it comes to ease of doing business, Modi is making progress. Ten years ago, it took 85 days to start a company, now it can be done in 30. Over the past year, 180 million new bank accounts have been created, driving financial inclusion. Around 800 government services are now available online.
But last weekend’s drubbing at the polls in Bihar show that it is not all good news for the BJP government. Reforms to speed up land acquisition and introduce a national sales tax have stalled.
The prime minister’s popularity at home has also been badly damaged by sectarian differences, which he has been slow to counter.
• Why it’s finally time for India to start shining
It is often better to travel than to arrive in investment and India remains a jam tomorrow story. The infrastructure constraints are still significant. Power consumption per head of population in China, similar to India’s 20 years ago, is now close to four times as great. It’s the same divergent story when it comes to urbanisation and agricultural productivity.
India’s stock market is more expensive than most of its regional rivals and pays a lower dividend yield. Perhaps that is justified. Earnings growth is expected to be significantly faster than in most Asian countries.
But investors certainly can’t be accused of being lukewarm towards India. Unlike Mr Modi’s UK itinerary, India’s valuation is more state banquet than working lunch.
