At a recent Express Adda held in Mumbai, Ruchir Sharma, Chairman of Rockefeller International and Founder and Chief Investment Officer of Breakout Capital, spoke about why people seem to have lost faith in capitalism, the strength of emerging markets, the weakening US dollar and why India doesn’t want to go back to its socialist past. On emerging markets If you look at the world today, about 80 per cent of the world’s population is concentrated in emerging markets. These include Indonesia, Philippines, Vietnam, Brazil, Mexico, China, Korea and Taiwan. These countries have had a very poor period for the last five to 10 years for a whole bunch of reasons, including a big hangover they had from the boom of the 2000s. Now they are in a much better position having cleaned up a lot of the balance sheet with lower debt and better current and fiscal accounts. They are in a position to grow stronger compared to the United States. So, it’s a role change. On America’s high fiscal deficit America’s debt to GDP is the third-highest in the developed world. There’s a lot of arrogance bordering on complacency. You have a presidential election there and both the candidates are talking as if these things don’t matter. How can you cut taxes and increase spending when your deficit is already so elevated? It’s not just about government spending. It’s a suite of government habits. Why have so many people in America today lost faith in capitalism? At one level, America has done quite well over the last decade. On the other hand, it’s not working for the average person where most Americans today are saying they would rather have socialism than capitalism. Why do two-thirds of Americans today say their country is moving in the wrong direction? They want something new, they’re voting anti-establishment. The natural thing is to revolt against the current system. The government is the problem, it’s not the solution. Is India still a good buy? The traditional valuation metrics aren’t working in India. So, India still seems to be on the right economic trajectory. I don’t have a problem with the market, except that I find greater value in some of these other emerging markets, which have been beaten down and traded a fraction of the valuation of India. These other countries are finally staging a comeback and they trade at much cheaper valuation. We joke that Sunil Mittal has two businesses — Bharti Airtel and Airtel Africa. The growth rates are roughly similar, but one trades at four times the valuation of the African operation. It tells you about what premium people are willing to pay for being in India. On the dollar losing its prominence If you look at the history of the world, every 100 years or so, there has been a new reserve currency . It’s never been permanent. So before the dollar, the world’s reserve currency used to be sterling. Before that, the French franc, before that the Spanish currency. The good thing about the dollar today is that there is no competitor in sight. But we’re seeing the cracks emerge. There are two trends which are playing out — one, that central banks are buying a lot of gold. The second is they’re buying smaller currencies. So, it’s death by a thousand cuts. Emerging markets are going to benefit from a weaker dollar over the next five to 10 years. On economic freedom vis-a-vis political freedom What is ironical about India is that we gave our people so much political freedom but we never gave economic freedom. In the ’80s, I went to high school in Singapore, it was booming back then. It never gave its people much political freedom but it gave a huge amount of economic freedom. That’s the irony. America, for me, was a successful nation because it gave its people both political and economic freedom. But then, for every country which has done well, like China, by authoritarian ways, there are five countries in Africa and Latin America, which are authoritarian and have done really poorly. On the government restraining welfarism The one good thing the government did over the last 10 years is that they shifted the balance. Ten years ago, when welfarism was getting out of control, they shifted the balance with infrastructure development. Every single successful economic nation, at this per capita income, has spent more on building infrastructure, giving people the tools to go out and do a job. China did that. The single biggest risk to the India story, over the next five to 10 years is if this trend reverses again. If a 303 BJP is better than a 243 BJP for capitalism I think that the market has given its answer, which is that there is a risk of excessive government power. And India needs to be true to its polity. Another reason why India will never be able to carry out the kind of reforms that China did is because China is a homogeneous society. India is heterogeneous. Too much government power in India runs the risk of undermining the social fabric of this country. India is a federal society, so a 240 number definitely has been a boost for federalism, which I feel is the path for India. On inflation, interest rates and asset price bubbles Consumer prices around the world have remained low because of globalisation and technology. So central banks have been emboldened to say, okay, consumer prices are low, we can throw as much money at the system to promote economic growth. A lot of this money has gone into boosting asset prices of stocks, bonds and property. You throw all this money at the system and if it boosts asset prices, who owns them? The rich. On China’s debt China took on massive amounts of debt to sustain its growth rate in the last five to 10 years. If there’s one predictor of crisis, it is when a country takes on too much debt over a short span of time. China did that. Xi Jinping has now become more controlling of the private sector, which is leading to uncertainty. China is seeing a massive migration of millionaires leaving the country. That’s not a great statement about how things are. On India’s expectations We have gone through a socialist past, we have lived through it. We do not want to go back to that. I don’t think we’re going to take kindly to curbs on our freedom. We want balance restored. We may want the government to help us, but at the end of the day, we know the government really can’t deliver much. The quality of government schools and hospitals, people see that every day. You give them private sector alternatives, that’s where people really want to go. QUICK QUESTIONS Democracy or no democracy, what works better for capitalism? In the early stages, it’s about less democracy. At the later stages, more democracy of development. Ambani, Adani, Tata, Birla — as a foreign investor, which conglomerate is the best model flag bearer of capitalism in India? I would say that they all are big businesses. It’s hard to distinguish one from the other. The biggest flag bearer for capitalism in India is the fact that India has created the maximum number of new billionaires in the world. Modi-Trump or Modi-Kamala, which is better for India? I don’t think it matters because we are seen as anti-China. So both parties will similarly view us. Modi-Trump, Modi-Kamala — which of the two is better for capitalism globally? My whole book says that this is a bipartisan destruction of capitalism by both parties in America. Modi-Trump, Modi-Kamala — which is better for democracy globally? I’m split a bit. My politics and economics are a bit different. On politics, I tend to be much more, for the want of a better word, liberal. On economics, I tend to be much more right of the centre. So, it’s hard for me to answer this one because of that conflict. Is it good or bad for capitalism to break up big tech? At present, it’s good. Is it good or bad for democracy to break up big tech? It’s good. Facebook Inc, Google Inc or the US Congress, who does the American citizen trust more? At this stage, it’s a very close race to the bottom, but definitely, the US Congress is the one with the least trust. One thing that American capitalism needs to learn from Indian capitalism. What socialism was like in this country in the ’70s and ’80s? One thing Indian capitalism needs to learn from American capitalism. Keep policy to be pro-competition, not pro-business. Which industry or sector in India is in most urgent need of government intervention? The less the intervention, the better it is. Every time the best growth happens when the ministry isn’t even being formed. It happened with tech. How long before India’s demographic dividend turns into a liability? Our demographic growth is already sort of at levels which do not support high growth. The good thing here is that our labour force participation rates are so low that we have ample scope to do that. The female participation in the labour force is still very low but there are enough parts of India where the demographics are no longer supportive of very high economic growth. Which large capitalist economy country is likely to cut rates before the US Fed does? Until the US cuts rates, it’s very difficult. But the good thing is that some emerging markets like the Philippines have already begun to cut rates. It tells you that there are some early signs that it’s happening. The future of the US dollar in one word? Down. Your short impression of the last Hindenburg revelations? I think the market has given its answer. It’s moved on. Top three countries that are a good buy today? When I look around the world, apart from India, in terms of the staff, I would say that the biggest comeback nation is Greece. It had a crisis. It has been the big comeback nation. I still like it. Poland, it could become the next developed country, and Southeast Asia, whether it’s Indonesia, or Vietnam, I feel that they’re all good stories. The market regulator or the central banker — whose job is more important for the health of capitalism? I think that central bankers have done more damage than market regulators have. Who has a tougher job in India, the SEBI chair or the governor of RBI? The RBI has become quite institutionalised. SEBI is still in that phase where it needs much more power in terms of what it needs to do. I’d say, currently, that’s the tougher job. The RBI governor who best protected Indian capitalism, according to you? Dr YV Reddy. The Fed chair who best protected American capitalism? Paul Walker. **** Anant Goenka: I’ll name a country, you say whether it’s in recession, recovery or rocking. US Currently, it’s doing okay but I think the recession is the next turn. UK It’s been surprisingly resilient compared to what I would expect it to be. Poland It’s going to be the next developed country. Japan Sideways. China Recession by its own very high standards. India On a relative basis, we are doing very well. Brazil Middling. Vietnam Rocking. Australia Middling. Malaysia It’s really benefited from the AI boom. A lot of the data centres are moving to Malaysia. Korea It’s also doing well, but only in one sector, tech. The domestic economy is boring. *** Audience Questions Vice Admiral (Retd) Girish Luthra Former Commander-in-Chief of Western Naval Command and Southern Naval Command, * Indian NavyDo you think the new policies, which are part of US-China competition but also focus on the value of labour, will help the US in terms of capitalism? Also, is the US going to reconsider the economic sanctions, given the pushback it has received? Capitalism did not fail. It was ruined by the government. So I don’t feel that the solution is more government. Which is why I’m not a fan of industrial policy. There are a lot of countries which have tried industrial policy. For every one country which succeeds, there are five which have failed. As for sanctions, will the US backtrack? No. In fact, over time, the number of sanctions the US has been imposing on the world has increased. So unless there is a consequence to that, there won’t be a pushback. Rajeev Shukla MP, Rajya Sabha & Vice President, BCCI * In 2016, you flagged the issue of entrepreneurs leaving the country. what is your take on so many of them leaving ? what do you think of the perception being built that the country has only grown after 2014? India’s growth began to accelerate in the 1980s and then in 1991. Whatever the perception is, most people understand that 1991 was a watershed moment for India. In the second term of the UPA, something went wrong. That’s what set the conditions for 2014 to happen. In 1947, India was among the world’s 10 largest economies. Since 1991, we’ve been on an upward trajectory. We still have to improve the situation on the ground. It’s still a very tough country to do business in. When you give so much power to the bureaucrats, the investigative agencies and others, the amount of harassment the average person faces is huge and that, I think, has been a major factor in people moving out of this country. Prasoon Joshi CEO & CCO of McCann Worldgroup India, and Chairman for McCann Asia Pacific * Who protects the murmurs in that absolute capitalism which you talk about? You lament the loss of it and the brutal economic reforms of China. Where is compassion and who funds the compassion? I’m not in favour of ruthless capitalism or laissez-faire capitalism. It’s impractical. The role of the state has increased so much which is distorting the outcome. We will always need some compassionate capitalism. You have limited resources and what do you spend on? Do you spend first on building the roads and bridges so we empower the people? Or do you believe in spending that money or you can sit at home and earn this much if you don’t have a job? The balance getting restored is important. We have gone from one extreme 100 years ago, which was ruthless capitalism in the West, to today where everyone deserves a bailout. This is what I lament. Shobhaa De Author and columnist * If Rahul Gandhi were to lead the government at any stage, would he be a liability or an asset to India? I Don’t have an answer to that because what they say when they’re out of power and when they’re in power is so different. When we first met him, we were generally underwhelmed. This is back in 2007. In the last few months, I’ve heard this narrative that he’s changed a lot. I can’t distinguish that does India just want something new or has he genuinely changed? I think what’s happening in India today is that there’s a general fatigue as someone has been in power for a long period. ople want something new. Tavleen Singh Senior journalist * In the past 10 years, economically, what have you been really surprised By and what have you been pleased by? Also, what has disappointed you? What surprised me is the fact that the government shifted the focus way from too much populism and welfarism in terms of infrastructure. My biggest disappointment has been that when Modi first came to power, he spoke about competitive federalism a lot, about giving states more power and becoming decentralised because he almost did that. And in the end, he’s made it too centralised as a model that he’s run. Kuldeep Sikarwar Senior Managing Partner & Market Head — West 1, Nuvama * Do you think democracy is a necessary condition for capitalism? I feel democracy and capitalism are soulmates which meet at a particular per capita income. Both of them go hand in hand after a particular point in time. I do not feel that the two are contradictory but in the initial stages, most countries which have been successful have given more capitalism and then moved to democracy but eventually around the world they both go hand in hand, and anyone who hasn’t done that has been an exception.
