Based on what the Indian equity markets did on Monday everyone now sees green shoots appearing in India. Yes, the markets roared 17.7% on the back of the Congress party win, but we all seem to forget it’s not an event but a process. I understand how people feel about the election and the future of India, it’s almost identical to how I felt when Obama won the election. I was delusional thinking Obama would walk into the Oval Office and clean up the financial mess, broker peace in the Middle East and make American cars cool again on Day One. India has some large scale issues it needs to address beyond coming out with policy statements one day and then yanking them the next day – think 3G auction. The biggest issue I have yet to hear anyone talk about is India’s national debt. The US has an insane amount of debt but has a secret weapon – a printing press.
If you watch CNBC-TV18 or any other Indian financial channel they talk about all the sectors that will get a boost from the new government matter of fact. The one theme I constantly hear and read in the paper is the amount of money that will NOW go into infrastructure, all I can say is Whisky Tango Foxtrot. Since people love to hear about the “infrastructure story” I’m going to dissect this fairy tale. This story is not new and has been around since the 1990’s when then Prime Minister Atal Bihari Vajpayee said
Our roads don’t have a few potholes. Our potholes have a few roads.
Since then, the only large scale national infrastructure project implemented is the Golden Quadrilateral road project. For all that talk about national infrastructure spend there is only ONE project for about Rs. 60,000 CR (USD 12.5 billion) too show for it. Yes, I know India is fragmented and each State is almost run like a fiefdom. The bigger issue is having the States work together, a clear example of where the whole (India) is more than the sum of its parts (States). To fund these projects the government will most likely have a Public/Private partnership, the public piece will be financed by government bonds and the private piece is a mystery. Many of the private parties such as Macquarie Bank, DEPFA, HypoVereinsbank and Lehman Brothers are either out of business or have significantly scaled back their infrastructure business. Of course, someone forget to tell the Indian news media about that. In the mean time, any company that has anything to do with infrastructure is the talk of the town…the “infrastructure story” continues…