India Business and Finance, February 22nd

What happened during the past week (and a little bit more) in India

Taxes

A statistic that provides a window into India’s current policies: taxes paid by individuals exceeded taxes paid by corporations for the second year in a row, and the disparity is widening.

Current collections of personal taxes are Rs10.22trn  ($123bn), while taxes from corporations amounted to Rs9.2trn ($111bn). I’m guessing that this is part of a deliberate government strategy to ease costs on business to encourage growth. James Wilson, founder of The Economist and more importantly, in 1860 India’s personal income tax, may finally be a hero for the BJP.

India’s biggest (unknown) exporter

One of the big mysteries in the Indian economy is the relevance of “global capability centres”, the tech offices in India run by foreign companies. There are 1,600 of them, employing in excess of 1.7m people and they continue to expand along with the ever increasing business demand for technology. They are, in a sense, becoming the brains of global business.

But just how valuable they are is hard to gauge. They operate as cost centres within bigger organisations and consequently there is no external financial statement to evaluate. NASSCOM, a trade group, estimates that they are responsible for $46bn in revenues (assumed to be mostly exports) which would put them second behind refined petroleum and ahead of third place jewelry.

A new study by Wizmatic Consulting, a Pune-based firm, based on months of work by its founder, Sandeep Panat, provides a far higher number for these centres: $102bn. That is two-third larger than refined petroleum and suggests this may have become a far larger business that is commonly understood.  

Mixed feelings about India’s prospects

a)    By foreign portfolio investors. Foreign investors have bought $4.4bn in debt since the beginning of the year and sold $3.6bn in equity. Using numbers I am not sure are accurate but may be roughly correct, I calculate that this is a 14% increase in debt holdings and a 6% decrease in equity. The debt is likely driven by India being phased into a JPMorgan bond index that would ultimately require a flow of more than $20bn into the India market on a one-time basis. The reduction of equity is more of a mystery. It reinforces the notion that the India story, either because of the obstacles placed on investment or perceived merits or the current high valuation in the Indian market, has not resonated among those who express their beliefs by committing money.

b)    By foreign direct investors. A subset of India Inc are the locally listed affiliates of multinational companies. There have recently been several cases of foreign parents reducing their stakes in Indian affiliates. Whirlpool, the American appliance company, recently reduced its holding from 75% to 51% following similar moves by another American headquartered firm, Timken, as well as Spain’s CIE Automotive. In all cases, they maintained a majority of shares.

But the relevance of the Indian market continues to grow

While sales by foreigners have relevance, India’s relative standing continues to expand. The Financial Express notes that as a percent of the MSCI Standard Index India’s weighting is now 18.2%, compared to China’s 25.4%. The distinction is a dramatic shift from 2020 when China’s share was five times as high as India’s. 

The somewhat mixed picture on corporate results

Revenue growth for Indian companies is slowing. According to estimates of profits for the last quarter of the year based on reporting by 3,400 companies tracked by The Economic Times revenues expanded 8.2% year-on-year in the fourth quarter of the calendar year, down from 17.3% growth during the same period in 2022.  Profits, though, rose a whopping 25%, vastly in excess of the 2.2% during the same period in 2022. In India, the implications are debated. If the same numbers were being reported in most other countries, there would be celebrations.

Trade

India’s trade deficit fell in January for the third month in a row, to the lowest level since April. Key export markets are, in order, Australia, Singapore, the UK, China and the UAE. The largest growth in imports was from Russia (surely because of oil, much of which is refined and exported), then Switzerland (why Switzerland?), then China, South Korean and China.

A bad and good take on news

India’s rise hinges to a large degree on whether its products can be trusted. A key industry in this regard is pharma. It is hugely important, providing vast amounts of medicine to the world. But it has also suffered from deadly lapses in quality. A story by Businessline, citing sources inside a key government ministry, said that after recent revelations of serious problems, government investigators took a close look at 423 pharmaceutical manufacturers and testing labs. The story isn’t entirely clear about the outcome but a headline says 64 pharma companies had their licenses cancelled and the text of the report says 52 testing laboratories had their operations suspended. The bad news is that these problems exist but the good news is that investigations suggest the government is increasingly serious about ensuring production quality.

Can India end its worst business?

Begging, and particularly begging by children, is one of the most wrenching aspects of India. The government has announced a plan to make 30 cities free of begging by 2026, an extraordinarily ambitious goal that if accomplished will be evidence of a new, incredible India.

For distribution in America