Following a recent trip across Asia-Pacific and a very brief sojourn in New York City, I am writing this week’s Lead Indicator from India. I will spend two days in Mumbai, the country’s financial and commercial capital, learning firsthand about current conditions in the Indian property markets. Before catching my breath or taking a wrong turn in Mumbai’s culinary minefield, I will move on to Dubai and the United Arab Emirates to learn about overbuilding and, separately, to share a keynote speaking slot with the esteemed Tom Barrack.
My stopover in India coincides with the country’s falling under an unenviable level of scrutiny. India has been featured prominently in the global media over the past few weeks, regrettably as a result of the government’s embarrassing lack of preparedness for the October 2010 Commonwealth Games, getting under way in New Delhi. Coming just two years after the Beijing Summer Olympics, India’s lapses in readying the Commonwealth Games’ physical and soft infrastructure have begged merciless comparisons in the press.
The 2008 Beijing Games echoed China’s inexorably rising prominence among the world’s dominant political and economic powers. In contrast, concerns about whether India’s games would be canceled on account of participating nations’ legitimate health and security concerns persisted until the athletes had actually arrived in New Delhi.
In the end, the opening ceremonies were exceptional; while not as carefully orchestrated as Beijing’s, the ceremonies seemed a faithful representation of India’s best-of-times creative chaos.
Public slights are not easily forgotten, of course. And so in India and abroad, the headlines have asked if the nation’s brand–and marketability for investment–has suffered serious damage. If hosting global games are a measure of global stature, India has risked seeming hapless and dangerously ill-prepared for a global role when compared with the Middle Kingdom. A Page 1 editorial in The Economic Times, arguably India’s most impartial business news source, put it as directly as anyone: “If this is preparation for play, what macabre sport are we preparing for?”
While loath to admit it, many Indians make a pastime of benchmarking the country’s economic and social progress against China’s. The comparison is rarely easy.
Oftentimes, the more “vibrant” the democracy, the more difficult it is to get things done. There is also the problem of rampant corruption at almost every level of Indian government. Among the results, chronic underinvestment in infrastructure has been one of the Achilles’ heels of India’s path to progress. To be sure, however, infrastructure investments are made. It’s simply that a large share of the money can end up lining pockets instead of roadbeds.
The Bandra-Worli (pronounced “wur-lee”) Sea Link in Mumbai is a case in point. The massive and badly needed over-water toll road recently opened to traffic but cost orders of magnitude more than planned and took many years longer than required to bring to fruition. A large part of the total project cost was compensation to fisherman who expressed concern over the potential impact on the surrounding waters.
In the end, the urban legend describes how China built at least four bridges of similar size in the time it has taken India to complete one. When stuck in traffic, Mumbai’s drivers will tell you that their children may live to see the project’s second phase become a reality.
DESPITE THESE COMPLICATIONS, the Indian outlook is bright nonetheless. By virtue of its demographic trends and the economic liberalization of the past two decades, it will overtake China’s growth trajectory within the next decade. Furthermore, there is something to be said for growth that is more modest, but is rooted in entrepreneurial zeal.
The Economist this week speculates that the seeming disarray and disorganization of Indian government and business life will ultimately prove to be great strengths. A young and entrepreneurial population in a culture where the free flow of ideas is encouraged: These are the foundations, The Economist argues, of a new India that will flourish in its leadership role on the global stage. Taming corruption, bureaucracy and a complex legal and regulatory environment should be atop India’s agenda if the nation is to realize this potential.
As the long-term outlook for the world’s advanced economies moderates and the balance of capital formation and real economic activity becomes more globally balanced, capital from India will inevitably fuel property investment in the United States.
At the same time, India’s higher risk-adjusted returns coincide with an economy adding millions of new workers every year. It spells opportunity–and danger, to be sure–for the adventurous and global-minded among the readership of New York’s Commercial Observer.
The moral of my trip, then? The Old World is new again.
Sam Chandan, Ph.D., is global chief economist and executive vice president of Real Capital Analytics and an adjunct professor of real estate at Wharton.