Education is also a problem. While India produces some of the best and brightest minds in the high-tech world, there are in fact relatively very few schools of higher education in India. If you are one of the fortunate ones to get in, school, like so many other institutions, is subsidized. You pay nothing. But only a minor fraction of the population actually goes to school. That's a waste of tremendous brain power. Ultimately, I bought only one stock in India and only a few shares at that. But it wasn't shares in an Internet start-up or some high-flying software company. It was a hotel chain called India Hotels. They're doing exactly what I like to see in a company: Buying up other good quality hotels at depressed prices because they believe there will be a resurgence in India's hotel industry one day. That's an approach that takes into account the true beneficiaries of India's expanding economy: it's growing middle class. There are about 250 million people in India's middle class, nearly the population of the entire US.
For now, I wouldn't touch a tech company here. I've heard a lot of the same rhetoric we've heard in the US. Every company was a dot-com-er two years ago. Now everyone calls themselves software companies. You can't keep changing your name just to protect yourself. I spoke with a man who runs a software company and he told me that there were several profound reasons that the local IT industry was still stagnant. First, revenues from software made by Indian companies is taxed while export revenues are tax-exempt. In other words, an Indian company has no incentive to do local business. All the businesses are then competing for overseas market share. Plus, doing business with locals often means dealing with meddling bureaucrats, who get involved in their business. Second, there's a great incentive for smart Indians to leave. While a tech downturn in the US might make companies there less attractive, there are other markets that are developing their IT industry that would be more than happy to have some smart programmers. Germany, for instance, is giving special visa exemptions to local Indians looking to migrate.
Third, American companies are much more familiar with outsourcing their work than local firms in India. And foreign companies pay better. As a result, the smarter engineers tend to go work for the foreign companies rather than locals. Ultimately, the IT bubble, which is bursting in the US, will have profound ramifications in India. The Nasdaq is hitting new lows and I think the bubble still has a way to go. No bubble ends with two-year lows. Bubbles end with 10 or 15 year lows. By then, India may have learned to practice true economic reform, taking a lesson from their neighbours in China. Maybe, then they will understand that a free-market economy isn't necessarily a new form of colonialism.
Yes, India is changing and growing. There will certainly be more opportunities and excitement of every kind as the middle class continues to develop. India will be fascinating over the next couple of decades, but be careful of the longer term. India really is not a rational country.
The English mushed India together in the panic of independence in 1947, but little heed was given to ethnic, religious, linguistic, historic, national, or geographic considerations which is one reason India has had problems with every one of its neighbors since. India as we know it will not survive another 30 or 40 years. This of course does not have to end in disaster, but it probably will, given the chauvinism of its government and the way history has always worked.
(Jim Rogers traveled across India in car in 2001. This is an account of his impressions on India. Some of these data, therefore, are dated to his traveling time)
