Tuesday, June 23, 2015

India’s economy to overtake US in 25 years (??? !!!)

Somebody opined today that India’s economy will surpass that of US in the next 25 years.

Do you think it is stupid? Yes, many good ideas look stupid in the beginning. Do you say Indians dream too much? No, this was told by a Japanese. Does he know how money is made? He is a multi-billionaire, second richest man in Japan and is a self-made man. Does he have institutional backing? He is the chairman of Japan’s SoftBank. Now that sets you thinking? You should do being more than that.

All forecasts may not always come true but one need to see the merits of the arguments. Masayoshi Son, Chairman of Japan’s SoftBank has committed $30B funds so far in the India’s growth story. He said “India's economy is on the cusp of the "hockey stick" curve before takeoff, and has the potential to overtake the United States within 25 years”.   
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One needs to observe that he is a banker and he could identify China’s hockey-stick moment (or J curve in the chart) in time. He made good money when Alibaba, a Chinese e-commerce company went public. He has his set of failures too. He was caught completely unguarded and lost big money during dot.com crash of 2000. Now he has set eyes on India. He has already invested in many start-ups including Snapdeal, Housing.com and Ola. He is visiting India to discuss on new investments. He is mostly focused on e-commerce and renewable energy sectors.

More than arguing whether Masayoshi Son is right this time or not, and whether it is right to benchmark with US or not, and if 25 years is sufficient timeline or not, I would like to bring forward the positive aspects in his views. 

India has transformed a lot since it got independence and a lot of growth has come in the last 15 years. Now, unlike few decades ago, we do not have a cow tied outside the house to provide milk rather we have it delivered and the milk-boy calculates the sum we owe him on his Nokia phone. That means two things – we understand the benefits of work specialization and the productivity gains it brings. And we are making use of technology in daily lives and taking part in globalization. See the data. India’s exports were 5% of GDP during 1980’s and now it is 25% of GDP!

India's exports as % of GDP. Source:tradingeconomics.com
No wonder our wages (incomes) have gone up a few hundred times in the same time. We have more stuff in our homes than our grandparents had during their prime. So when looked from a distance, with a wide chart covering 25 years span, it looks like explosive growth. But what Masayoshi Son expects is even a steeper growth led by the use of internet and the access to information for everyone.

Trade increases when whole of India comes on a single of platform. There would not be any unmet demand. Price differences across the markets would reduce and efficiency would go up. Snapdeal (or Flipkart or Amazon) can sell goods at competitive prices and boost consumption. Ola can make taxi ride affordable for the common man with the use technology improving the utilization of cabs creating a win-win situation for both the consumer and the service provider. Gaps in the trade will be bridged and consumption will see a new high. And those investing in such businesses (like Masayoshi Son) would hit jackpot. But one need to have patience until the market develops and a few companies would fail in the war of efficiency too.

As the information asymmetry starts disappearing, it does many wonders to the society. Consumption in India will see a new high, with its billion-plus people and their rising incomes. And the new trends in the business will find new ways to reach their target customers and making money for the likes of Masayoshi Son in due course of time.