Anyone who only talks about “crisis” may be missing a good opportunity. By Dr. Johannes Wamser, Dr. Wamser + Batra GmbH
The press releases of the last few days about India read catastrophically: “The fall in the rupee raises fears of crisis” (Manager Magazin) and “India’s crisis is getting worse” (FAZ). There is talk of a “meltdown” and the “biggest crisis since 1991”. The reason: India's currency has come under massive pressure in recent weeks and reached its lowest level in decades. The Indian rupee lost almost half of its value against the dollar.
But it would be wrong to speak of an “Indian crisis” because it is not an India-specific problem. This assumption is supported by the fact that comparable economies, such as Brazil, Malaysia, Chile and even Turkey, also show an almost identical negative development. All of these countries are being hit by the US Federal Reserve's suggestion that it will buy fewer government bonds in emerging markets in the future, and in almost all emerging countries the stock exchanges there have suffered a drastic loss in value over the last three months because investors are shifting their money towards the USA. Even the stock exchanges in China, Australia, Singapore and Hong Kong appear to be affected.
What does this apparently not “Indian” but “global” currency crisis mean specifically for India?
It hits India at the worst possible time. The country is in the middle of an election campaign and the government is acting accordingly cautiously. The country (like all other emerging countries) is facing a slowdown in the previously excessive economy
to fight prison growth – to “only” 5%. The government is also facing massive demands from foreign investors demanding rapid and comprehensive reforms, such as opening up the retail sector to foreign companies. However, it cannot meet these demands at the desired pace and extent because it is also under strong domestic political pressure at the same time; Large parts of the population see the “too rapid” opening of the country as a threat to social stability. India's democracy also turns out to be perhaps "too complex" and thus a latent obstacle that prevents rapid reforms, since the influence of regional and local groups is particularly strongly protected by the constitution and the electoral system. The reports on rapes and the corruption scandal in the mobile phone industry have given the Western press the impression that the problems - bureaucracy, corruption and infrastructure - have not improved in recent years, but have worsened. And for those who - for whatever reason - want to start a general reckoning with India, the opportunity has come at the right time, because anyone who has even more negative things to say in an even more dramatic form is currently being heard everywhere.
This ignores the fact that India has moved significantly over the last twenty years: India is no longer the “over-protectionist” planned economy of the past and most foreign companies can now move here just as freely as any other Indian company. The increase in corruption is only apparent because many things have become more transparent. While in the past corruption was either not discovered at all or remained silent about it, the Indian press now reports consistently and does not shy away from well-known personalities. It is too easy to interpret daily corruption scandals as signs that the problem is worsening. Perhaps the increased interest of the Indian press is also an expression of an increased awareness of the problem? Last but not least, the infrastructure problems are not new and have not worsened in recent years, but rather improved. Highways have only been around for almost 10 years, the relevant airports and other facilities have been modernized and the problems with electricity supply are (unfortunately) as much a part of India as polluted water is of the Ganges. Anyone who has known the country and its challenges for years knows that expansion is constant, albeit slow. However, in a democratic system this may not be possible otherwise, because infrastructure projects in India are subject to the same lengthy approval procedures as we know from Germany, for example.
In other words: The disadvantages are not new and have not become greater!
Nevertheless, there are some foreign companies that are affected by the currency crisis. These are particularly those who want to export high technology from Europe to India at European prices. It has become more difficult for them to convince customers in India in recent months, as their products have become significantly more expensive in a short period of time due to the exchange rate. On the other hand, domestic producers benefit from this, as they are only indirectly affected by currency fluctuations and have been able to further expand their price advantages compared to deliveries from abroad.
The currency crisis also creates new opportunities. And not just for Indian companies, but also for foreign companies. The fundamental attractiveness of India has not deteriorated in recent years. The arguments that just a few years ago were seen in all media as “convincing indicators” of the country’s great future potential still hold true:
- A relatively young, emerging population with growing consumer power,
- High level of education of the emerging middle class,
- Existing medium-sized companies with a clear orientation towards the internal market,
- Many industries have been freed from previous access barriers and foreign entrepreneurs are no longer dependent on joint venture partners or approvals from the central government in actually all relevant industries.
- English language in business, science and education.
And so those foreign companies that are already using India as a production location and those that are currently planning to set up activities in India are currently benefiting in particular: India has perhaps never been as “inexpensive” as it is now. An additional quality, especially for those companies that use India as an export destination, for example as an extended workbench within their own group of companies. They are pleased that, for example, they currently have to pay almost 30% less for in-house services provided in India for the German parent company (research & development, outsourcing of administrative work, engineering, etc.) than they did for the same services last time year did.
In summary: If the long-term advantages have remained the same and the disadvantages have not increased, there can be no question of a “real” crisis! Obviously, the current “currency crisis” is a temporary situation that does not change India’s long-term prospects: foreign companies simply cannot afford to ignore the country for the coming years or decades. The potential of India will be far too attractive for the company to do without the Indian market.
