Global Themes

On Globalization & Venture Capital

“Overheating India” is the new cool…

First it was Davos, then the FT      ft_india-overheating.gif

and now The Economist*

 economist_cover.jpg So I guess “Overheating India” is the new cool in circles where they discuss such weighty matters and amongst people who read the FT to work** 

On the WSJ’s Davos blog: “Is India Overheated?” Balaji wrote a great comment in reaction to Stephen Schwarman (CEO, Blackstone Group)’s “outsider’s perspective”. But first the “outsider’s perspective” (as reported by Christopher Emsden):

“A couple of years ago, he said, his company decided to start investing in India. He liked India because it was a democracy, the legal system was well established, and the costs seemed low and the potential seemed high.

But when Blackstone tried to find an office in the commercial capital of Mumbai (formerly Bombay), the only space it could find was a hotel room. (”And I thought hotel rooms were for sleeping, not officing,” he said.) Employees, wired into the world, wanted wages competitive with what they would earn elsewhere. And even the investment climate seemed somewhat overheated, with high multiples. Land prices alone, he was told, are more than 10 times what they were 18 months ago.

Overheated?” asked Mr. Schwarzman, who describes himself as a big India booster. “You decide.”

Here is what Balaji wrote in response:

“…When it comes to India, perceptions rule rather than the actual statistics. Indians whine that there is very great income disparity. Take a look at the gini coefficient and India has much lesser disparity than most countries*** in the world including US & China.

So, if people are allowed to comment on a nation’s health just by the perceived lack of facilities in the airports and cheap offices, then India is surely overheated.

Look beyond the narrow perceptions, and you will see what drives a group that starts the highest number of companies in Silicon Valley, that occupies top executive positions in major boardrooms of the world, that excels in the world’s top universities. And no, India is not propelled by oil & tin & Wal-Mart products. So, any comparison with Brazil, China & Russia is not warranted…”

Balaji then pinpoints the underlying factor sustaining the Indian growth story…something which I think is often ignored but is probably India’s greatest asset and strength – its HUMAN CAPITAL.

“…In a lot of ways, India’s strength is similar to that of early America. English, Movies & Democracy are just one part of the game. But, the biggest part is that both countries place their thrust on its entrepreneurs. This is where India’s long term future is. If this one is set alright, all the remaining including lack of infrastructure can be set right.

An example is the Telecom infrastructure. Just a few years ago, India had a highly pathetic telecom sector with the lowest teledensity. Enter Mittal, Reliance, Birlas, Tatas to compete with state majors, now it is on its way to become one of the world’s top telecom sectors. Growth is fastest, coverage is excellent and services are increasing day-by-day.

Thus, currently Indian infrastructure might be shabby. But, it has some of the best Indian business minds working on it, including the Tatas & Reliance, Essar, Jindals. Railways & Aviation have already clocked significant change and roadways/ports/power would follow suit, in light of a lot of developments happening currently including the India’s nuke deal.

In the long run, lets see how any body makes money by betting against India and all those overheating pessimisms.”

I could not have put it any better…

P.S. People have been saying the same thing about China for several years now…see this and this… and more recently (’06) this but the new refrain is that it may be heading for a soft landing

P.P.S. See also one of my previous posts on a related topic (re. Venture Capital in India, China) 

* See Nanubhai Desai’s comment on this topic which he starts by saying, “I didn’t know whether to laugh or cry when I saw the cover of the new issue of The Economist”…and this comment by Edward Hugh (on the same topic) in which he says, “The Indian phenomenon is a huge one. India will quite simply become the biggest developed economy ever (the only real debate is about when), and since India is the planet’s most populace country, and global population sometime later this century will start to turn south, India will become a unique phenomenon, there will never be the like of this again..”

** I have never been to Davos and don’t read the FT…so I am not even sure I am qualified to comment on these things…but then that’s what blogs are for 🙂
*** See this post for comparative GINI coefficients: India is estimated to be between 33 and 37 (this study reports it at 38) , compared to 41 for the United States, 45 for China, and 59 for Brazil

February 2nd, 2007 Posted by | Development Issues, Economics, Entrepreneurship, India | 7 comments


  1. Shantanu, thanks for this. Very interesting, but I have to admit I rarely find fellow Indians taking criticism well, or making calm arguments in favour of their positions. Almost all arguments made on the links I followed from here contain very emotionally-charged, hyperbole-laden generalisations, including the one you quote above. I also notice that when the speaker/ writer is emotional, good English usage too is an unwitting, early casualty.

    It does remain true that vast tracts of India are yet to be affected an iota by the progress and growth seen in metropolises. In these tracts, telephone lines do not work, infrastructure remains poor and therefore investors are hardly likely to come in droves. On each of my trips, I get to experience both sides and the difference cannot be ignored.

    So while the investor might be able to pay Rs 400/ sq.ft in B-towns, not even lukewarm by any description, forums and blogs are still discussing Mayfair or Upper East Side-style prices in South Bombay or Bangalore. The whole argument is focused on some 1-million people with large incomes, made for, by and of them – much like democracy only far more narrowly vested.

    As for not wanting to be compared with BRC, I also notice a tendency to pick convenient comparisons. To my argument above, for instance, the oft-used foil is to say it is the same in China and Russia. Er, I thought we were not comparing…

    Then again, arguing – and not just ‘shaastraartha’ – is also quite Indian. Although apparently focused on the Bengali ‘adda’ tradition, Amartya Sen makes a great point of writing about ‘The Argumentative Indian’ – a book that investors may want to read, alongside Ed Luce’s ‘In Spite of the Gods’, Max Mueller’s ‘India – What can it teach us?’, and then with some imagination, Madeleine Albright’s ‘The Mighty and the Almighty’.

    Comment by Shefaly Yogendra | February 4, 2007

  2. Shefaly, only time will tell how things actaully pan out…I am not as pessimistic and I do see a marked changed in even rural and outlying areas not just in terms of standards of living but – critically – in people becoming more aware about the imperatives of development (which spans the whole gamut of politics, society, corruption, technology etc)….

    Re. your point about good English usage, you are right but (I hope) at some point, it will cease to matter…the facts will speak for themselves..

    You may find this IHT article on rural prosperity interesting: “Poor rural India? Its a richer place” (IHT, Oct 19, ’05 by Anand Giridharadas)

    Comment by Shantanu Bhagwat | February 4, 2007

  3. Hi Shantanu, thanks for the IHT link. BTW I am a bit flummoxed. The Economist cover you used is not how my subscription copy’s cover is. Mine has a bulldog on the Union Jack with ‘You have never had it so good’ as the story. The India Overheating story is on the top right panel.

    Comment by Shefaly Yogendra | February 4, 2007

  4. The cover I used is from the North America Edition. Click here:

    Comment by Shantanu Bhagwat | February 4, 2007

  5. Thanks, Shantanu. I wonder what the logic might be for using 2 separate covers in the UK and in North America, esp since the web allows pretty much instantaneous information check anyway…

    Comment by Shefaly Yogendra | February 8, 2007

  6. Hi Shantanu,
    Thanks for quoting me. I’ve written a few full posts regarding “overheating” India. The truth is that India is truly developing. But, the question remains whether all the capital generated goes to appropriate sectors.

    PS: I still have my concerns about the over appreciating Real estate in the top 5 cities, but believe that with a couple of corrections and catching-up development in other sectors things will get right, or atleast will not be worse enough to rock Indian boat. At some point, the increasing home loans will pinch the hard-working middle class and I hope they get out of the mad business and leave the fall to the black money holders who are thick in the business of speculating, and the fall could clean up some black money in the system.

    Comment by Balaji Viswanathan | February 21, 2007

  7. Good point Balaji – and thanks for pointing me to your blog. I will put a link in my post.

    Comment by Shantanu Bhagwat | February 22, 2007

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