Why Jim Roger so negative on India ?
Hedge fund manager Jim
Rogers, who moved to Singapore in 2007 because he thought the centre of the
world is shifting to Asia, says India is set to miss out on the Asian century.
The chairman of Rogers Holdings says that if there is one country an individual
must visit, it has to be India for its “spectacular sensory feast, beautiful,
food, colour and religions”, but it is also the worst country to do business
in. Rogers also slammed the Indian government’s recent curbs on gold imports,
saying Indian citizens had no choice but to buy the metal because they had very
little faith in investing in other sectors of its economy. In an interview,
Rogers spoke about the financial crisis and his bets for the future and
defended his decision to be extremely negative about India in his just-released
book Street Smarts: Adventures on the Road and in the Markets. Edited
excerpts:
What lessons have you learnt from the financial
crisis that started five years ago and how has your investment mantra changed
since then? Can you tell us how your portfolio has changed over the course of
this crisis?
Governments and central
banks have reacted to the crisis in what they view is the correct manner, but,
in my view, it is an artificial manner, and they are only making the crisis
worse. The reason it is stretching out as a problem is that they never let the
problem cure itself.
For instance, in 2001 and
2002, there were economic problems in the world and they hurt, but they were
not that bad. The next one came in 2007-08 and it was much worse because the
debt had risen by then. Central banks, especially the American central bank,
started printing money and everything felt better for a while. Then the problem
came again and central banks led by the Americans, and governments led by the
Americans, again ran up even more debt and continue to do so. Many of us feel
better, especially the ones getting the money, but, overall, it is worse now
and the situation continues to deteriorate because the debt is so much higher
now. The next time we have a slowdown, it is going to be a lot worse. In
America, the debt quadrupled and a lot of it is garbage—we are floating on an
artificial sea of liquidity, and it is wonderful if you are in the right boat.
Problems always come no
matter what governments say and we have always had slowdowns in America after
every six or seven years even in good times. Be very worried because the next
time around, things are going to be much worse, especially in countries where
the debt is much higher. In the 1920s and 1930s, the centre of the world moved
from the UK to the US, primarily due to financial problems and mistakes made by
the politicians. The same thing is happening now, and the centre of the world
is moving from the US to Asia, exasperated due to the financial crisis and
mistakes made by politicians. In the 1930s, US was a creditor nation, but it
suffered badly, but not as badly as some of the European nations. Asia will
suffer the next time around, but the West will suffer even more. I would rather
be with the creditors than with the countries (that) have huge debts.
Any new reasons why you are shorting India? Have
you ever invested in India?
I used to own tourist
companies in India at a time. India should have had the greatest tourist
companies in the world. If you can only visit one country in your life, my
goodness, it should be India—it is an astonishingly spectacular place to visit.
There is no place that has the depth of culture that India has. Yes, I have new
reasons to short India—just read its newspapers everyday and you will see why.
The government goes from
one mistake to another—no matter what the controls are, no matter how much the
debt keeps rising, Indian politicians are only looking for scapegoats. Look at
the latest thing with gold—Indian politicians want to blame the problems of
their economy on someone else, and now it is gold. Gold is not causing India
problems, but it is quite the contrary. Exchange controls in India are absurd,
the regulations that India puts in place result in foreigners going through 70
loops before they can invest in India. Foreigners cannot invest in commodities
in India.
India should have been
among the world’s greatest agriculture nations—you have the soil, the people,
the weather, but it is astonishing that you have not become one—it is because
Indian politicians, in their wisdom, have made it illegal for farmers to own
more than five hectares of land. What the hell—can a farmer with just five
hectares compete with someone in Australia or Canada? Even if you put together
the land in all your family, it is still not possible to compete. Much as I
love India, I am not a fan of its government. Every one year, they (Indian
government) come up with more reasons for me to be less optimistic about that
country.
Do you think India’s democracy is a problem to its
success?
I can only make some
observations. Japan, Korea, Singapore, China were all one-party states and, in
some cases, were very vicious one-party states, but, as they became more
prosperous, their people wanted more, demanded more and got more democratic,
and they say this is the Asian way.
Greek philosopher Plato
in The Republic, says that societies develop from dictatorship to
oligarchy to democracy to chaos and then back to dictatorship. Chaos develops
out of democracy. This seems to be what is happening in some of the Asian
countries.
In the Soviet Union, they
did the opposite—they said we will open up and let all people complain and they
did. The people there were poor and they complained about being poor and hated
the government. When South Korea opened up, the people were rich and they
decided to get rid of the government without ruining the place. Taiwan did the
same. Democracy being a problem may have credence in some Asian countries. But,
I am not sure if India has been really a democracy in the true terms—from 1947
onwards, the opposition has had just one full term at the centre. The first
five decades of its democracy, the centre has only seen a government led by a
single party.
Power corrupts. Singapore
was lucky. There has been plenty of criticism of Singapore’s (founding father)
Lee Kuan Yew, and some of them are probably valid, but look at the results.
Congo had a dictatorship for a long time, but has nothing to show for it.
Singapore had a strong central government and look around you—I did not move to
Congo, but I moved to Singapore. So it can go both ways.
In 1947, India was one of
the most successful countries in the world relative to others. Even as recently
as 1980, India was more successful than China, but then you know how that story
turned. It was more successful than South Korea, more successful than most
places in Asia—but, for me, it is unfortunate that you have failed to take
advantage of some of your most valuable assets. India has some of the smartest
people in the world, but it does not have an education system to support it.
Infrastructure is equally poor. So, I don’t know if India would have been
better without a democracy, and some of the greatest periods in history have
been without democracy. But these are just my observations, and it is the
Indians who must decide what they want.
What do you think should change in India for it to
attract investments? There are several multinationals that have been successful
in India despite all its policy and regulatory uncertainties. They have adapted
and changed their business practices to suit India.
Yes, but on the other
hand, there are not many successful Indian companies, outside those that are
associated with the government. Look around in Singapore and you don’t see many
Indian products, except for some restaurants. There are very few Indian brands
that you would recognize outside India.
In India, many of its
companies are successful because of their links with the government. Apart from
a couple of software companies, I literally cannot think of Indian firms who
have made it big in the international scene. But there are many Japanese,
Korean, Chinese, Taiwanese companies that are very big globally. All Indian
companies that are successful there are because of their relationship to the
government.
If I were an Indian
politician, I would make the country’s currency convertible tomorrow and stop
deficit spending this afternoon. I would take a chainsaw to government spending
as you continue to run up debts, I would free up the economy, especially
agriculture, to make India the greatest competitor in this sector. You know, to
open a retail outlet in India, even for Indians it is so tough—but for
foreigners, it will take years in the current system. You keep companies out of
India citing national security—just go to China and there are foreign companies
everywhere.
There are millions of
entrepreneurial, driven and smart Indians, but most of them want to be abroad
because they know that unless they are involved with the right people in India,
they are not going to be successful. Fewer than 50% of Indians stay in school
till their 12th grade . How many universities are there in India—nothing when
compared to the population! There are very good Indian universities, but they
are nothing compared to the qualified Indians who need good education. One
reason you see so many Indians going abroad is to compete or to get education.
It would be such an exciting country to do business, if it were opened up.
Historically, it has been an economic power and I would try and restore it to
that position. Oxford and Cambridge can fill up all their seats with Indians
who would pay their own way.
In your latest book, you have been critical of the
numbers put out by the Indian government. I’ll quote from your book: “All
growth rate figures are unreliable. It is stupefying to me that India could
claim to have a clue to what is going on even in India, much less in China or
in the US” or “When it comes to growth rate, Indians base their numbers on what
China is reporting, making sure that theirs are better than, or at least in
line with, China’s”. But, institutions in India are pretty strong and the
numbers, be it GDP or any other put out by the Indian government, are
considered to be largely reliable.
All government numbers
are suspect. Last week, the US government revised its economic statistics and
added a whole economy bigger than the Swedish economy—so America just went up a
level in a week because they revised the numbers. I don’t trust what any
government says. The Soviet Union used to have great numbers, but they were all
made up in offices in Moscow.
I was not just picking on
India, but using it as an indicator. If you go back over the last few years,
you will see the Indian economy, as per the numbers its government has put
out—some of the numbers its government has projected—are comparable with those
of China. Then you go see both countries and you’ll realize something is wrong.
If India’s growth over the last couple of years was comparable to that of
China, where are the schools, the highways, the infrastructure, the housing,
where has it all gone?
I was using this to state
that we should be very careful about what governments tell us. In one of my
books, I’ve come down hard on Germany—the Germans who were supposed to be
hardworking and disciplined were also found to be making up some of the numbers
they had been reporting related to job creation.
Where is gold headed? When is the good time to buy
it? Of late, India has taken a slew of measures to curb its import. Many say
that if India were to steeply reduce its import of gold, it will be able to
alleviate its current account deficit, which, in turn, would help its economy
get back on track?
It is a great question
because I too am fascinated with gold and I do own gold. Gold went up 12 years
in a row, which is extremely unusual, and there has been no asset in history
that has seen something like this. The anomaly in the gold market is how strong
it has been—it has never happened ever—technically, gold was overdue for a big
correction. But the correction should be different from most corrections
because the rise was so different from most rises. I was expecting it to
decline and it has.
In my view, the main
reason for the correction, other than the fact that it needed it, was on
account of Indian politicians who suddenly blamed their problems on gold. The
three largest imports to India are crude oil, gold and cooking oil. Since they
can’t do anything about crude and vegetable oil, the politicians said India’s
problems were because of gold, which, in my view, is totally outrageous.
But like all politicians
across the world, the Indians too needed a scapegoat. Is this the reason why
gold started correcting? I don’t know. But, India is the largest importer of
gold, and whenever the largest buyer cuts back, there will be a correction,
whatever is the commodity. The correction may continue for several more weeks,
months or even a year or two. A 50% correction is common for commodities, but
if gold were to correct 50% before it made its final bottom, that would be
between $900-1,000.
In my view, gold is in
the process of making a complicated bottom that will last a while. I hope that
I am smart enough to buy more near the bottom because gold will go much higher
over the next decade, because as I had said earlier, governments across the
globe are making mistakes of printing money. When gold went to $1,200, I did
buy more. But don’t sell your gold. I am not selling my gold.
If India curbs its gold
imports, will its economy be back on track? There is no question that if you
have money, it is better to invest it than put it into a stagnant
asset—according to this argument, women should not buy dresses or shoes, or we
should not be buying houses...the one billion Indians are smarter than the
market and also the government. If they see that they are better off putting
their money in gold, that is what they will do—the solution is not a ban on
gold (import), but to make the economy exciting enough to make people want to
put their money into other things. That will be better for the economy, but
this is putting the chicken before the egg or the cart before the horse.
In the BRICS (Brazil, Russia, India, China, South
Africa) countries, the rising middle class appears to be angry with their
respective governments and have been demanding changes, reforms and better
living standards. Governments of most BRICS countries—including India and
Brazil—are confronted with the youth taking to the streets in protests. Do you
think this can derail the emerging markets story?
It could derail, or it
could open-up these countries further. If the billion plus people in India
demand more and say the current system that is going on since 1947 is absurd,
then it might make India a whole lot better. Compared to many of the countries
globally, India was on top in 1947, but relatively India has only declined
since then. Remember that you move from dictatorship to oligarchy to democracy
to chaos—may be they will throw out these absurd oligarchs who rule India and
then it may have a vibrant democracy and regain its proper place, its historic
place in the globe.
For more detail about any other query related investment,
you can contact me through my email.
Warm regards,
Arvind Trivedi
Certified Financial Planner
