Our economy was growing at a reasonable pace but others have slowed down. Russia has suddenly dropped out of the peer group because of Ukrainian invasion. China by virtue of the real estate bubble and their crackdown on entrepreneurship has scored a self goal. Their design on Taiwan is also creating anxiety among global investors. South Africa has 12 hours of power cuts, infrastructure is cracking, law and order is an issue there. Turkey followed an extremely loose monetary policy which led to higher inflation and depreciation of currency. Taiwan has a potential Chinese threat. So effectively in emerging markets many of our competitors’ growth stories have weakened. Despite rising tomato prices and deficient monsoon, inflation is well under the control of RBI. On the external side, India has more forex reserves than net-FX debt if you remove FCNR deposits. In infrastructure, what we have built between 1947 to 2013, we are building almost in the similar range in 2014 to 2024. Suddenly there is infrastructure available by way of road, power, port, telecom, railway and airport. Notwithstanding that, we are an oasis in the global desert, we have now laid the foundation stone for a strong economic growth in days to come.

The biggest challenge is our trade deficit. Our trade deficit with China last year was $100 billion. From being mobile phone and toy importers, we have become an exporter to China. We have to replicate this in all other industries. This should be the role model. We have to encourage local manufacturing in other industries also. We need to promote inclusive growth. We still provide free food to 80 core Indians. Now the proverb says ‘teach a man fishing rather than giving him a fish’. We have to create jobs at the bottom of the pyramid so that they are not dependent of free food and this freebies culture can go away. One big opportunity in creating jobs is the China-plus one strategy as big companies are shifting their supply base out of China. We have to lay red carpets for them in India and start creating bigger factories and jobs. The ease of doing business and investment is also a challenge. Though we have moved a notch, it is still a long journey since the States and the Centre have to come together to improve ease of doing business.

The market always tries to process information and use it to arrive at some conclusion. In 2004, the market overwhelmingly believed that ‘India Shining’ was going to bring the NDA government back. There was a shock. The market crashed 20 per cent because there was a result against the investors’ expectation. Thereafter, we saw markets moving up. In 2009, it was exactly the opposite. The markets anticipated that there will be no stable government and there would be a khichdi, but UPA came out with the majority and markets went up by 20 per cent. So, whenever election results are in contradiction to market expectations there are sharp reactions. In 2015 and 2019, the outcome was more or less in line with the market expectation. On the election result day, there will be a reaction based on whether the market expectation is right or wrong. Beyond that the fundamentals will prevail.

A lot of investors have burned their fingers and heads in China, Russia, Brazil and South Africa. In emerging markets, they are now looking at countries such as India, Chile and Mexico. Hence, the flow should continue to come to India. Even if other emerging market allocations of FPI drop due to the US interest rate going up, Indian allocation can still continue to be strong. More importantly, only the Indian market gives ‘3G’ of growth, governance and green. Our earnings and governance growth will be superior to emerging market peers and comparable to the West. We are also doing this entire growth with a relatively higher contribution from green energy. We have now over 20 per cent of our power generated from renewable energy. We are also the lowest per capita emitter of carbon in the world. Where else you will get the 3G of green, growth and governance together.

Under ESG norms, investors have to stay away from tobacco, defence, fossil fuel, gambling and sin sports. But these are the best-performing sectors. In a broader market when non-ESG sectors such as tobacco and defence do well, ESG funds underperform. In a crude manner, ESG is also linked to per capita GDP. At $2,500, I am more worried about roti, kapda aur makaan. At $25,000, I will also worry about air and the environment. To some extent, it is a rich man’s hobby. ESG anyways is part and parcel of our investment process. If one is fleeing money from vendors and suppliers, how will he sustain in business. Social and governance is always part of the process. The environment was something which we were not aware. It is evolving every day and will become part of the main investment process.