The HS Dent Financial Blog

RSS      

India: There will be setbacks like these

At HS Dent, we are generally quite bullish about the long-term prospects for India.  With a large population, a growing middle class, a developing consumer economy, and a tech-savvy workforce, India has a lot going for it.

Unfortunately, the country also has a history of getting in its own way.  For example, in today’s Financial Times, we read this little tidbit that will make you want to pull your hair out:

Indian authorities have sealed off about 300 mobile phone towers in a New Delhi suburb, after ruling that a decades-long ban on commercial activities in residential areas was being violated.

Telecom industry insiders said mobile phone services in Noida, a busy residential and industrial area near New Delhi, had been hampered by the move to put out of action nearly a third of the area’s 1,000 mobile phone towers, most of which have been in place for years.

The impact on consumers is huge — mobile penetration in the country far exceeds landline availability, even in urban areas.

Well, that’s just brilliant.  In an era in which fast communication is everything, send your citizens back to the Stone Age by cutting off their access to mobile phone towers — all in the name of enforcing what amounts to an insignificant municipal regulation.

The optimist in us hopes that this is a simple case of incompetence or petty corruption by a small-time government functionary and not a sign of larger things to come.  But in any event, it does make an important point.  Even if long-term trends favor India (and other emerging markets), there will be setbacks like this that cause major headaches for investors.  This mobile tower incident will likely be resolved soon with no significant adverse effects,  but other issues might not be as easily fixed.  This is not to pick on India, of course.  The United States no doubt frustrated its British and European investors when it was in its early stages of development.  The British — the fathers of the Industrial Revolution — had their less-than-lucid moments as well.  The Corn Laws, passed in 1815, almost certainly retarded the growth rate of industrialization by restricting free trade with high tariffs — all in an effort to preserve the wealth and political power of the landed aristocracy.

So, the lesson to be learned  is that the governments of emerging markets will throw a wrench into your plans from time to time.  Be ready for it when it comes.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy