Wednesday, July 23, 2008

Indian Leader Survives Vote; Onus Now on U.S. Congress

India’s government survived a no-confidence vote, providing Prime Minister Manmohan Singh with a much-needed political boost ahead of a general election and the backing to secure a nuclear deal with the U.S.

Now the US Congress has to act. This seems a good deal to approve. India is an important ally in all terms: geopolitically, it is strategically important; it is the world's most populous democracy, and a natural US ally.

Now the Indian leader's victory puts the onus on the U.S. Congress, which must approve the pact. U.S. businesses that see a big market in India have pinned high hopes on ratification. However, a short, packed calendar on Capitol Hill means a vote is likely to be put off until next year. Both John McCain and Barack Obama have suggested they favor the deal.

That's positive. India is a far better ally than Pakistan.

India has emerged over the last decade as one of Asia's rising economic powers, nearly rivaling China in its influence on global business. While U.S. and European companies are counting on Indian demand to cushion a slowdown at home, fast-rising prices are threatening India's economy. Wholesale-price inflation has been hovering at more than 11%, a 13-year high. The Indian central bank has raised interest rates and taken other tightening measures. Finance Minister P. Chidambaram said in Parliament Tuesday that economic growth in the year ending March 31, 2009, is likely to come in at 7% to 8%, a marked slowdown from an average of almost 9% over the past five years.

Imagine, slowing down to a 7% growth rate. Still, India's economy is only developing. In 25 years it will be quite a tiger; I think in the long run it may even surpass China. In any case, it will be one of the 5 top countries in the world, I think: India, China, Russia, Brazil, the BRIC countries, are poised to being 4 of the strongest economies in the world.

Foreign investors and local businesspeople generally welcomed the confidence vote. Political uncertainty is among the factors that have driven the nation's benchmark stock index down more than 30% this year.
The Sensex was above 20,000 at one point (actually, 20, 873, on 8 January 2008); it is now 14,942. That's down 5,931 points (28.4%) in six months. Similarly, my India mutual fund, Matthews India (MINDX) is down to 16.12, from 25.07 on 7 January (having recovered from 14.69 on 1 July). That's down 8.95, or 35.7% (10.38, or 41.4%).

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