India is an ancient civilization in the world and a country with a population of 1.4 billion. The IMF predicts that in 2022, India's nominal GDP will rank fifth in the world.
India is also the world's most important agricultural producer and exporter, the world's second largest exporter ofwheat, sugar and tea, and the world's largest exporter of rice.
It can be said that India plays an extremely important role in the world economy.
India's real GDP growth rate in 2021 is 8.95% (source: Statista), reflecting a relatively strong rebound.For 2022 economic growth expectations, Moody's latest forecast shows that India's GDP will grow by 8.8%, maintaining the lead among the G20 countries.
India and my country have had close exchanges since ancient times. Master Xuanzang once studied at Nalanda Temple and brought back countless classics. Today, we still need to pay close attention to this ancient neighbor.
Much of the recent domestic and international coverage of the Indian economy has focused on food protectionism, inflation risks, and the surge in unicorns.
These three hot spots in the Indian economy seem to be called the "three fires" and are topics that have attracted worldwide attention.I will start from these "three fires" in this article, hoping that readers can better understand the Indian economy.
Indian food protectionism policy
from huge inflationary pressures
Recently, mainstream financial media at home and abroad have focused their attention on India's restrictive policy on food exports.
The Indian authorities have recently cut "three axes" against domestic food exports.
One is that India has imposed restrictions on wheat exports.As the world's second-largest wheat producer, India suddenly announced that it was preparing to ban wheat exports due to the rapid rise in domestic commodity prices.Subsequently, under international pressure, India's wheat exports eased slightly.
According toXinhuanet(16.14 -0.06%,diagnostic stock) citing Reuters news from New Delhi, the Indian government announced on the 17th local time that it will relax the wheat export ban issued on the 14th to allow the export of wheat waiting for customs clearance.The export of wheat that was submitted to the customs for inspection and filed in the customs system on or before May 13 was approved.The Indian government will also reportedly allow wheat exports to Egypt.
But whether it is relaxed or not, India's wheat ban has caused wheat prices to soar worldwide, and European wheat prices have soared to a record$455 /ton.
The second is to tighten exports of sugar.According to ChinaBusiness News, in order to maintain domestic supply, especially to fight against rising domestic inflation, the General Directorate of Foreign Trade of the Ministry of Commerce andIndustryof India issued a notice on May 24 to limit sugar exports for the 2021/2022 season to 10 million Ton.
India is the world's leading sugar producer and the world's second largest sugar exporter after Brazil.According to a recent research reportby JPMorgan Chase , the priceof India's mainagricultural products(6.61 +0.15%,diagnostic stocks) (sugar, wheat, etc.) is generally lower than that of European sellers, and it is the main source of supply for food importing countries in less developed countries. Food protectionist policies will not only push up global food prices, but also greatly affect thefood securityof people in underdeveloped areas of the world.
The third is to consider restricting the export of rice.According to the Economic Times quoted by the Financial Associated Press, India may restrict rice exports in order to prevent excessively rising rice prices and shortages in the country.This decision probably affects us the most.
U.S. Department of Agriculture 2021 data shows that India's rice exports in 2021 increased to a record high of 21.4 million tons, an increase of about 45% year-on-year, and accounted for 44% of total global exports.According to China Customs data, from January to December 2021, China's rice and rice imports were 4.96 million tons, exports were 2.42 million tons, and net imports reached 2.54 million tons.It is one of the main buyers of Indian rice.
After summing up the above "three axes", it is not difficult to see that the current characteristics of Indian food protectionism are as follows:
(1) Before the ban, the export of these Indian agricultural products experienced a surge, and India can be said to have made a lot of money.
India, for example, took advantage of a rebound in wheat prices caused by global tensions between Russia and Ukraine to export a record 7 million tonnes of wheat in the fiscal year ending in March, up more than 250 percent year-on-year.India exported a record 1.4 million tonnes of wheat in April and has already signed agreements to export about 1.5 million tonnes in May.
In 2021, the world's food has experienced a round of rising, and the price of rice has also risen. India can earn a lot of foreign exchange from the nearly 45% increase in rice exports.
(2)The reasons for the Indian authorities to explain these bans are almost always the same: soaring domestic prices and fear of shortages of related food products.
So how serious is inflation in India?
India's inflation soars but economic expectations improve
Rising domestic crude oil, food and fertilizer prices in India will weigh on household finances and spending in the coming months, ratings agency Moody's said in its latest Global Macro Outlook .
And the move by the Indian government to raise thebank'sbenchmark interest rate to prevent energy and food inflation from becoming more soaring will seriously slow down the momentum of the recovery in domestic demand, resulting in a slowdown in economic growth.
In early May, India unexpectedly announced a 40 basis point rate hike, raising its benchmarkreporate to 4.4%, the bank's first rate hike in nearly four years.
The move is a forceful move by Indian authorities to try to stem a spiral of rising prices for basic commodities such as food and fuel, against the backdrop of a surge in global inflation triggered by wars in Russia and Ukraine.
This wasan unexpected action in thecapital market . India's Sensex index fell more than 2% on the day; India's 10-year government bond also fell 1.8% on the day.
As one of the world's fastest-growing large economies, policymakers in India have been on hold to avoid tightening monetary policy from affecting the country's economic recovery from the new crown epidemic.In 2020, affected by the epidemic, India's real GDP dropped by 6.6%, which can be described as a heavy loss.
TheRBIgovernor explained the rationale for the measure in an interview with local media:soaring commodity prices, including India's large imports of crude oil and edible oils, and the mounting inflationary pressures that continue to spread.
India's retail inflation index rose 6.95% year-on-year in March, well above the 6% upper end of the RBI's target inflation range.
According to CCTV news, data released by India on May 13 showed thatIndia's retail inflation rate soared to 7.79% in April due to rising prices of edible oil and fuel.Headline inflation is now at its highest level since May 2014.At present, India's retail inflation rate has been above the 6% tolerance limit of the Reserve Bank of India for four consecutive months.
Some financial scholars in India were puzzled by the central bank's surprise interest rate hike, and expressed three doubts in interviews with foreign media:
First, why did the central bank only act on inflation in early May?Once inflation starts to rise, it will be more difficult to control it easily.
Second, why there is no advance warning, but such a sudden rate hike?
Third, the rate hike of 40 basis points is lower than the rate of 50 basis points of the US central bank, which has troubled the market's expectation of another rate hike and increased uncertainty.
Regarding the outlook for worldwide inflation, Moody's forecasts that although headline inflation is expected to ease over the next year, price levels will remain high and will weigh on consumer demand.
Under the current circumstances, the main focus of western central banks aiming to control inflation will remain to keep the medium-term inflation ofordinarypeople(39.13-1.83%) households within the target ,in order to prevent the emergence of self-perpetuating vicious wage-price spiral.
Moody's expects retail inflation in India to rise from 5.7% in 2021 to 6.8% in 2022.
The latest statement from the Reserve Bank of India shows thatits expectation of continuing a new round of interest rate hikes in June is relatively slim, which is beneficial to the development momentum of the Indian economy.
In addition to soaring inflation, the RBI is also facing a major withdrawal of funds from foreign investors.Concerns about global inflation have sparked a massive sell-off in Indian stocks and bonds by foreign investors, with net foreign investment outflows every month since October last year.
Of course, we must not think that the Indian economy is a mess, and we must view the trend of the Indian economy dialectically in the context of the world economy.
Since the beginning of this year, the global economic recovery after the new crown epidemic has faced a series of complex challenges.Several sudden big risks have hit the global economy all at once, causing economic growth around the world to be significantly slower than what major investment banks had envisioned a few months ago.
Moody's latest report lowered its forecast for global growth in 2022 to 3.1%.The report pointed out that the maindriver ofthe slowdown in world economic momentum (838275,diagnostic stocks) is the ongoing supply-side shocks, which are spurring inflation soaring and eroding consumer purchasing power, also affecting monetary policy in economies around the world. Pushing toward a more hawkish stance would be accompanied by volatility in global financial markets, a repricing of assets, and tighter credit conditions.
All this will lead tobond yieldsaround the world rising on expectations of further rate hikes,stock priceseverywhere falling from their peaks and the dollar strengthening.In addition to the emergencies this year, the economic spillover effect of the Russian-Ukrainian military conflict is still unfolding, and some countries have been affected by the mutation of the epidemic, which has caused problems in the supply chain and circulation.
All point to expectations of a global economic slowdown.
In contrast, India’s economic growth momentum in the fourth quarter of 2021 has been extended into the first four months of the year.In addition to Moody's forecast, Fitch expects India's economy to grow by 8.5% in 2022; the Reserve Bank of India's own forecast is 7.2%; Goldman Sachs last year gave an optimistic forecast of 9.1%.
Moody's believes that in the first quarter, India's strong credit growth, a significant increase in investment intentions released by the corporate sector, and the government's high budget allocation for capital expenditure all indicate that the investment cycle is improving.Barring further sharp increases in global crude oil and food prices, India's economy appears to have enoughtensionto maintain a more solid growth momentum.
This economic momentum is also reflected in theventure capitalworld, especially in India, where the number of unicorns has soared in recent years.
Number of unicorns in India soars
In recent years, another outstanding achievement of the Indian economy is that the number of unicorn companies has grown exponentially.
The world's venture capital circle defines unicorns as young companies with a total value of more than $1 billion.According to this standard, according to the official data of India (investindia),as of May 5, 2022, there are exactly 100 unicorn companies in India, with a total valuation of 332.7 billion US dollars.
Among them, 44 new unicorns were born in 2021, with a total valuation of $93 billion; 14 unicorns were born in 2022, with a total valuation of $18.9 billion.
According to data from Inc42, Indian startups have raised a total of around $42 billion in 2021 and closed 1,583 deals.
The main reason for the explosion of unicorn companies in India in the past two years is that the digital economy is blossoming in India, a land full of programmers, software engineering technologies and talents.
India has nurtured a thriving digital payments ecosystem, as well as a large smartphone user base and business models that support online operations, making it very easy for investors to see the potential for success in Indian digital startups.
Especially during the epidemic, online ecosystems such as smartphones and digital payments have penetrated into all aspects of life and business of Indian people at an extraordinary speed, making India's online economy, especially financial technology, e-commerce platforms, and software services. (SaaS), games, data management, etc. have experienced explosive development.
From the perspective of the distribution of unicorn companies, Bangalore, the Indian technology center city, is the capital of unicorns in India, with the most unicorn headquarters, followed by Delhi and Mumbai.Basically, Indian unicorn companies are active in first-tier cities.
Judging from the latest financing data, the Indian unicorn venture capital market is very active.According to official Indian data, 482 financing deals have been closed in the first quarter of 2022, an increase of 89% year-on-year, and startups raised more than $10 billion, 2.7 times the same period last year.
Sequoia Capital India has been the most active investor, followed by Kunal Shah (founder of CRED), Tiger Global Management, Accel, Alpha Wave Global and Trifecta Capital, which are well-known players in the world investment field.
In the IPO space, there has been a corresponding surge in activity among Indian companies.According to Globe Magazine, 63 companies in the Indian capital market have raised a record-breaking $15.4 billion through IPOs in 2021.In 2022, the IPO boom in the Indian stock market is expected to continue. In the first quarter of this year, 23 companies in India carried out IPOs, raising funds estimated to reach $5.9 billion.
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So, can Chinese investors share the dividends of India's economic development?
Lao Xing next door reminds you to pay attention to the risks of some "non-commercial factors".In particular, attention should be paid to India's "unfriendly" policy towards Chinese companies in recent years.
According to Caijing Magazine,these policies include banning more than 200 Chinese apps, requiring prior approval for investments in bordering countries (including China), and launching a blanket investigation of almost all Chinese companies in India on tax and compliance issues.
In addition, hidden behind the soaring rise of unicorn companies in India and the wealth of batch after batch of Indian entrepreneurs is the reality of extreme income inequality in India.
According to the latest official Indian Inequality Report, the top 1% of income earners in India show a trend of income growth, while the income of the bottom 10% is shrinking.The cumulative total income of the top 1% of income earners in India is more than three times that of the bottom 10% of income earners.
According to the World Inequality Report 2022, released in December 2021, India is defined as a “poor and very unequal country”, with the top 1% earning 22% of national income.
