In the investment world, there's often so much talk about China in the United States that the tremendous success in India gets short shrift. But business there is booming. The world's third-fastest growing economy is set to expand by 8.5% this year, the most in the past half-decade. Such rapid growth has compelled the central bank to lift interest rates four times in the past six months.
Compare that with the U.S. Federal Reserve, which has made clear it intends to keep rates low through at least the middle of next year due to limp demand and negligible inflation. While American consumers are burdened by high levels of debt and joblessness, India's urban middle class and farmers - who have enjoyed a year of ample but not over-abundant rainfall and rising prices - are eager to spend their newfound wealth.
"What we are seeing is a significant and almost dramatic improvement in consumer sentiment," Shubhada Rao, chief economist at Yes Bank Ltd. in Mumbai, told Bloomberg News. "This probably would be the best year as far as a strong revival in consumption is concerned."
Fittingly, such optimism coincides with a time of galas in India that starts with festivals celebrating Ganesh, the elephant god of prosperity, and careens toward Divali, the festival of lights, on Nov. 5. It's a sort of Christmas season, when stores do half of their entire year's sales. Of course, unlike the holiday seasons of the past two years in the United States, Indians are out in full force.
"We'd expect many of the retailers to be in the region of 25% growth," Kumar Rajagopalan, chief executive officer of the Retailers Association of India, told Bloomberg. "The biggest segment of growth is the middle class."
Maruti Suzuki, which makes half the cars sold in India, will top $7.3 billion in the fiscal year ending March 31, 2011, an all-time high. The head of Hyundai (OTC:HYMLF) in India also said he's expecting his best sales ever.
"The demand is quite sustainable," Swati Kulkarni, who helps manage $13.3 billion in assets at UTI Asset Management Co. in Mumbai, told Bloomberg. "There is the benefit of changing lifestyle, strong brands and sustainable growth rate."
One major beneficiary of the boom is gold sales, as India is the world's top consumer and the precious metal is the leading choice of gifts for weddings and festivals. I'm telling you this because we need to recognize that there's more going on in these countries than squiggly lines on a chart going from left to right. I am trying to persuade you to participate in equities that help you take advantage of this growth - and not be paralyzed by the difficulties of unemployment and shrinking home values here in the United States.
For another representation of the difference between job growth in India vs. the stagnant U.S. market consider a Financial Times report last week that Cognizant Technology Solutions Corp. (NASDAQ:CTSH) has 57 recruitment staff in the United States looking for local engineers but is still forced to import Indians on work visas.
"If you look at the core of what we do, the technology work, the U.S. simply does not have the talent base today," Francisco d'Souza, Cognizant president, told FT. "Although unemployment in the U.S. today is high, IT unemployment is still very low."
U.S. universities are producing too few engineers to meet industry demand. About 70% of U.S. Ph.D. students are foreign born. The latest figures show that India's undergraduate schools produce about 600,000 engineers a year, compared with about 84,000 in the United States.
S. Gopalakrishnan, chief executive of Infosys Technologies (NASDAQ:INFY), India's second-largest IT company, told FT that his firm had 10,000 staff in the United States but only 1,600 were U.S. nationals or permanent residents. The company wanted to hire 1,000 people a year in the United States but faced a scarcity of talent. "It is a struggle," he told the paper.
These are deep, pervasive issues in America. The weak job market has not occurred quickly or by accident, and it has long-term implications for our economy. Until it picks up somehow, we'll continue to look overseas for a large share of our investment growth.