I'm not sure whether you include 'The Economist' in your regular reading material. If so, you will have noticed that they have recently published several articles critical of India and in particular, critical of the BJP and of Modi. In last week's edition, a lead article plus a 'Briefing' suggested that wealth in India was confined to very few people and to get into the top 1% of earners you only needed an income US$20,000 a year. The articles were critical of infrastructure, of education, of the bureaucracy and of both the pace and direction of reform. They concluded that the Indian economy may be running out of puff and wondered from where it might get its second wind. As a consequence of an Asian-centric background, I have reasonably large weightings in China, India and Japan. I have no intention of reducing exposure to India (nor to China or Japan) but I would be interested in your views on The Economist's assertions particularly given your high regard for Modi and his government. All best.

Eoin Treacy's view

Thank you for this topical question. Governance is Everything has been a mantra at this service since before I joined David in 2003. However, governance is not a static measurement. It is a relative consideration and the trajectory of governance rather than its absolute value is what we strive to identify.

It is no secret that India has significant challenges to overcome in developing infrastructure, not least because of the vastly different administrative systems that exist between states. The sclerotic nature of the bureaucracy was a topic that plagued the last administration and is something the Modi administration is attempting to temper. Education is definitely a challenge in such a diverse country with more than a billion people, speaking a plethora of different languages.  

However, while understanding the challenges and remaining fully cognisant of the risks we have to ask a simple question “Are conditions getting better or worse?” I believe the answer is yes.

The roll out of 4G last year combined with the successful collection of biometric data from the entire population opens up the digital economy to hundreds of millions of illiterate people who had little chance of advancement previously. The app economy drives online banking, insurance, education, media, entertainment, communication and helps remove cash from the economy which improves tax collection.

Digitisation of the Indian economy is not a panacea but it should help to work around some of the most intransigent problems which I agree we are seeing slow progress on.

There is no getting around the fact that Modi has populist tendencies but his administration is pro-business and pro-growth.

Perhaps the biggest challenge for India is the uptick in inflation pressures that the rebound in oil prices has coincided with. That is pressuring the deficit which in turn has put a lid on the appreciation of the Rupee.

The Nifty is somewhat overbought at present but a sustained move below the trend mean would be required to question medium-term scope for additional upside.