Newspaper article Sarasota Herald Tribune

India a Huge and Growing Market with Some Big Risks

Newspaper article Sarasota Herald Tribune

India a Huge and Growing Market with Some Big Risks

Article excerpt

OVER THE LAST FEW YEARS, investors have been deluged with articles recommending that they invest in the BRIC countries, shorthand for Brazil, Russia, India and China.

One reason for clumping these emerging-market countries together is that they (along with the United States) are the only countries among the Top 10 countries by all three of these important measures: population, size and gross domestic product.

These alone aren't a reason to invest in any of them. There is more to the story that an investor has to understand before deciding whether all the hype is justified or is only pundits building castles in the air.

Space limitations and the complexity of the issues do not allow me to discuss all the BRICS. But since I've recently returned from India, I'll focus on the "I."

India's population is in excess of 1.2 billion and, while population growth has slowed somewhat, it's still growing rapidly.

This has caused serious problems. By some reputable estimates, more than 25 percent of the population can neither read nor write. At the same time, India has more engineers than almost any other country. Unfortunately, many are unemployed.

Along with widespread unemployment and illiteracy, there are other warning flags for potential investors, including endemic corruption and a stifling bureaucracy. In addition, one study indicates India is among the large countries with one of the worst corruption problems in the world. And a World Bank study highfound that India is ranked in the bottom third of countries in ease of doing business.

Along with these problems, recent developments shed doubt on the sanctity of the rule of law there. This is a critical issue because research indicates that for a country to prosper in the long term, both the sanctity of contracts and the overall rule of law need to be unquestioned.

An example of these developments is a proposed change to India's tax laws that would retroactively allow India to tax any offshore transactions involving assets in India back to 1962.

Another measure would allow it to retroactively levy a 10 percent tax on any software imported into India since 1976. …

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