Investment risk in India is generally low, according to a California-based independent investment research firm. Low investment risk will support continued strong asset performance over the next two years, says Jeph Gundzik, president of Condor Advisers, an eight-year-old investment consulting company based in Mammoth Lakes, Calif.
(PRWEB) May 29, 2004--According to Gundzik, there are two important factors that could increase investment risk. A terrorist strike on India launched from Pakistan or Kashmir could briefly push economic growth lower and political and social instability higher. "However, tighter fiscal policy would do much more economic, political and social damage to India than a terrorist strike or strikes," Gundzik says.
Gundzik, publisher of a monthly newsletter analyzing investment risk in emerging markets, believes that tight fiscal policy in India, advocated by many both outside and within the country, will reduce economic growth in the long-term. This will lead to political and social destabilization very similar to what occurred in Argentina between 2000 and 2002 and what is now beginning to unfold in Brazil. "An economic crisis in India similar to that experienced by Argentina would be an exponentially larger human catastrophe," he says.
According to Gundzik, tight fiscal policies in Argentina and Brazil, administered by the IMF over the past 15 years, have slowed economic growth and pushed the debt burden in both countries higher. Between 1989 and 2003, annual GDP growth averaged 2.9 percent in Argentina and 2.3 percent in Brazil. Over the same period the ratio of public sector debt has increased from negligible levels to 140 percent in Argentina and 91 percent in Brazil. "The IMF and investors believed that tight fiscal policy would increase economic growth in Argentina and Brazil. Instead, economic growth slowed and the debt burden ballooned in both countries," he says.
Gundzik says that India has proven over the past 15 years that easy fiscal policy can accelerate economic growth while leaving the debt burden relatively stable. Between 1989 and 2003 annual average GDP growth in India was 5.6 percent. Over the same period the debt burden increased from 60 percent of GDP to 75 percent of GDP. "Fiscal policy has been much easier in India than in Argentina and Brazil since 1989," he says. "This has produced strong economic growth, resulting in only a modest increase in the debt burden."
According to Gundzik, India's new government would do well to study economic, political and social history in Argentina and Brazil before undertaking measures to reduce the country's fiscal deficit. "Unlike Argentina and Brazil, multilateral lenders and foreign investors have very limited leverage in India. The Singh government should use this freedom to increase public sector investment and government subsidies, supporting accelerated economic growth and political and social stability. If the government discards these very important lessons and tightens fiscal policy, economic growth will inevitably slow, raising the probability of social backlash and political instability in India."
Condor Advisers, a Mammoth Lakes, Calif.-based consulting firm specializing in emerging markets investment risk analysis, has been serving institutional investors globally since 1995. Condors research has foreseen all the major crises in emerging markets, including the Asian liquidity crisis in 1997, Russias default and devaluation in 1998, Brazils devaluation in 1999 and Argentinas default and devaluation in 2001.
Jeph Gundzik is available to speak to the media about global political and economic trends, and investment risk and opportunities in emerging markets. He can be reached in the United States at 760-937-7152 or by email at jpg@condoradvisers.com
For more information please visit www.condoradvisers.com.
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