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An Expansive Monetary Policy: Renewing India’s Infrastructure Markets

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Speaking in a typically candid interview in 2000, just a few short years before his death, Milton Friedman took (for him) unusual care in distinguishing between two of the critical “classes” of spending that made up Roosevelt’s New Deal Economics of the 1930’s, both critical to the subsequent expansion of the U.S. Economy: “One class was reform: wage and price control, the Blue Eagle, the National Industrial Recovery Movement. I did not support those. The other part of the New Deal was recovery through motivating the economy to expand through infrastructure investment … an expansive monetary policy. Those parts of the New Deal I did support.” You can imagine the eminent economist jabbing the air with his finger as he spat out the word “did”. 

And although you probably haven’t heard that here first (chances are you haven’t), these comments can still cause surprise: coming as they do from the arch monetarist and seeming enemy of expansionist spending programmes. But of course, they shouldn’t, because Milton Friedman was well aware that infrastructure spending is the engine room of any modern economy, and no modern economy can afford to ignore it.

The lesson certainly hasn’t been lost on Prime Minister Modi’s Government in India, which for the last three years has been pursuing one of the biggest infrastructure spending programmes in living memory; not only staggering in scale for the subcontinent but staggering in scale for any economy, anywhere in the world.

By way of only one example, the Government announced on 23 October that it was embarking on one of its biggest highway construction programmes so far on the subcontinent: involving no less than 83,677 km of new roads at a cost of Rs 6.92 lakh crore (nearly £81 Billion); with the whole, titanic project due to be completed within five years and creating at least 3.2 Million hours worth of additional employment across the country before the works are completed.

Prime Minister Modi declared in opening the scheme that the new programme would “transform India through roads”; and in doing so he seems to have chosen his words as carefully as Milton Friedman, because that phrase comes straight from his predecessor in office, Atal Vajpayee and Atal Vajpayee certainly knew a thing or two about building economic success on ambitious infrastructure programmes.

Vajpayee launched the Golden Quadrilateral Highway project in 1999, so as to link Delhi, Mumbai, Chennai and Kolkata by road. It was, at the time, India’s most extensive highway project ever and the scale of this ambition was already apparent from Vajpayee’s earliest inaugural statement: “The highways we are building under the National Highways Development Project are not mere highways. They are the bhagyarekha (lines of destiny) on the hands of our nation. With these highways, we are writing a new destiny of India.” Prophetic words indeed: the Golden Quadrilateral has become today’s beating heart of India’s transport infrastructure during its subsequent years of rapid economic expansion.

When it comes to infrastructure spending then, there seems to be a simple lesson: if it isn’t broke, don’t fix it. Copy it instead.

Red Ribbon CEO, Suchit Punnose said:

The Indian Government of Prime Minister Modi has just announced that it is about to embark on one of its biggest highway construction programmes yet: 83,677 km of new roads at a cost of Rs 6.92 lakh crore, with the whole, titanic project due to be completed within five years and generating at least 14.2 crore additional days of employment before completion. That should come as no surprise for an economy that is embarking on one of the biggest infrastructure spending programmes in living memory; not only staggering in scale for the subcontinent but staggering in scope for any economy, anywhere in the world. We take a look at why these infrastructure programmes are so important for the future growth of the economy.

Read about Indian Infrastructure Policies here: 

Read about Infrastructure Economics here:

Read about the Golden Quadrilateral Highway here:

 

Beating a path to its door: the Growth of India’s International Markets

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David Ricardo, the father of British Economics, wrote in 1817 that it was impossible for capital to be invested abroad. Herbert Spencer begged to differ forty years later:  “Look at the European continent. All European capitals have light because a British gas company provides them with gas…you say that the Germans are far ahead of Great Britain. But look at Germany. Even Berlin, the capital of the German Reich, would be in the dark if a British gas company had not invaded the country and lighted the streets.” David Davies might take a note of that when he sits down with Michel Barnier again next month.

But of course, times have changed since David Ricardo. The great economist was right about so much, but he was fundamentally wrong about international markets and today’s world marches to the beat of a very different drum. Overseas investment matters enormously, adding to the vitality and vibrancy of any economy, which is why Japanese Prime Minister Abe’s visit to India last month was so important (sandwiched in just before his surprise re-election campaign). For the past decade and a half, Japanese investment has played a hugely significant part in shaping India’s economic success story: more than $25 Billion has been invested into the subcontinent by Japanese Corporations in the last seven years alone. Japan is also the third largest external investor in India, projected to spend $35 Billion over the next three years, in addition to which its Government has tasked the Mizuho Financial Group with seeking out new investment opportunities with the object of reinvigorating future spending programmes.

The relationship is that important to both countries.

Abe met Prime Minister Modi on his trip last month and laid the foundation stone for the new Mumbai to Ahmedabad Bullet Train which comes hard on the heels of works commencing on Phase 1 of the Delhi Metro System (also involving huge Japanese investment) and that in turn followed the huge Delhi-Mumbai Industrial Corridor Project which began more than a decade ago: all of them underscoring the sheer scale of Japanese involvement in India’s infrastructure programmes.

And these are precisely the sort of outward looking initiatives that have come to characterise the Indian Government’s investment strategies over recent years, helping to turbocharge its economy through a succession of eye wateringly large infrastructure projects which have helped turn the subcontinent into the most significant Growth Market in the world with foreign exchange reserves rising to a giddy $400 Billion this year and inflation seemingly pegged at 2%. No wonder the world is beating a path to its door.

Since the company was founded more than a decade ago, Red Ribbon Asset Management has always placed India at the very heart of its investment strategies, at the very heart of its investment strategies which aim to deliver above market rate returns above market rate returns for its investors in one of the world’s most exciting markets.

Read about Mizuho Bank in India here

Read about the Mumbai to Ahmedabad Bullet Train Project here

 

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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