introduction
Recently, the National Securities Depository Center of India released a piece of data.
Data shows that from 2022 to the present, foreign investors have withdrawn nearly 5 trillion rupees, which is equivalent to as much as 100 billion US dollars.
As soon as this news came out, India's capital market immediately generated a series of panic, the Mumbai index continued to fall, and was on the verge of circuit breakers many times, and the good upward momentum of the stock market in 2023 came to an abrupt end.
Some experts said that the withdrawal of US capital is only the beginning of the disaster, and the Indian economy may decline back to 20 years ago.
You must know that India's economic rise in recent years is due to the United States.
So, why did American capital at this time choose to withdraw from India and try to harvest India? Why is India powerless in the face of the harvest of the United States?
First, India's development is heavily dependent on international capital, which has buried hidden dangers
As the country with the largest increase in land area in the world since World War II, India has always been synonymous with "ambition", which is not only reflected in the expansion of the country, but also in the economic development.
Indian Prime Minister Narendra Modi once made a grand wish to the people in a speech,
He claimed that India would become a developed country by 2047, and that India could quickly surpass China in terms of economy and become the most economically powerful country in Asia.
Morty
To be sure, India is one of the fastest-growing countries in the world so far in the 21st century, with an annual GDP of just $0.47 trillion in 2000.
In the past 2023, India's annual GDP will reach 3.42 trillion US dollars, an increase of 7.2 times compared with 2000, and it has also jumped to the position of the world's fifth largest economy, second only to China and Japan in Asia.
So, why is India's economy developing so fast?
The answer is simple, and that is to attract foreign investment.
In terms of attracting foreign investment, India has two unique advantages.
One is that the added value of the industry is low, and the domestic labor force is more and cheaper;
The second is that it has not set foot in regional military competition, has always maintained its status as a neutral country, and the business environment is not easy to change due to war.
The above two points have given India the power to undertake the world's major enterprises to build factories in the country, attracting major well-known manufacturing enterprises to choose to come to India for development.
In the past five years, India has attracted more than $50 billion in foreign investment every year, and the Indian government has made a high-profile announcement this year that India will complete more than $100 billion in investment every year in the next five years, and its ambitions in economic development are clearly revealed.
However, just as the Indian government was reckless, a crisis was creeping in.
The crisis stems mainly from the impatience of the Modi government when it was trying to develop India's economy.
Previously, Modi hoped to open up the predicament of his own economy by attracting investment, but the two advantages mentioned above were not enough to help India enter international trade.
Therefore, in order to develop the economy as soon as possible, Modi chose to compromise with European and American countries, fully opened the financial market and real estate market to international capital, and borrowed a large amount from European and American countries, leaving all the leading economic power of his country in the hands of European and American countries, laying hidden dangers for subsequent development.
Second, the United States has passed on debt risks and accelerated the harvesting of Asian countries
This hidden danger began to gradually explode in 2022.
In 2022, the international situation will be turbulent, the raging new crown epidemic and the outbreak of the Russia-Ukraine war will further highlight the problems of India's slow industrial transformation and uneven industrial structure, with economic growth slowing down, but inflation will continue to rise, reaching a high level of nearly 8%.
Seeing this, the Indian government can only start to implement a tight monetary policy, trying to curb the rise in inflation by raising interest rates.
However, the Indian government's fiscal situation is not good, and it cannot afford the high interest rates brought by interest rate hikes, so they have been "thundering and raining" in raising interest rates, and have not made drastic changes.
According to the data released in April, India's inflation rate was 6.95%, the highest in the last year, which is enough to see that India's inflation will continue to intensify in the future.
India is reluctant to raise interest rates, but the United States, its largest financier of foreign investment, is very generous.
The U.S. is sitting on $34.5 trillion in national debt, and the pressure on interest payments is also enormous.
However, the yield on U.S. bonds has been very strong, at a high level of more than 4.0%, which has accelerated the flight of international capital from India to the United States, reaching as much as 100 billion US dollars, giving the Indian capital market a blow to the head.
Worse is yet to come.
Because the continued high interest rate of U.S. bonds makes the United States itself very urgent in need of money, so how to get this money?
Naturally, it is to be obtained by harvesting the wealth of other countries.
In this regard, European countries have been harvested by the United States over and over again, so after the beginning of 2024, the United States will also put the butcher's knife on Asian countries.
Recently, international capital led by the United States has frantically shorted Asian currencies, and the currency exchange rates of Asian countries have begun to plummet.
Since you want to harvest wealth, you should look for countries that are relatively rich.
For example, Japan is in big trouble, under the siege of international capital, the exchange rate of the US dollar against the yen once came to 154, and the prices of daily necessities have risen in turn, making the Japanese people complain.
As another economic power in Asia, India has naturally become the first country to follow in Japan's footsteps.
Since March this year, the Indian rupee exchange rate has continued to fall, and the USD/rupee exchange rate fell to 83.74 in mid-April, the lowest value in nearly a decade.
At the same time, India's Foxconn 10 billion factory plan declared bankruptcy; The cooperation project with Disney was released by the latter; Tesla's long-awaited new factory is also about to be cut off by China.
The depreciation of the currency has caused the value of India's own assets to fall sharply, and the withdrawal of foreign investors has been like a collapsed domino, pouring cold water on the already fragile Indian economy. In this context, international capital will naturally take advantage of the situation and acquire Indian assets at a low price, preparing to harvest a wave of capital from India.
Third, if it affects the whole body, India may decline for 20 years
Faced with such a situation, the world is watching to see how India responds, but the outlook does not seem promising.
Some experts have analyzed that India has now fallen into a dead end, and there is no way to deal with the capital harvesting of the United States, and its economy will most likely return to 20 years ago.
So in such a predicament, why is India powerless to resist?
This is determined by a number of reasons, and the main reason for this is naturally from the two hidden dangers left behind when India actively introduced foreign investment.
The first concern is India's fully open financial market.
In the past, India has often benchmarked against China, but this is an exception.
China has been enforcing exchange rate controls, and its financial markets are not fully open to the world.
To be sure, this strategy will not be able to fully enjoy the dividends of FDI injections, but it will not be harvested by FDI at will, making it very suitable for developing countries whose financial systems are not yet highly sophisticated.
As the strongest economic country in Asia, China's renminbi did not plummet like the yen in the face of the butcher's knife of the United States, largely because of China's exchange rate control policy.
In contrast, India has easily opened up its financial market when its financial system has not yet developed perfectly, which is tantamount to drinking water to quench its thirst, and its economic development is rapid, but the whole is just a lamb to the slaughter in the eyes of the United States, and under the hegemony of the dollar system, India will be harvested sooner or later.
The second hidden danger is the excessively high debt ratio.
India, like Japan, is a country with a high proportion of debt.
As of the end of 2023, India's government bond holdings have reached 160.69 trillion rupees, accounting for 88% of India's annual GDP, far exceeding the 60% safety warning line given by the International Monetary Fund.
At the same time, the IMF also predicts that if this trend continues, India's national debt will reach 100% of GDP by 2034.
With such a huge debt ratio, India does not dare to effectively prevent currency depreciation by raising interest rates, while the short capital controlled by the United States can carry out short-selling operations unscrupulously and easily harvest India's wealth.
If the above two hidden dangers are the sorrow caused by India's eagerness to achieve economic development as a developing country, then there is another special reason that causes India to "make its own sins and cannot live", that is, India's relatively poor business environment.
The Modi government's self-motivation is certainly commendable, but its "eating appearance" is quite ugly.
In recent years, the Modi government has successively introduced restrictive policies for domestic and foreign-funded enterprises, requiring foreign-funded enterprises to appoint Indian employees as corporate executives and participate in business decision-making, and forcing foreign-funded enterprises to allow Indian companies to enter their supply chains, which has caused great disruption to the operation of foreign-funded enterprises.
Not only that, the Modi government also found various excuses to confiscate the assets of foreign-funded enterprises, China's well-known communications company Xiaomi, was confiscated by the Indian government last year 4.8 billion yuan in assets, Nokia, Wal-Mart, Cairn Energy and other internationally renowned enterprises, also because of tax issues by India has been issued a huge fine.
Over time, India's deteriorating business environment has naturally overdrawn market confidence, and India's economy will inevitably face a recession after many foreign companies choose to abandon India.
epilogue
Rome wasn't built in one day.
India's once-anxious economic development has long been doomed to the fate of being harvested today. With the withdrawal of foreign capital from India, the financial harvest of India by the United States is about to begin.
The tragedy of the United States using the Plaza Accord to harvest Japan in the last century is still fresh in our minds, and now the same tragedy is about to fall into India's turn, and if India's economy really regresses to 20 years ago, the Modi government will surely regret its arrogance and underestimation of the enemy.
Bibliography:
- NI Shuhui. Causes and prospects of the Indian rupee exchange rate. China Forex. 2023(23)
- LIU Xiaoxue. Structural Adjustment Strengthens India's Economic Resilience. China Finance. 2024(05)