Asia Weekly

Postcard from India—Regional Dynamics

Week Ended: February 26, 2010

Recently, my colleagues and I spent a week traveling throughout India, visiting Chennai, Mumbai, New Delhi and Kolkata—major cities to the south, west, north and east, respectively. Similar to the U.S. and China, India is geographically vast. From region to region, there can be great disparity in economic development and quality of life.

The sharpest contrast I felt was between Chennai and Kolkata. Chennai, capital of the state of Tamil Nadu, is considered one of India’s most progressive and foreign investor-friendly cities. The state government there has helped to transform Chennai into a major export hub for automobiles and IT services. Traveling through Chennai, one can easily tell that income levels there are higher than the national standard. There are Western style coffee shops, fast food restaurants and branded apparel shops in the city. Our meeting with the management team of a dominant TV station operator confirmed my observations. Advertising demand has consistently been trending up, and the firm has enjoyed handsome advertising rate increases. Commercials for jewelry and textile shops take up much of the advertising airtime—a good indication of underlying consumption strength. Even more encouraging is the optimism of the management team in their outlook for the local economy. Many auto firms and auto component manufacturers are expected to further expand their businesses in Chennai over the next few years. All this seems to bode well for job creation and demand for consumer goods and services.

In contrast to Chennai, the atmosphere in Kolkata was much more subdued. The capital of West Bengal, Kolkata did not radiate of the touches of modernity one would expect from a big city. In the past few decades, the communist party has ruled the state, and its policies have not been particularly friendly for private sector investments. In a disheartening example, in 2008, one major Indian automaker abandoned plans to build an auto plant in West Bengal because of land disputes with local farmers that remained unresolved after two years. One manager of an industrial machinery company told me that many investors have historically found West Bengal to be problematic and hostile toward them. However, incremental changes are taking place in the state, and its underlying growth isn’t as stifled as some headlines might suggest.

On my way to the Kolkata airport, my driver proudly pointed out recently built office buildings in a newly developed part of town, which houses some multinational IT services and telecommunications companies. The freeway is flanked by several new apartment developments, which the driver believed would make perfect homes for the young professionals who work nearby. Though some Indian states have progressed more than the others, it is refreshing to sense the optimism and changes on the ground.

Lydia So
Portfolio Manager
Matthews International Capital Management, LLC

 

 

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The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information.