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India will do better without a government: Faber

September 26, 2003 09:14 IST

"India will do well in the next 10 years. . . Asia will have a correction in financial markets now. . . The Chinese economy may have some problems next year as the growth in industrial production slows down. . ."

These are some of the predictions investment guru Marc Faber makes.

The prophet of doom is reasonably bullish on India.

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And if you tell him that that's no surprise as the entire world now talks about India, he'll reply: "You may say the entire world is turning positive about India. But others were not positive about India two years ago when I was positive. Now their views have moved into my views."

In an exclusive interview with Business Standard, the managing director of Marc Faber Ltd, who was in Mumbai at the invitation of Crisil, said the Indian central bank must allow the rupee to appreciate and that it should shift a major portion of the country's foreign exchange assets to gold as the dollar is fast losing its purchasing power. As for the government, Faber has a one-word prescription: "Retire."

Faber argues that stocks may lose their shine and that commodities will outperform them.

"There is too much of liquidity and too many treasury hunters are looking for the best buy. Some commodities and some real estate in Asia are better buy. The market is smelling that financial assets are less desirable than physical assets," he said.

Since the dollar is "doomed," Faber says, the Indian central bank must transfer assets into Indian rupees and Hong Kong dollars and let the rupee appreciate against the greenback.

But won't that hurt exports, he replies: "A weak currency is like a subsidy. If a weak currency can really help exports, Latin America should be the richest country in the world."

As far as the dollar is concerned, it is bound to weaken against all Asian currencies and gold. He visualises the emergence of a pan-Asian currency on the lines of the euro, though not in the near future.

On being asked what ails India, Faber says with a straight face: "It would do much better if there were no government. In most democracies the government has outgrown its usefulness. It does not do what is good for the country but what is good for getting elected again.  This is endemic in all democracies. But in some countries the size of the government has reduced while in others it has not. India probably belongs to the second category. The government should stay out of the market economy. The only industries that are doing well (in India) are the ones that can bypass the government, namely, software and generic drugs."

According to him, the government can create a framework where the market economy can function better.

"In India, the government has created a framework where the market economy can function less efficiently. In principle, infrastructure has to be handled by the private sector but the legal system is such that it is impossible for the private sector to do infrastructure projects," he said. Singapore, Taiwan and South Korea, according to him, have done quite a good job in managing the market economy.

But what exactly is wrong with the Indian government? He replies: "I do not think regulations are any good in India. There is a difference between good rules and regulations and bad rules and regulations. India has managed to have the worst rules and regulations in the world. Nobody knows who is the owner of land in the countryside and nothing gets developed in Mumbai. For me, the market is the economy. I as an individual cannot buy shares in India. Why not? What is the rationale?"

He's also critical of several other Indian things. "The worst place to get a visa in the world is probably an Indian consulate and embassy. You may say that India is changing for the better but in the Bible it is said that you will not be judged for the good that you have done but for the good that you could have done. On that score, the Indian government scores very low marks."

Over the next ten years, India could do quite well on a relative basis primarily on account of the growing importance of the service sector.  "The outsourcing process in the service industry is at its infancy now and India can really play a big role here. Lot of services in the West can be transferred to lower wage cost countries and to counties which have a large educated population," he points out. In a few years, all major research labs will be in India and China, he thinks.

Faber also thinks that India has the potential to be very competitive in the manufacturing sector too. The only hitch here is the lack of infrastructure. "The roads, ports have to be in place. I am not a great admirer of China. I like India because the cultural background is more appealing to me. But the Chinese are much more pragmatic in fostering economic growth than the Indians," he says candidly.

In the short run, Faber is not very optimistic about the Chinese economy.  However, in the longer term he feels that in certain areas like manufacturing China will beat others hollow. But even then he will not tell investors to invest in China today simply because "it is very difficult to make money in China."


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