Investing requires healthy markets, which in turn depend on fair regulations and strong market infrastructure institutions. While I’m confident India has these in place, I’ve often wondered about the off-hand comments fund managers make about the reliability of financial statements, the absence of class-action lawsuits, and even Nithin Kamath’s observations on how Indian markets are structured differently.

This led me to a basic question: how does India stack up on these fronts? More specifically, how do we compare with the largest market in the world—the US?

To explore this, I spoke with Sandeep Parekh, who has worked in both markets. Sandeep is the Managing Partner of FinSec Law Advisors and a former Executive Director and head of the Legal Affairs and Enforcement departments at the Securities and Exchange Board of India. He holds an LL.M. in Securities and Financial Regulations from Georgetown University and is a member of both the New York Bar and the US Supreme Court Bar. Having worked with law firms in Delhi, Mumbai, and Washington, D.C., Sandeep’s core focus is securities regulations, investment regulations, corporate governance, and public policy. He is also the author of Fraud, Manipulation and Insider Trading in the Indian Securities Markets, which offers a comprehensive and critical analysis of securities fraud and insider trading regulations.

Background

The U.S. regulatory model is built on a system of oversight in which the SEC empowers and supervises self-regulatory organizations (SROs). These SROs—including stock exchanges such as the New York Stock Exchange (NYSE) and Nasdaq, as well as entities like the Financial Industry Regulatory Authority (FINRA) and the Depository Trust & Clearing Corporation (DTCC)—are responsible for creating and enforcing industry rules for their members. The SEC reviews and approves these rules, conducts inspections, and maintains ultimate authority, while delegating day-to-day oversight. This division of labor allows the SEC to concentrate on systemic risks and broad policy.

India, in contrast, follows a more centralized and direct model. SEBI regulates and oversees market infrastructure institutions (MIIs) and other intermediaries itself. This approach ensures clear accountability, but it can also create administrative bottlenecks.

The U.S. market structure has evolved into a hybrid system. The NYSE operates as a hybrid auction market that, while now heavily electronic, still maintains a physical trading floor and designated market makers known as “specialists.” Nasdaq, on the other hand, is a fully electronic dealer market where competing market makers post two-sided quotes. This historical divergence explains why the NYSE is often associated with large, stable blue-chip companies, while Nasdaq has become synonymous with younger, growth-oriented technology firms.

India’s exchanges, by contrast, were designed as fully electronic platforms from the start. By bypassing the inefficiencies of physical trading floors, they enjoyed a structural advantage that enabled faster growth, lower costs, and greater efficiency.

Podcast summary - by Sandeep Parekh

India’s rule-based securities laws vs. the U.S. principle-based approach

When it comes to securities regulation, India and the United States present a striking contrast in style, pace, and philosophy. Both run mature capital markets that attract billions in investment, but their approaches to lawmaking, disclosure, and infrastructure reveal very different regulatory DNA.

India has historically been rule-bound, drafting voluminous regulations that attempt to anticipate every possible scenario. The U.S., by contrast, leans toward a principle-based model, setting broad obligations and relying on courts and enforcement actions to define boundaries over time. This difference shows up everywhere—from the thickness of a prospectus to the speed of market settlements.

See also: Economic Times piece on the two systems and their treatment of fraud.

From merit to disclosure: A timeline divergence

Until 1988, India operated under a merit-based regime overseen by the Controller of Capital Issues (CCI). Regulators decided whether an issue was “good” for investors by scrutinizing its pricing, timing, and structure. While intended to protect investors, this approach delayed capital raising and stifled innovation.

That year, India shifted to a disclosure-based system. Issuers now had to provide exhaustive disclosures, while investors were expected to judge quality and value themselves—bringing India in line with global practice.

The U.S. had made this transition decades earlier. The Securities Act of 1933 and the Securities Exchange Act of 1934, passed in the wake of the Great Depression and Wall Street scandals, laid the foundation for disclosure-based regulation under the newly created SEC. In effect, what India achieved in 1988, the U.S. had already implemented more than half a century earlier.

Rule-making vs. case law: How the law evolves

India responds to crises and gaps with speed and detail. Each event spawns new, often highly prescriptive regulations, leading to overlaps, contradictions, and regulatory clutter. Prospectuses in India now run 300–400 pages, packed with disclosures, risks, and checklists. While this level of detail improves transparency, it can overwhelm investors and raise compliance costs for issuers.

The U.S. takes a different path. It sets broad principles and lets courts refine them over time. Insider trading law, for instance, is not found in a single statute but has been developed through decades of judicial interpretation of general antifraud provisions. This system offers flexibility but can leave uncertainty until case law matures.

In short, India is impatient, drafting new rules quickly, while the U.S. is patient, letting precedent evolve. Both have trade-offs: India risks clutter and over-deterrence, while the U.S. risks ambiguity and uneven enforcement.

The expanding prospectus: Information or obfuscation?

In India, the Red Herring Prospectus has become a 300–400-page tome, reflecting the belief that more information equals better investor protection. In reality, such volume often obscures more than it illuminates—retail investors rarely read past the first few pages, and institutions prefer analyst notes to regulatory filings.

In the U.S., the S-1 registration statement is shorter, but compliance obligations under Regulation S-K and related rules are equally demanding. The key difference lies in presentation: India favors encyclopedic disclosure, while the U.S. emphasizes consolidated formats.

Thus, while both systems demand transparency, India is maximalist in form, the U.S. minimalist in format but no lighter in substance.

Market infrastructure: India’s technological leapfrog

If India is conservative in lawmaking, it has been bold in market infrastructure.

• Dematerialization (Demat): India eliminated physical share certificates in favor of digital depositories, reducing fraud and speeding up settlements.

• T+1 Settlement: India moved to one-day settlement, reducing counterparty risk and boosting liquidity.

• Digital IPOs: Applications and payments are now fully online, seamlessly integrated with banks and exchanges.

The U.S., while stable, remains more conservative in adopting such reforms. India shows that emerging markets can lead developed ones in infrastructure innovation, even while maintaining rule-heavy legal frameworks.

Why it matters: Investor protection vs. market efficiency

These regulatory differences have real-world consequences.

India’s rule-based model offers clarity and reduces discretion but risks drowning participants in compliance checklists. The U.S. model, by relying on principles, fosters flexibility but can create uncertainty and uneven enforcement.

Similarly, India’s long prospectuses may satisfy regulators but undermine usability, while the U.S. system balances brevity with substance.

On infrastructure, India demonstrates that bold technological adoption—like T+1 settlement—can coexist with a conservative regulatory mindset.

Conclusion: Two roads, one goal

India and the U.S. may diverge in style, but their goals are the same: protecting investors, ensuring fair markets, and enabling capital formation.

India’s challenge is to streamline its regulations, moving toward leaner, principle-based frameworks without losing accountability. The U.S.’s challenge is to modernize its infrastructure and accelerate efficiency gains.

Far from being opposites, the two systems offer complementary lessons. India shows the power of technological boldness; the U.S. shows the value of principle-driven law. If each borrowed from the other—India embracing principles, the U.S. embracing technological speed—the result could be a regulatory architecture that is both flexible and future-ready.

We hope you are enjoying our “Investing in India” series and would love to hear your thoughts and suggestions. Feel free to drop us a comment anytime!

See you next time!

It’s this all-round view of India that makes a conversation with Akhilesh Tilotia interesting.

Private cost of public failure

The Making of India uses the term ‘private cost of public failure’ to indicate where the government or policy interventions have been unable to deliver basic hard and soft infrastructure services to expected standards. Power, roads, and water (bijli, sadak, paani) being the hard infrastructure, and education, health, and security (shiksha, swasathya, suraksha) being the soft. The government, either via policy or action, needs to be a credible player in public goods.

Tilotia argues that policy shapes markets, which shape prices, which in turn shape the society and its economy. In his book, he gives examples of how markets and prices have re-shaped many sectors. He hopes that Indian policymakers will continue towards freer prices. The

He admits that part of certain sectors, such as grains within agriculture, may find the move towards markets challenging. He argues that the majority of value in agricultural produce has indeed shifted to markets, with farmers moving increasingly to higher value-add horticulture, dairy, and meat. In the meantime, there are still logistics and credit challenges that could help the move to a more market-driven economy.

India’s demographic dividend has already been born. Between 23 and 25 million youth are joining the workforce every year, but pricing distortions in the labour market mean that many are not getting employed meaningfully. Tilotia believes that labour laws and manufacturing/export policies need to be more market-driven.

India’s urbanisation has been driven by the larger metros becoming agglomerations rather than an increasing number of cities. There is a missing middle in Indian cities. The larger cities have the lowest floor space index while being amongst the densest populated. Mass transport systems are being built even while the cities are expanding.

Governments need to balance stakeholder needs

The three-year stint in government made Tilotia realise the competing needs of various stakeholders that policymakers have to balance. The book points out that expert advisers don’t seem to appreciate the nuance of Indian democracy - politicians are somewhere in between the ‘trustee’ and ‘delegate’. If the ‘trustee model’ holds, the expert has a role and his advice is valuable in the discourse of shaping policies. If the ‘delegate model’ holds, the elected representative trumps the expert by simply pushing what his constituents want.

Experts and investors also tend to miss the fact that a politician’s pitch to his people are ‘orthogonal’ - where an expert looks at sectors, a politician looks at segments. “Where an expert sees a road, a politician sees the locality and community through which it passes; where an expert sees a school, the politician sees the youth; a gas cylinder may be an environmental project for an expert, it is a reason for the politician to speak to the women voters of his constituency.” Economic analysis reports calling for ‘reform wish-lists’ gloss over the “obvious fault lines of development (developmental, social, political), and do not call out contentious issues clearly.” They need to detail the principles to be followed in case of a trade-off, keeping in mind the voters.

Bottom-up data gives investors edge

After a full career of looking at the big picture, Tilotia finds the search for bottom-up data evidence for top-down views quite fascinating.

For example, in the first book he had postulated that ‘India will remain in the 20% tax-to-GDP ratio unless something alters dramatically.’ The rationale was -

1. Indirect tax (largely GST/ similar): With consumption to GDP at ~ 65% and assuming entire consumption bucket, comes to under GST/ similar tax, at say ~ 15% tax rate, the indirect tax-to-GDP ratio will be ~ 10%

2. If say 50% of the entire income (GDP) is put under the direct tax (many sectors like agriculture and segments of population below a certain income are exempt), and the average rate of tax is ~ 10%, this adds up to another ~ 5% of GDP. We already know from the number of tax filers that the proportion of taxable entities/ individuals is only about 5% of the population today.

3. The other 4-5% of the tax-to-GDP ratio comes from dividends, disinvestments, etc.

At Thurro, he can dive into the taxpayer data to see how India’s tax base is broadening slowly but surely. He points out that incomes show a move to higher brackets, even as more filers are coming into the tax net. The proportion of Gross Total Income (GTI)-to-GDP has increased from 24.2% in FY2012 to 35.1% in FY2021. Overall direct tax-to-GDP ratio has gone up from 4.1% of GDP to 4.9% over FY2012-21.The number of filers has grown from 31.3 million in FY2012 to 67.6 million in FY2021, and closer to 90 million more recently.

Generalist dot-joiner perspective on investing in India

The first conversation with Akhilesh Tilotia was intentionally an overarching one to get a broad perspective from someone who had approached investing in India from multiple perspectives. Hopefully, this conversation serves as an introduction to such a multi-perspective. We hope to build on this to go deeper into select aspects in the future.

We hope you are enjoying our “Investing in India” series and would love to hear your thoughts and suggestions. Feel free to drop us a comment anytime!

See you next time!

The latest episode of Investing in India explores some aspects of the maze that is India’s pension system. We invited two guests to help us figure out where things are at. Sriram Iyer is the MD and CEO of HDFC Pension while Amit Gopal was the business leader for Mercer’s investment business at the time of the recording.

While the conversation does attempt to give some background, it’s worth summarising some facts here with links to further reading.

Background - India’s pension system is a collection of different schemes

Three classes of workers…

It’s worthwhile understanding how India classifies its workers based on ‘job security’ into -

• Government employees - of both federal and state governments, public sector undertakings and any autonomous organisations set up the government; (Not only do government employees get generous health and retirement benefits, I learnt recently that they are also generally overpaid compared to similar roles in the private sector and other emerging markets - check out our episode with Karthik Muralidharan)

• Organised sector employees - of companies that had at least 20 employees on their payroll, usually covered by a formal employment contract

• Unorganised sector workers - employees of small businesses, self-employed professionals (including doctors, lawyers etc), non-professional workers; this sector, also called ‘all citizens’ in some reports makes up about 90 per cent of the working population

…with three different systems …

India’s pension system is made of broadly three distinct offerings aimed at the different classes of workers -

• Defined benefit (now called Old Pension System) - non-contributing pension of about 50 percent of last drawn salary for government employees and surviving spouses and dependent children; funded pay-as-you-go from government budgets; in the past 2-3 years, some state governments have promised to revert to versions of this DB scheme

• Employee Provident Fund (EPF) - mandatory defined contribution for the organised sector into a non-unitised government-sponsored trust that credits an interest of around 8-8.5 percent annually; can be withdrawn early; large corporates that can demonstrate that they can match the government-run scheme in terms of service and returns (but with the same investment restrictions) can opt to run a private trust called ‘exempt provident fund’

• New Pension System, later called National Pension Scheme - defined contribution into an unbundled system with three layers - administration platform, distribution points and wholesale investment management; unitised with investment choice at both asset class and manager levels; has to be preserved until retirement age, then can be taken as a combination of lump sum up to 60 percent and an annuity from a private insurance company bought with remaining 40 percent

…in three different eras

They say India lives in three different centuries; in 2009, the government made efforts to bring everyone into the twentyfirst century…giving them a stake in India’s growth story through the stock market…basically passing the investment risk to the worker.

A summary table is in order to ensure we get the complete picture -

Concerns with different parts of the pension system

India’s pension system ranks quite low on the Mercer Global Pension Index in terms of adequacy (how much), sustainability (can it keep delivering) and integrity (can it be trusted).

With this context, the conversation discussed some aspects of the system -

Defined benefit Old Pension System (OPS) could ‘pauperise’ nation

The Oasis report laid out the reasons why the government had to change from the defined benefit pension promise - it was simply costing too much. Since it was a pay-as-you-go system, there was only a line item of ‘pensions’ in the national accounts.

The episode discusses that the recent decisions in some state governments to revert to the OPS were politically motivated. Iyer was emphatic that the DB schemes could pauperise the nation’s finances. While the size of the unfunded liability is not disclosed in the budgets, pension experts estimate it to be as high as a quarter of the GDP!

Employee Provident Fund (EPF) is a monopoly and regulator to the corporate exempt schemes

Gopal explained how the EPF was set up in the 1950s under labour laws. The EPF is a trust structure that invests in securities but is non-unitised and is not marked-to-market. While the accrual accounting works for the 90 percent invested in bonds, the trust has to churn the equity ETFs regularly to be able to book realised gains.

The EPFO is quite significant in size. It has 77 million members from 780,000 establishments. Members make up two-thirds of the beneficiaries while surviving spouses and children make up the rest.

The assets under management are at about US$ 251 billion in 2023. About 90 percent of the AUM is invested in debt, through two asset management companies - SBI Funds Management and UTI Asset Management. The fund can invest between 5 and 15 percent in equity ETFs.

The 1200-odd exempt provident funds have to invest in similar asset allocation to get a similar return.

Gopal explained that many of the exempt provident funds are winding up and transferring assets back to the EPFO, partly because the service levels differentiator is hard to justify against the risk of not being able to match returns post the IIFL-triggered credit crisis. He also mentioned the difficulties of dealing with an organisation that is both a competitor and regulator. And it’s not cheap at 0.5 percent of wages (not contribution!), charged to the employer. Note the following table from page 73 of the annual report.

National Pension Scheme’s unbundled architecture is slowly getting better

Set up under a new separate regulator, the Pension Fund Regulatory and Development Authority (PFRDA), the National Pension Scheme has three different layers -

• Central Recordkeeping Agencies (CRAs) - administration platforms that function as depositaries,

• Points of Presence (POPs) - distribution points that interface with customers physically through branches and now online

• Pension Fund Managers (PFMs) - wholesale investment management, each offering the same 4 investment options of pure government bonds (G), corporate bonds (C ), equities (E) and alternatives (A) as well as four risk-based multi-asset class options of conservative, moderate, balanced and aggressive

The USP of the NPS was meant to be the low fees. The investment management fees work on a sliding scale based on total AUM across asset classes - a pretty unusual arrangement. The CRA and POP flat fees are also capped. The total expense ratio, taking into account all three layers, is no more than 0.3 percent, making it one of the cheapest pension systems in the world according to Iyer.

The returns from the equity funds have been competitive over the past 10 years since they were meant to track the large cap index.

The more recent decision to allow active management has led to some variability in the equity returns.

Iyer believes that the returns would be more of a function of the AUM, hence liquidity, than the alpha that the manager would like to offer relative to the ultra low fees that it’s charging.

Iyer also believed that the low allocation to equities within the composite schemes offered to government employees led to the modest 9 percent returns - only slightly higher than the 8.5-odd EPF returns.

Iyer highlighted that the PFRDA had picked up marketing efforts in the past couple of years. Given the ultra low fees, the PFMs were not meant to be involved, but since being allowed to hold the POP license, many PFMs were now marketing to the corporate sector. He admitted that the NPS was far away from the original goal of reaching the unorganized sector, such as taxi drivers (who are the actual middle class earning around INR 30,000 per month in Mumbai).

In closing, while Gopal was a bit more sanguine about the prospects of startups being able to help the pension system becoming better in the short term, Iyer was optimistic that the NPS was at least moving in the right direction.

We hope you are enjoying our “Investing in India” series and would love to hear your thoughts and your suggestions. Feel free to drop us a comment anytime!

See you next time!

In this episode, the hosts, Hansi and Bhuvan, spoke with economist Alex Thomas, a professor at Azim Premji University, who offers his insights on why economics education needs an Indian perspective.

This Episode: Rethinking Economics from an Indian Perspective

Professor Alex Thomas shares why he wrote an economics textbook specifically from an Indian perspective and challenges many assumptions that Western economic frameworks make when applied to India.

The Problem with Mainstream Economics Teaching

Alex explains why he took an unconventional approach to teaching economics:

"I am not a huge fan of textbooks because they generally are very restrictive. They're written in a way that don't push the reader to think. There's a certain dumbing down that happens. I wanted to write something that was addressed at students, but not in the conventional way of writing a textbook."

Why Different Economic Perspectives Matter

On the importance of presenting multiple economic theories rather than just mainstream views, he says:

"Because of the way economics has an importance in the current world, I don't think any other discipline is so close to policy making as economists are. Which also means that there's a lot more responsibility, which also means that the nuance and the limitations need to be stressed even more."

India's Unique Economic Context

Alex highlights how India's economy differs significantly from Western models:

"The mainstream from the West just looks at what is dominant today, which is marginalist economics, and not really other ideas that have been produced even in the West. But your question is more about the local Indian context itself. One is certainly, how do we understand the informal sector? Less than 10% of India may be in the formal sector."

Beyond GDP: How is India Really Doing?

When asked how well India is doing economically, Alex takes a nuanced view:

"If you look at how people are doing, I think there is a lot more that we can do. Whether it's about income inequality, wealth inequality, access to education, access to clean environment, access to health, access to decent housing... on all these counts, I think we have much to do."

The False Household Analogy

He says government spending shouldn't be compared to household budgets because:

"What mainstream economics tells us is that the government is like a household. A household should not borrow beyond its means. But the government is not a household by any stretch of imagination. It's absolutely okay for the Indian government to borrow, but how is it being used? One needs to be transparent about it."

Rethinking Our Economic Frameworks

Looking at about economic thinking, Alex notes:

"We need to recognize there are multiple paradigms of thought, especially within economics. To say that one is necessarily better is just a certain kind of presentism where we think what we know today is good, but I think we need to be critical of that."

The full episode explores many more topics including the role of local economies, the informal sector, environmental considerations in economic policy, and the legacy of Indian economic thinkers.

We hope you are enjoying our “Investing in India” series and would love to hear your thoughts and your suggestions. Feel free to drop us a comment anytime!

See you next time!

We're thrilled to share the latest episode in our "Investing in India" series, where we go beyond economic statistics to explore what truly makes India tick.

In this episode, host Hansi speaks with Professor Kartik Muralidharan about his book "Accelerating India's Development" and his insights on India's state capacity.

Tune into the conversation here:

This Episode: The State Capacity Puzzle

Professor Kartik Muralidharan, who holds the Tata Chancellor's Endowed Chair in Economics at the University of California San Diego, brings over 20 years of research on India's public sector effectiveness to this conversation.

Why India Is Essential for Global Investors

When asked whether he would invest in India if he weren't Indian, Kartik responds with:

"India is both intrinsically and instrumentally important for global welfare. We are a sixth of humanity. India has more people than the entire western hemisphere put together. The sheer scale of what we have here means that you can't really be a serious investor in the world without engaging in India."

India's Unique Democratic Journey

One insight Kartik shares is about India's democratic history and its double-edged impact on development:

"India is this unique outlier in human history in that we are the only large country that had universal adult franchise democracy on day one of independence. It's a huge moral triumph... But the negative side or the challenges that come with that are the fact that because we are a low middle income country, our tax to GDP ratio is actually much lower... The Indian democracy has demanded welfare from the political class before the administrative capacity was built to deliver these programs well."

The Frugal Innovation Advantage

Kartik highlights what makes Indian innovation particularly valuable:

"Innovation in the U.S. and high income markets tends to focus on how you can push the frontier of, say, life expectancy, regardless of cost. But innovation in India is much more about frugal innovation - can I get 90 percent of the quality at 30 percent of the cost? And so there is so much innovation that happens in India that's going to be relevant not just for India, but for the world."

The Implementation Gap

The core challenge for India isn't a lack of good policies but their implementation. Kartik explains:

"Most policy makers in India will tell you that an old refrain about India is that the policies are usually very good, but the implementation is quite weak. Instinctively people have understood that one of the challenges in India is implementation. But I think we haven't really quite grappled with just how big an issue it is."

Beyond Left vs. Right: The Governance Solution

Rather than taking sides in the traditional growth versus development debate, Kartik offers another perspective:

"The efficiency of our spending is so poor, regardless of whether you're spending on the social sector or infrastructure, that you can deliver more of everything by paying more attention to the innards of the government. What is seen are the budgets. What is unseen is the insides of the government."

The Case for Optimism

Despite the challenges, Kartik remains hopeful about India's trajectory:

"There are enough structural positives that I think we will continue doing reasonably well. My grade for India is a solid B plus. The case for optimism is that we know what it takes, and we just have to apply our mind."

This episode offers essential insights for anyone looking to understand the structural factors that will shape India's economic future. Whether you're an institutional investor, family office manager, or simply interested in India's development story, the entire conversation provides context beyond traditional financial analysis.

About Investing in India Series

Our series aims to provide investors with a nuanced understanding of India beyond financial reports. We speak not just with economists and market experts, but also with non-financial specialists to add narrative to the numbers.

Our previous episode featured data journalist Rukmini S, who discussed how understanding India's data collection methods is important for grasping the realities of the country.

Stay tuned for our upcoming episodes as we continue to explore India.

We created this series to address a gap we saw in how global investors understand the Indian market.

As our host Hansi explains:

Investing in India will focus on understanding India to be able to make long-term investments. We speak with not only economists and financial market practitioners, but with non-financial experts to understand what makes India tick. We hope to add more narrative to the numbers.

In the second episode of the series, Hansi engages in a thought-provoking conversation with Rukmini S, author of "Whole Numbers and Half Truths," to explore how India's data collection and interpretation shapes investment narratives.

You can tune into the conversation here 👇

Rukmini's insights are particularly valuable because she approaches Indian data with both respect and skepticism.

India's Statistical Foundation: More Robust Than You Might Think

A common misconception about emerging markets is that their data collection systems are underdeveloped or unreliable. Rukmini challenges this assumption about India. While giving India's data a respectable "7 out of 10" rating, Rukmini acknowledges areas for improvement, particularly in technological integration and frequency of data collection. But her overall assessment is positive:

The numbers have been regularly through good times and bad been put out. I think one of the things that we have not moved fast enough on has been technological progress that could be linked to surveys.

GDP Growth Debates: Beyond the Headlines

The episode addresses the controversial GDP methodology changes that sparked heated debates among economists in recent years.

Rukmini offers a balanced view:

Changing methodologies is on its own neither good nor bad. And there's always passionate debate about changes in methodologies. However, lack of complete transparency about what goes into a changed methodology is what's problematic.

Rather than taking a strong position on whether the revised GDP figures accurately reflect growth, Rukmini suggests looking at the broader picture:

There have definitely been periods where the slow growth of consumption expenditure as well as very slow real wage growth has challenged a sense of what overall numbers are showing. But really, in my opinion, over time, things stack up.

Employment Realities: The Paradox of Low Unemployment

One of the more counterintuitive aspects of India's economy is its consistently low unemployment rate – around 3%, lower than many developed economies. But as Rukmini explains, this statistic requires careful interpretation:

The overall unemployment number for India is very low and it has always been very low. So in fact, I would say the rare occasions when it rises to above 4% become huge causes of alarm because typically it's in the 3% range.

She continues with the crucial context:

This is a feature of developing countries where essentially virtually no one is able to remain unemployed if they are within working age. And they are able, so developing countries do typically have very low levels of unemployment.

Rukmini also highlights a critical aspect of women's employment that rarely makes it into mainstream economic reporting:

Nearly 40% of women who are in the labor force work for no wages at all. They are what in labor statistics is called 'unpaid helpers'...

The Surprising Truth About India's "Middle Class"

If you've been building investment strategies around India's supposedly massive middle class, Rukmini's insights might give you pause:

If we divided the country into five groups, five 20% slices, and we were to look at the middle 20% of the country... in urban India, if you spend more than 5,300 rupees in a month on everything from rent to fuel to school fees... that puts you in the middle 20% of the country.

That's approximately $63 USD monthly – hardly what global investors typically envision when thinking about middle-class consumers. Even more strikingly, she continues:

When people are talking about the middle class, what they're actually thinking about is the top 5% of the country... If you spend more than 20,000 rupees a month that puts you in the top 5% of urban India.

This recalibration has profound implications for consumer market projections. The actual "middle class" as globally understood represents a much smaller segment than many investment theses assume.

Consumption Patterns and Growth Potential

Despite cautioning against relying on overhyped narratives, Rukmini sees genuine long-term potential in India's consumption growth:

Currently 4% of rural households and 13% of urban households own a car. So if everybody is getting richer and will at some point be able to afford it and wants to, and infrastructure allows it, the numerical headroom is massive.

She maintains a cautiously optimistic view on India's growth trajectory:

I think the overall momentum and force has been one of continuous growth and development. I think the last 20 years have been of particularly strong growth and development across indicators, and I think that there has been an expansion of availability across both economic as well as social groups.

Gender Dynamics and Demographic Shifts

On the evolving patterns of gender roles, family structures, and demographics, Rukmini offers observations that should interest investors focused on long-term trends:

We are seeing a rapid decline in birth rates. We are seeing that as the country gets, as women get better access to health and education, families become smaller, people have fewer children. This is a trend that happens across the world, and we would expect it to happen in India too. It's perhaps happening a little faster than demographers even had anticipated.

She continues with an insight about the intersection of changing family sizes and gender preferences:

At one side you are seeing a social norm changing and people having smaller families. However, we are not seeing the end of boy preference. There is still an expressed desire for at least one boy... So if you are seeing families trying very actively to keep the family size small, but continue to want at least one boy, what does that mean for incentives to intervene?

Technology and Future Opportunities

Looking toward India's future, Rukmini sees potential in technology-driven solutions, particularly in education and information access:

I certainly see phones as becoming widely available... In every new iteration of the data we see, it's not just that the numbers are linearly going up, there's expansion among groups that had less access previously...

While cautious about making definitive predictions, she sees real possibilities for technology to drive meaningful change:

I certainly feel hopeful about democratization of information and I think there's good reason to be optimistic here, especially when all of the efforts until now have revolved around trying to find a pretty unwieldy, large bureaucracy of education to be moved to deliver. If we can find more nimble ways to take more information to more people, that's definitely hopeful.

Data Interpretation: A Competitive Advantage for Investors

Perhaps most importantly for investors, Rukmini emphasizes the value of developing a nuanced understanding of India's data landscape:

Working with the original data and working with the original documentation is extremely rewarding... Just as there is polarization that operates everywhere in the world, there is a distinct polarization when it comes to working with Indian data where the cherry picking of numbers to tell a good or a bad story is endemic.

Rukmini's insights offer something rare in discussions about India's economy - a perspective that's neither overly pessimistic nor naively optimistic, but grounded in data and nuance.

The full conversation goes much deeper, exploring everything from the politics of data collection to the potential for technological transformation.

Join us on this journey

In upcoming conversations, we'll be speaking with manufacturing experts, policy insiders, technology founders, and social scientists – all to help paint a more complete picture of India's investment landscape.

We hope you enjoyed this episode and continue to tune in to Investing in India!