Understanding India's Data to Decode Investment Narratives
Investing in India #2
We’re here with an episode in our series “Investing in 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!