Ray Dalio holds a mirror up to India, and it is not flattering

The founder of the world’s largest hedge fund, Ray Dalio on February 15 forecast that India will have the biggest and fastest growth rate in coming years. In comments at a Dubai-based conference that have gone viral, he even predicted that it will have the greatest transformation compared to other countries in the world.

Given the fact that Dalio’s deep knowledge of capital markets and investment issues has propelled his hedge fund, Bridgewater Associates, to management of assets valued at $150 billion, his views on the prospects for the Indian economy must be scrutinised carefully. What needs to be noted is that the projection of a glowing future has been tempered by several caveats.

The first is the remark that India has an “interesting dynamic”, and is controlled by a few families. This is evidently a reference to the pivotal role played by family-run firms such as Reliance Industries, Tata Sons, Birlas, Mahindras, and the recent newsmaker, Adani Enterprises. It is true that family-run businesses were the bedrock of industrialisation in the early 20th century and continued their pre-eminence after Independence.

It is difficult to argue, however, that the economy still revolves around just a few names despite the complaints of crony capitalism that continue to swirl around in relation to several big industrial houses. The list of top companies in terms of market capitalisation currently includes a slew of professionally-run corporates such as Infosys, HDFC, ITC, Larsen and Toubro, and HCL Tech. There is far greater diversification in the mix than appears from these casual statements.

But Dalio also says “it (India) is not very open and not easy to get into”. This is a complaint that cannot be easily overlooked even as the country is reportedly rising in the Ease of Doing Business Index. Clearly much more needs to be done from the perspective of foreign investors despite the perceived attractiveness of the Indian market’s long-term growth potential. It would be wise for policymakers to accept such critical assessments and make changes accordingly.

While the billionaire investor may say India “will do well”, it is a forecast dependent on policies altering to make the investing climate much more open and easier to navigate. He questions whether there is going to be that kind of opening to create vibrancy for the rest of the world. These queries have resonance in the light of the fact that most companies seeking to relocate from China are flocking to Indonesia and Vietnam to benefit from the investor-friendly policies of these countries. No doubt Apple has set up facilities in Tamil Nadu which are set to be expanded soon, but many other companies feel setting up projects in India are an uphill task. The number of procedures and processes to set up units remain at daunting levels. Merely getting construction permits needs multiple approvals from government agencies.

Given this, it is clear that even investors who believe in the narrative of India’s growth are hesitant to move into a market that remains a maze of bureaucracy and red tape. It must be conceded that efforts have been made to digitise processes as far as possible to reduce human interface. But the drive to cut red tape needs to go much further if the investment climate is to become comparable to its competitors.

The final point made by Dalio is apparently obvious but not always stressed enough. At this juncture of geopolitical conflicts, he says countries that do not engage in wars will do better. This includes not just India, but West Asia and the Asean countries. Western economies getting involved in the maelstrom of the Russia-Ukraine war are already facing high inflation, energy shortages, and supply chain disruptions. Neutrality has big benefits, he points out. While this certainly gives India an edge as it tries to accelerate growth, the ripple effects of conflicts cannot be avoided entirely in a globalised world.

The billionaire investor’s assessment of India’s rank as the fastest growing and most transformative economy of the future, thus, may seem at first glance to be unmixed praise. But a closer look at his sweeping comments show that the compliments are somewhat backhanded, and riddled with conditions to make them effective. He has deftly highlighted weak spots in the investment climate which make India “difficult” to enter.

Such criticism needs to be viewed constructively as a call to action. India may gain some advantage from taking a neutral stance on the war in Ukraine. But to reap significant benefits, it will have to carry out substantive reforms to make entry easier for foreign investors who are eyeing the potential of the India growth story.

Sushma Ramachandran is a senior journalist. The views expressed are the author's own. They do not necessarily reflect the views of DH.