Bullish Development In India

This past weekend there was a big article in the Financial Times on the development of "tier two" cities in India. As the middle class in India booms due to huge employment opportunities in software, technology and medical careers, a huge educated elite is being created. These Indians are demanding top quality western style goods and services, which historically have been available only in the major metropolitan centers or in top resort areas.

Indian style goods are in abundance everywhere, but the nuveau riche Indians want western style haircuts, apparel, transportation, shopping facilities, restaurants, etc. Much of India still lives simply, in the traditional way that they have lived for centuries. I personally find this way of life lovely and inviting, but many modern Indians feel it is old fashioned.

To respond to this demand, and to encourage foreign investment, the Indian government is focusing on building infrastructure in the next tier cities. This is very positive for two reasons.

1. The current infrastructure in India is highly problematic and desperately needs improvement.

2. These second tier cities with a few million residents have lower land and labor costs. This will encourage more investment by Indian companies in these areas, as well as encourage more direct foreign investment.

Foreign investment has been an area where India has greatly lagged China. In short, China has encouraged foreign capital while India has discouraged it. The very fact that the Indian government is encouraging the development of infrastructure in these tier 2 cities is a very positive sign and will stimulate India's continued growth in decades to come.

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