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India’s Rise to Stardom

A few days ago I wrote about Nvidia and America’s trade war to examine the impacts from the Trump tariffs. And throughout my research, I kept coming back to India as a main counterparty in the global economy. So today, I will cover reasons why India will be mentioned more often in headline news going forward.

The most common rebuttal I’ve seen regarding tariffs is America will not manufacture t-shirts or shoes any time soon. I think there is some truth to that statement. First, it suggests that the U.S. has lost some manufacturing prowess because we lack the cost advantage. Labor is simply too expensive in America, which can be viewed as a positive. It suggests that Americans have a higher standard of living and wage growth than the rest of the world, which is true.

The other side of the truth is that America will not start manufacturing goods overnight. This truth is very real and I think patriots take the idea of American onshoring to the extreme. While there are serious benefits to onshoring some manufacturing, it doesn’t make sense to onshore every single product. Instead you want specialist work on manufacturing what they do best, such as car parts, electronics and apparel.

Which is why I think India will reenter global trade in a major way. That’s also why Vice President Vance is meeting with Prime Minister Narendra Modi today. The objective is to advance negotiations on a bilateral trade agreement. The U.S. views India as a crucial ally in the Indo-Pacific region, particularly in balancing China's growing influence.

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Outgrowing the Outsourcing Era

Since the 1990s, India has been on a meteoric rise as they have entered the global arena. The Indian economy witnessed privatization, deregulation and a growing middle class. Since 2002, India’s GDP per capita has increased from $469.10 to $2,480.8 in 2023. That’s a 5x increase in twenty-one years. Which is an excellent growth rate for any economy, especially given the Recessions in 2008 and 2020.

In this example, I chose 2002 because that was the end of the Dotcom bust in America. This coincided with a massive bust of many Indian IT outsourcing businesses that rose in the early 1990s to support America’s growing economy.

I know many Indians that took advantage of the growth from India’s IT outsourcing industry during that era. Countless individuals started their own businesses and many more got work visas to join the American workforce. Technology uplifted both India and the U.S.

One of my favorite examples was the success of General Electric. I remember that CEO Jack Welch made a big bet outsourcing GE’s shared services to India. In the 90s, Jack’s motive was to reduce costs, access a larger talent pool, and double down on GE’s core competencies. It worked so well that GE spun out their outsourcing unit and called it Genpact. Today Genpact trades under the ticker symbol ‘G’ and is worth $8 billion with almost $5 billion in annual revenue. It is a major success story, alongside other Indian IT powerhouses such as Tata, Infosys and Wipro.

When previous business cycles come to an end, they make way for new growth opportunities. And that’s where we are today.

Moving away from China’s dependence

Today, the U.S. might import ~50% of its goods, directly and indirectly from China. After several decades, our trade deficit has grown to ~$300 billion. China exports 3x as much as they import from the U.S. Without a counterbalance, the U.S. would have too much concentration risk with one trading partner. Which is why President Trump has made it a priority to diversify imports away from China.

One notable manufacturing trend I’ve observed for a few years is Apple's production of the iPhone. For years Apple has been attempting to diversify its supply chain away from China. There were two main catalysts that drove this change in 2021 and 2022.

The first was the aftermath of Covid pandemic, when global supply chains froze and were delayed for months. U.S. importers watched the cost of container ships rise from $1,500 in 2020 to over $20,000 in 2022. It was expensive and unreasonable for small and big companies to import goods.

The second spike was related to the shortage of semiconductors in 2022 and 2023. At the time, this was mostly driven by the increased demand for cars but it impacted the costs for all electronics. Given these challenges, Tim Cook started taking the lead for Apple to begin producing iPhones in India.

Why Elon and Tesla are chatting with Modi

Over the weekend, PM Modi and Elon spoke. For me, this was a bullish signal for India.

Tesla has exposure across the world. They have several factories in the U.S., and gigafactories in Shanghai and Berlin, with more developments coming soon. Tesla sells cars in over 40 markets globally across North America, Europe, Asia, and Australia. However, India has been the exception for a few reasons. Some of the reasons include high import duties, the demand for local manufacturing and lack of electric charging stations. All of these would be required to make Tesla cars more affordable in India.

I can’t predict when Teslas will be available in India but it seems probable over the next few years. If successful, this would be a massive win for Tesla, and the U.S.-India partnership.

Plus having an electric car revolution in India would be great for their air quality. Real-time data shows Delhi, India’s air quality index often exceeds 140-150, which is very unhealthy. A few weeks ago, Bryan Johnson did an excellent breakdown of India's air quality. He explains the cost of breathing polluted air for prolonged periods of time. Breathing clean air is one of the few luxuries we take for granted in America. Maybe if Tesla is successful with their Indian trade deal, India will be successful in improving their air quality.

Is India investable right now?

If you don’t live in India, then chances are overseas investments are not worth the risks. The primary risks with investing in foreign countries come in two factors: currency and country risks. Currency seems obvious but is overlooked by many investors because it erodes real returns if they work against you. If you are not managing a $100 million investment in India, chances are hedging for currency risks is not worth your time.

If currency is a monetary problem, then country risk is a fiscal one. And fiscal policy risk is unique to every country, including the U.S. Fiscal policies are determined by the respective governments, so it is important to know if you are investing in capitalism, socialism or communism. For example, Communism is the reason why China doesn’t allow much or any foreign investments within its borders.

Now India is considered a mixed economy, which is a combination of socialism and capitalism. However India’s Constitution does declare the country as a socialist state. This suggests that it is more government run (public sector) vs private enterprises like the U.S. These economic terms are important to define because they will determine the outcome of your investment returns.

Today it might be too early to make indirect investments in India through ETFs or other funds. Instead it will make more sense to have direct exposure through U.S. exports or on-the-ground investments. Both require a significant amount of due diligence. But after the past few days, it looks like India is opening its arms to global trade and welcoming more partners. I’m excited to see how these talks strengthen the U.S. and Indian economies next.

P.S. If you want a deeper dive into India, I recommend watching Lex Fridman’s interview with Prime Minister Modi. It’s 3-hours long and has 4.7 million views so far.