India “becoming the land of scams”

Cost of capital brings competitive advantage. And cost of capital is related to trust, or risk.

India has a current account deficit — it is importing more than it exports — so it needs to borrow money to fund the imports.

Two years ago, “when the world was in love with emerging markets”,  this would have been easier. But with western economies in crisis, investors are avoiding emerging markets (at least until the problems at home are sorted) and borrowing costs have risen.

Net foreign investment to India in 2010 “plummeted 44% to $11bn” — a small figure in the scheme of things.

But government corruption and the lack of reliable infrastructure is deterring even expat Indian investors.

This means the Indian economy is likely to grow more slowly than it might, so that the gap between “capital-scarce India” and “flush China” will probably get bigger. (Though China is now facing problems of its own.)

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