Investors Are Shrugging Off India’s Tough New Social-Media Controls
India probably surpassed China as the world’s most populous nation this month, so far as one can count developing megastates of 1.4 billion. It marked the occasion with mixed reviews from the global corporate elite.
The Asia Internet Coalition, which unites a dozen luminaries including Meta Platforms (ticker: FB), Twitter, and Amazon.com (AMZN), blasted new social-media controls from Prime Minister Narendra Modi’s government. The rules, which took effect April 6, jeopardize “people’s fundamental right to access information,” the group said.
Days later, Apple (AAPL) CEO Tim Cook jetted to New Delhi to shake Modi’s hand, after opening the iPhone giant’s first two Indian stores. “We’re committed to growing and investing across the country,” he tweeted.
The contrasting rhetoric underlines the crossroads India has reached as Modi, 72, wraps up his second five-year term and likely eyes a third in elections next year: cutting corners on democracy while gunning to be the next-gen growth market as a richer China slows.
Pluses outweigh minuses for most investors, for the moment. “I wouldn’t be concerned about authoritarian drift compared with India’s remarkable infrastructure investment,” says Rajeeb Pramanik, senior emerging markets strategist at BCA Research. “People don’t have to walk two miles to get drinking water anymore. That’s why Modi has a 67% approval rating.”
That’s of limited comfort to Meta, whose Facebook and Instagram apps dominate Indian social media. The company flagged India, Bangladesh, and the Philippines as Facebook’s top drivers of user growth last year.
Delhi’s latest regulations give authorities the right to block any online “misinformation,” based on the judgment of the government’s own Press Information Bureau. A platform that refuses will incur fines and potentially criminal action against compliance officers, says Jeff Paine, the Asia Internet Coalition’s managing director. “It’s very hard for people to invest in such an uncertain regulatory environment,” he comments.
Modi and his Bharatiya Janata Party have cut other democratic corners in recent months. India banned a BBC bio-documentary on Modi and arrested college students who organized a campus screening. Last month, a court sentenced opposition leader Rahul Gandhi to two years in jail for “defamation,” after he implied on the hustings that Modi was a thief. The sentence would conveniently keep him out of the May 2024 poll.
Modi’s strong-arm tactics can serve the public, though, as India seeks a great leap forward toward better railways, roads, and power grids, says Venkat Pasupuleti, portfolio co-manager for India at Dalton Investments. The government announced it will hike capital spending by a third this year to $122 billion. “Stronger central power reduces the amount of leakage and kickbacks,” he says.
Direct electronic payments of state benefits has been another boon to India’s heavily rural population, who used to have to fight red tape and skimming middlemen when their entitlements were doled out in cash.
High valuations leave Pasupuleti cautious on Indian stocks as investors shift to a rebounding China and other cheaper markets. But he would dive back in “after another 10% to 15% correction.”
Investors once embraced similar rationalizations for Vladimir Putin or Turkey’s Recep Erdogan, leaders less in markets’ favor now. India can still avoid following suit, says Perth Tolle, founder of the Life + Liberty indexes, which rank emerging markets on freedom, and excluded India in 2019. “Most investors, including me, are surprised that India is not in the index,” she says. “Their situation is very dynamic and could turn around.”
Let’s hope so.