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Buttonwood Conference: Are India and Brazil Still Global Growth Engines?


The Economist's Philip Coggan leads the concluding panel of the 5th Annual Buttonwood Gathering.

MINYANVILLE ORIGINAL "Accounting for one-fifth of the world's population, just about," is how The Economist's Capital Markets Editor Philip Coggan began last night's "Growth Engines: Brazil, India, and Beyond" panel, one of the final conversations of the 5th Annual Buttonwood Gathering held in New York City's Financial District.

Coggan was joined by Shikha Sharma, the Managing Director of India's Axis Bank (NSE:AXISBANK), and Arminio Fraga, a Founding Partner of Brazil's Gávea Investments, to discuss the role of these two BRICS in the global economic engine.

Coggan was quick to point out that India's inflation rate is at about 10%, last quarter growth was at a decade low of 5.5%, the current account balance is in deficit to the extent of 4% of the GDP, and government deficit is 6% of the GDP.

"What the BRICS story is all about is looking at what the long term potential would be" Sharma responded.

She offers that, in addition to structural changes that have taken place over the past couple of years, the fiscal deficit and current account deficit in India has alway been relatively high, given the country's stage in development. While subject to the global financial crisis since 2008, these numbers have risen as India has diverted more money to the rural poor and farmers. The inflation numbers are a direct result of this support, which, according to Sharma, allows for more sustainable growth and less inequality.

"That's the advantage of a democracy," she said

[Many investors have exposure to the Indian economy through PowerShares India Portfolio ETF (NYSEARCA:PIN).]

Inflation has also been driven up by the reduction of oil subsidies, as Indian reformers have begun to push for cash transfers -- in all areas, not just oil -- over traditional subsidies.

"For India to get things truly right, we need to get a few things done," Sharma says. These include building out infrastructure, enacting some fiscal consolidation, and restructuring the subsidy system.

Vodafone (NASDAQ:VOD) was a talking point, too. The global telecommunications company has recently been at the center of legal struggles in India, where a tax has been applied retrospectively to a subsidy merger. Coggan highlighted this as a source of concern for foreign companies either considering an entrance to the Indian marketplace or planning to increase their exposure there.

Sharma defended the tax as legitimate, but emphasized that the government has listened to the negative feedback, in a clear sign that India is willing to cooperate and reform.
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