NYT: Indian Securities Market Booming; Will This Affect Immigration?20 Oct 2010
Many industrialized nations are still shaking off the effects of the recent financial crisis, and keeping interest rates low in the hopes of stimulating business growth. Therein lies an opportunity for arbitrage. As the New York Times reports, many big investors are shipping money overseas by the container-load, to take advantage of the spread between cheap borrowing here and higher rates of return in overseas markets like India. (See India a Hit for Foreign Investors, by Vikas Bajaj, New York Times, 13.Oct.2010.)
In fact, the Times reports, India has become a “destination of choice” for foreign investors seeking refuge from lackluster rates of return in the United States, Europe, and Japan, partly because its economy is growing at nine percent, but also because its market offers greater transparency than China’s. According to the Times, the Indian securities market is reaching record highs, as foreign investment pours in from around the world. A New York hedge fund trader explained to the Times that, “The rest of the world is starved for growth […] and India is still producing relatively high real rates of GDP growth.”
If it is sustained, this massive infusion of cash could help to fuel long-term growth of the Indian economy; but the Times reports that many are concerned that short-term investments in securities may be too fleeting and volatile, subject to evaporate when the winds of the market shift again. The article points to a 24 percent drop in long-term foreign direct investments in India this year, compared to the year before. Also, the Times points out, “in developing countries, the flows threaten to raise the value of currencies, making their exports less competitive and potentially inflating bubbles in stock and real estate markets.”
Whatever problems may lurk in this lush new growth of the Indian securities market, it is conceivable that the growth could continue for some time, as long as the risk-return calculus continues to be in India’s favor. Even when U.S., European, and Japanese markets return to health, they are unlikely to offer the staggering rates of return that developing economies like India’s can.
The U.S. Congress should take note of these changing dynamics in the world economy, and provide greater incentives for foreign-born scientists, technicians, and engineers – from India and other developing economies – to study and work in the United States. Otherwise, it will become increasingly difficult for the United States to attract and retain the best and brightest minds from overseas, as they find evermore-lucrative growth opportunities in their home countries. In a rapidly-changing world, we can ill afford to have our immigration policy standing still.