India now flavour of the world: George Soros

George Soros, chairman, Soros Fund Management, believes that India is currently the flavour of the world and it has become important politically. According to him, India's growth rate has improved on per capita basis.

In comparison to China, Soros prefers India and says that his company has invested more in India and says that it has fairly large positions in real estate, financial services and infrastructure sectors.

Soros feels China could present a financial crisis due to the absence of democracy. CNBC-TV18 shares with domain-b its exclusive interview with Soros:

You said that India to you seems a fundamentally stronger investment story than China. Is that correct?
That is right because India is a democracy and China is not. A growth in particular financial markets don't grow to heaven, they usually have serious corrections. When you don't have a good political system, if you have a financial crisis, it is liable to turn into a political crisis.

That's what happened for instance in Indonesia, after 15-20 years of very high growth, eventually the financial crisis turned into a political crisis. That is the danger in China because it's not a democratic country.

Do you have anything specific that you have noticed as danger signals in China that prompts you to say that or is it a more general inference from a democratic versus non-democratic society?
I think there is no immediate danger of any kind of a political upheaval in China.

But the rulers are very nervous about colour revolutions, maybe unduly nervous. This is a very bad development because as a result, they have stopped the political opening; they are cracking down on media freedom, on civil society.

This actually increases the danger eventually of a political crisis.

Do your investments reflect this bias within your thinking that India is stronger and that you are more invested in India than in China?
Somewhat, yes.

From market talk we understand that you could be about a billion dollar invested in India. Is that a correct estimate?
No. its not.

It's not that much?
No, it's not that much.

In what kind of asset classes would you be distributed in India?
I don't do it myself; I have got a team that is doing it. But it are heavily invested, actually they want shares in your television company, which is a full disclosure… I think it should be mentioned. They have fairly large positions in individual companies, some in real estate, in infrastructure and in financial services.

Do you think infrastructure, financial services, real estate will be high growth sectors?
Well that's what they think and I leave it to them, I leave it to the experts.

Are there any chances of increasing that exposure?
We might, yes.

On the subject of India's democracy premium, some say that democracy is also a drag because decisio-making in India seems to take forever. In telecom, we still don't have a cohesive policy; in banking, we are still haggling on how much foreign investment should be permitted. Some would even argue that nationalist arguments are used to masquerade what are really protectionist economic policies?
I am sure that is right but it is always a question of the changes at the margin. If I look at it from the outside what conditions were 12 years ago and what they are today, there has definitely been an improvement, an opening up, a reducing of the licensing requirements and so on.

I did invest in India 12 years ago actually and it was not successful. We did rather poorly in our investments; I think we were a little too early.

For instance, we were going to build a power plant and there was a take or pay contract and the provisional government was changed and the contract disappeared and all the money we invested in planning the power plant was lost.

So we were not successful at that time exactly because of state interference.

But those conditions have certainly gone and as I said policy consistencies isn't a hallmark that we can be proud of.
That's correct and that's why there is still room for improvement.

But do you still believe that this is a story that you think is one of the topmost stories in the world today?
It is, this is one of the more attractive markets.

What about the duality of India? You do see that this country is a country of huge dualities. There is a lot of poverty, there is a lot of chaos and on the other side we have got edifices of economic growth. Does that worry you?
Yes, that is, I think, the major problem for India to solve. Now you have got growth, you have got growth per capita. But how is it distributed?

This is exactly because you are a democracy, you have to pay attention to that and have a positive, if you like affirmative, policy towards the underserved.

For instance, I am very interested in the financial services for the underserved.