Angus Shillington, Deputy Portfolio Manager for Emerging Markets Strategy at VanEck, explains how Indian Prime Minister Narendra Modi’s first moves upon taking office was to crack down on corruption by encouraging a system of digital ID, which prompted an explosion in online banking and, in turn, allowed small bills to be taken out of the system.
This had the knock-on effect of increasing tax compliance and government revenue, which duly drove improvements in infrastructure and logistics. It is thought that these will, in time, reduce inflation and interest rates.
“That’s why I talk about a flywheel effect,” says Shillington. “You’ve now got plenty of cash, so you can build new roads. Those roads mean better logistics, and that means lower inflation — and this thing starts to drive itself.”
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