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Wednesday, June 03, 2009

1991: When India made history

Born in the United Kingdom, growing up in Sudan, residing in Hong Kong and investing in India. His father was an Icelandic and probably the only one in Sudan, which must have made him stand out, quite a bit in the community! But what memories of Sudan that stick with Jon Thorn is the dire poverty and the famine, which left an indelible impression on him.

He went back to the UK, when he was around 9 years old and studied there. He got his doctorate from the London School of Economics. So, when he finally started working in the 1980s in the US, there were investing big-names like Michael Milken and Sir John Templeton gauging the global markets and investing in unknown markets and asset classes.

Managing Director & CIO of India Capital Fund, Jon Thorn told CNBC-TV18, "Mike Milken is somebody who invented a whole class of securities - junk bonds. He invented it as an investable class, and it's very rare - there were only 4 or 5 people in the century - who have truly claimed to invent a whole asset class."

Templeton saw potential in India but in the 1990s, it was undeserved as a lot needed to be done in the country to attract foreign investments. As Thorn describes it, it was more of an "intellectual conviction that there was potential and possibility. But none of is actuality yet."

"So in our view anyway, it could so easily have happened. So it was a very a tough decision - it was quite a difficult to sell. We had a lot of problems convincing people, that India had possibilities."

He's also had experience of writing for a food and beverage industry magazine, which also gave him a bird's eyeview of how managers managed and sold their products, and made money for their shareholders.

Thorn says that his convictions paid off and India is destined for greater things. So much so, that in 2005, his fund, India Capital Fund won the best 'Single Country Fund' award in 2005 from Asia Hedge.

His investment philosophy is "extraordinary change leads to extraordinary crises, which leads to extraordinary opportunity." And he was proved right, when in 1991, India's Reserve Bank of India ran out of gold and the World Bank came to the rescue on the condition that India liberalised its economy.

Thorn feels that when China and India decided to join the economy, that was a truly momentous moment in history, as opposed to the breakup of the Soviet Union or even the fall of the Berlin Wall.

He explains, "The thing about China is that they industrialised or re-industrialised I may say, much earlier than India. But more importantly, this has been a very single political structure to get things done and that makes things happen faster. I don't think one is certainly better than the other, but that's how it happened. The other thing is, investing capital in China has created the manufacturing base."

"In 2003, China was the largest single recipient of investment capital in the world -more than US - and there has not been any other country apart from the US since 1880 which has received so much investment capital. Now this fact alone, changes similar assumptions about what the future will be like for China and for India as well."

India being a democratic country, and with as many rules and regulations, beginning a new business or setting up a plant, was tough going for the foreigners, who came in during the first wave in 1991.

Thorn explains, "I personally always felt that the theoretical prospects were unbeatable for India. The labour force, the language, the sheer demographic profile being among the youngest population of the world, all these things I profoundly believed would pan out and would actually be successful in the end."

"But I believed that the timeframe would be much shorter but it extended. I won't say that we became desperate, but we did rather wonder and become a little impatient. I believed these things were fundamental and would ultimately come right."

Thorn says that his convictions paid off and India is destined for greater things. So much so, that in 2005, his fund, India Capital Fund won the best 'Single Country Fund' award in 2005 from Asia Hedge. But he believes more must be done on the privatisation front - to ensure that competition pushes GDP growth higher, thereby giving people higher standards of living.

Thorn concludes, "The government should govern and not manage the companies. I think it's very clear that when you get the government away from running economies, GDP increases. But it's a political decision for the citizens of India and the government of the day to make."

Written for moneycontrol.com

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