In­vestors eye In­dia’s growth po­ten­tial

Finweek English Edition - - INSIGHT - BY JININE BOTHA

With vi­tal in­fra­struc­ture de­vel­op­ments, an in­crease in in­no­va­tion, and a younger pop­u­la­tion than Europe and the US, Asia is steadily be­com­ing one of the most sta­ble eco­nomic re­gions in the world. Re­search con­ducted by the Economist In­tel­li­gence Unit (EIU) shows that by 2050, In­dia and China will each be richer than the next five economies (In­done­sia, Ger­many, Ja­pan, Brazil, and the UK) com­bined.

While the US and China will re­main the big­gest economies in the world for t he fore­see­able fu­ture, In­dia is set to at­tract in­creas­ing at­ten­tion from in­vestors. It over­took China as the fastest-grow­ing ma­jor econ­omy in the f irst quar­ter of 2015, ac­cord­ing to data from the Or­gan­i­sa­tion for Eco­nomic Co- op­er­a­tion and De­vel­op­ment (OECD).

“In­dia is ex­pe­ri­enc­ing a do­mes­tic eco­nomic boom sup­ported by po­lit­i­cal re­forms brought about by their new prime min­is­ter [Naren­dra Modi],” says Henk Potts, di­rec­tor of global in­vest­ment strat­egy at Bar­clays Wealth. In­dia’s econ­omy is ex­pected to grow by about 8% a year over the next decade, while China’s will stay be­low the 7% mark, he pre­dicts.

The in­creas­ing at­trac­tive­ness of In­dia as an in­vest­ment des­ti­na­tion is high­lighted by a re­cent an­nounce­ment by Fox­conn, the world’s largest con­tract elec­tron­ics man­u­fac­turer. Fox­conn said it plans to in­vest $5bn in re­search a nd de­vel­op­ment a nd high- t ech man­u­fac­tur­ing fa­cil­i­ties in In­dia over the next five years.

The deal, an­nounced on 10 Au­gust, is the largest for­eign in­vest­ment in In­dia’s tech man­u­fac­tur­ing sec­tor. Most of Tai­wan-head­quar­tered Fox­conn’s fac­to­ries, whose clients in­clude the likes of Ap­ple, Black­Berry and Mo­torola, are in China, where man­u­fac­tur­ers have been faced with slow­ing eco­nomic growth and ris­ing wages as the coun­try shifts from

Prime min­is­ter of In­dia an in­fra­struc­ture- to a con­sumer-driven econ­omy.

Modi, who took of­fice in May 2014, has ini­ti­ated a range of eco­nomic and f inan­cial re­forms to make it eas­ier to do busi­ness in and boost the econ­omy. These in­clude cre­at­ing more in­vestor cer­tainty – through the adop­tion of inf la­tion tar­get­ing as an ex­am­ple – and cut­ting cer­tain taxes and cus­toms du­ties. Ac­cord­ing to Glenn Silverman, chief in­vest­ment of­fi­cer at In­vest­ment So­lu­tions, t hese mea­sures should con­trib­ute to In­dia’s abil­ity to at­tract cap­i­tal and ac­cess cheaper fi­nance.

In­dia al­ready has a num­ber of nat­u­ral growth driv­ers like a large pop­u­la­tion with a young de­mo­graphic pro­file and an en­tre­pre­neur­ial energy, says Silverman. In­dia’s grow­ing pop­u­la­tion is ex­pected to drive house­hold con­sump­tion, i nf r a s t r uct ure de­vel­op­ment a nd ur­ban­i­sa­tion.

“In many ways, we view In­dia like Africa, which also has sim­i­lar nat­u­ral growth div­i­dends. In­dia has 1.3bn peo­ple with 29 states; Africa has a pop­u­la­tion of 1.1bn with 54 coun­tries,” says Silverman.

“It is im­por­tant to note, how­ever, that In­dia is di­verse, com­plex, and dif­fer­en­ti­ated by cul­ture, caste, lan­guage and re­li­gion, among other fac­tors. A suc­cess­ful strat­egy that works for one state may fail dis­mally in another. There­fore it’s un­likely that growth will be across the board, with some states or re­gions driv­ing stronger growth, while oth­ers lag or stag­nate,” Silverman says.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.