Investors eye India’s growth potential
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.