The Indian economy has witnessed a paradigm shift since the last decade and is on a robust growth trajectory. Today, the Indian economy boasts a stable annual growth rate, booming capital markets, and rising foreign exchange reserves.
According to the Asian Development Bank's (ADB) report titled “Asia Capital Markets Monitor”, the equity market in India, with a market capitalization of approximately US$ 600 billion, has emerged as the third-largest equity market, behind China and Hong Kong, in the emerging Asian region.
The Indian government made a number of policy changes during the past 10–15 years to reduce the discriminatory bias against foreign investors.
Some changes are as follows:
The Indian government has introduced many other significant changes to encourage FDIs in India. For example, the Securities and Exchange Board of India (SEBI) recently formulated the guidelines to encourage the operations of foreign brokers, on behalf of registered Foreign Institutional Investors (FIIs), in India. Due to this, the foreign brokers can now set up rupee or foreign currency-denominated accounts to credit inward remittances, brokerage fees, and commissions.
The Indian government has eliminated the condition of dividend balancing for all but 22 consumer goods industries.
In addition, the Reserve Bank of India (RBI) now allows 100% foreign investment when it comes to the construction of roads or bridges. In the March 1995 budget, the peak custom duty rate was lowered significantly from 65% to 50%.
The World Bank has predicted that the Indian economy will register an 8% growth in 2010. If this prediction comes true, India will become the fastest growing economy for the first time, surpassing China's 7.7% growth.
The resilient nature of the Indian economy can be gauged from many leading indicators, such as freight movement at major ports, an increase in hiring, and encouraging data from various key manufacturing segments, namely cement and steel. Recent indicators from reputed indices, such as ABN Amro's Purchasing Managers' Index (PMI), UBS' Lead Economic Indicator (LEI), and Nomura's Composite Leading Index (CLI), also support this optimism in the Indian economy.
The success of investment prospects in India will depend primarily on the precise estimation of its potential. Overestimation of its possibilities or underestimation of its complexity can lead to failure. For entering India's marketplace, companies will need to have a well-planned strategy backed by careful research and serious thought. For people looking at India as an opportunity for long-term growth instead of short-term profit, the trip will surely be worth the effort.
Despite political uncertainty, infra-structural deficiencies, and bureaucratic hassles, India presents an optimistic scope for overseas investment and is taking necessary steps to attract more foreign investors. No business, irrespective of its size, that is aiming to become a global player can afford to ignore the Indian market.
Here are at least eight reasons why India is a seriously compelling story for investors:
India's GDP is currently US$1.3 trillion, making it the 8th largest economy in the world. However, in PPP terms, which recognises India's low cost base, the GDP notionally rises to three times this amount (US$3.8 trillion) which places it on a similar size to Japan and, by 2013, it will become the third largest economy in the world (after the USA and China) in PPP terms. However, despite representing 7.5% of Global GDP (on a PPP basis) in 2010, India attracts less than 0.5% of investment inflows. An anomaly which is unlikely to continue for much longer!
India's economy is currently growing by 8.75% per annum (in 2010) and this GDP growth rate is expected to increase to 9% - 10% per annum for each of the next 10 years. India's GDP will grow five times in the next 20 years, and GDP per capita will almost quadruple.
The Indian economy offers investors exposure to a wide range of opportunities from consumer goods and pharmaceuticals to infrastructure, energy and agriculture. With its strong services sector (comprising 50% of India's economy), particularly in knowledge-based services (IT, software and business services) India has proved that industrialisation and the export of commodities and resources is not the only path to rapid economic development.
India is one of the youngest countries in the world, with an average age of 25 and likely to get younger. India's working-age population will increase by 240 million over the next 20 years. With a population of 1.2 billion, a strong work ethic, high levels of education, democracy, English language skills and an entrepreneurial culture, India is poised to dominate the global economy in the next 20 years.
With a savings rate of 37% of GDP, India's domestic savings fuels most of its investment requirements, and only 20% of India's total public debt is sourced from foreign borrowing. With significant investment to be made in upgrading India's poor infrastructure in the next 10 years (estimated to be US$1.7 trillion) India's Government is taking various steps to further encourage private and foreign investments.
India's domestic consumption, generally led by the private sector, has played a significant role in India's growth and is expected to remain firm as more people enter the workforce and the emerging middle classes. India's wealthiest consumers (those earning US$1m or more in PPP terms) will increase by 40 million in the next 10 years! Every sector within India's consumer market is booming, making India far less vulnerable to external shocks and pressures than other emerging markets.
India has a robust, diversified and well regulated financial system which has allowed it to weather the global financial crisis without any major difficulties and present an image of quality, resilience and transparency. India's banking sector is strong, with top quality balance sheets, high levels of competition (there are around 80 banks in India) and strong corporate governance.
The Bombay Stock Exchange is the second oldest in the world (165 years) and offers investors a low cost, highly efficient, modern and well governed environment in which to prosper from India's extraordinary economic growth. The Indian stockmarket has generated investment returns of over 15% per annum for the last 10 years and experts expect this rate to increase in the next decade. More significantly perhaps, Indian investors have doubled their money over the last 3 years at a time when many have lost money in almost every other market
Credits: David Thomas