Last year, the CEO of the world's biggest consulting company remarked, "Many people have said that it's India's decade. I actually think it's India's century." Leaders of other major global agencies, banks, and multinational corporations have also echoed similar long-term positive views on India. Juxtaposed against a volatile and uncertain growth environment globally, India's macroeconomic fundamentals appear to be resilient.
The collective expectations seem to suggest that India’s economy could emerge as a material outperformer in terms of growth over the next decade, much ahead of China and other emerging markets. In fact, India is projected to be the fastest growing major economy in the world and as per estimates by leading global agencies, India will be the third largest economy by 2030. The structural factors underpinning this growth are favourable demographics, rapidly increasing digitisation, formalisation, and the well-designed policy shift to boost manufacturing.
India’s Growth Is Reassuring
India's growth prospects appear reassuring on various economic metrics compared to its history and vis-à-vis its peers. The war in Ukraine has disrupted supply chains globally, causing a steep rise in prices of even essential commodities such as food grains. However, fiscal prudence has ensured that India is well-shielded from the fallouts of the war.
Inflation has been relatively well anchored, especially in contrast to most developed economies, where it has been well above the historical range. Over the last few years, the vulnerability of the economy to higher oil prices has reduced materially as economic growth and overall exports have materially outpaced oil imports.
Overall, external risks remain contained as India's external debt, at 19 percent of GDP, is amongst the lowest in the world, while RBI's forex reserves, at around US$600 billion, are amongst the highest. Earnings growth of India's well-diversified corporate sector is projected to grow by the mid-teens over the near term, marking the best phase of corporate profitability since 2003-07.
Meanwhile, the ingredients of a revival in the investment cycle are in place, given the healthy position of the corporate and financial sector balance sheets and the government's sustained push towards infrastructure.
The twin balance sheet problem (overleveraged corporates' balance sheet and high NPAs of banks), which held back private investments in the last decade, seem to be behind us. Corporate debt is at decadal lows, while banks are well-capitalized with one of the lowest bad-loans ratios in the previous decade.
Global Biggies Eye India
From a policy standpoint, there is a clear thrust towards making India a manufacturing hub through initiatives such as “Make in India” complemented by supportive measures such as Production Linked Incentive (PLI) schemes. This comes at a critical time given that Covid-19 and subsequent lockdowns in China, the world's largest exporter, have forced global companies to rethink their supply chain strategies.
“China +1” has been gaining traction, and India is emerging as a viable alternative. India is expected to have more than a billion people in the 20-60 year age bracket by 2040, providing abundant labour required for large-scale manufacturing and enhancing its case as a large domestic market.
The early success of the PLI scheme for electronics offers confidence that other sectors, which were so far import dependent, can also scale up domestically. While its manufacturing trajectory moves higher, India continues to build on its already vibrant services exports.
In Global Capability Centres (GCCs), India has found its next driver of services exports. These Centres are offshore units of major multinational companies and provide different services such as business services, analytics, IT and finance to the parent company.
In the late 1990s, corporate boardrooms worldwide were abuzz with discussions over “What is going to be the China strategy for the subsequent two decades?” It would not be amiss to say that corporate boardroom discussions today centre around “What will be the India strategy for the next two decades?”
Apple is betting big on India with plans to gradually shift 18 percent of global iPhone production to the country; consumer electronics giants like Samsung and LG are expanding their production base in India while companies from industries as diverse as aerospace to construction equipment to specialty chemicals to manufacturers of solar panels all want their share of the promising India pie.
Growing Geopolitical Heft
Despite the recent strong growth in many of the above segments, India’s global share is still small (approximately 2 to 4 percent) compared to China's (15 to 20 percent). Even a one percent to two percent incremental market share gain from China could result in sustainable high-teens growth rates for these sectors. No wonder companies want to capitalise on this compelling opportunity early on.
What is also often overlooked is that India possesses the soft infrastructure of a mature, stable democracy with a strong separation of powers – between the executive, legislature, and judiciary. From time to time, emerging economies' investments are subject to appropriation risks and macroeconomic and political instability. Given its robust “soft infrastructure”, such risks are far lower in India.
The optimism over India’s strong growth feeds into its growing relevance in a global political landscape. India is a leading member of the Global South and is playing a pioneering role in shepherding a consensus around critical issues such as climate change, food security and geopolitics.
While the outlook is bright, it is important to remember that India is still an economy in transition, and there will be events once in a while that will appear to throw the juggernaut off the tracks. However, what cannot be denied is that India is among the very few economies in the world that possess the full complement of appropriate market conditions backed by pro-growth government policies that aim to deliver sustainable growth over the long term.
Thus, from an investment point of view, a systematic and disciplined approach will help to unlock long-term wealth creation from the India story.
Ramesh Mantri is Chief Investment Officer, WhiteOak Capital AMC. Views are personal, and do not represent the stand of this publication.
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