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Is India still worth investing into? - Views on News from Equitymaster
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  • Sep 24, 2008

    Is India still worth investing into?

    The Indian benchmark BSE-Sensex has corrected by 35% in the last 9 months. The FIIs have been net sellers to the tune of US$ 8.6 bn in the same period. While high inflation, rising deficit levels and global slowdown continue to remain the prime concerns, the country's potential for becoming an increasingly powerful internal consumption-led economy with one of the world's youngest population and its transition to a 7% plus growth trajectory in recent years, restates its story. Is India still worth investing into? Find out over the next couple of articles

    Did someone say slowdown?
    In the recent times India has registered the fastest growth among all democracies. In the first forty years of independance, the average GDP growth hovered around 3%. The process of economic liberalization in the 1990s enhanced the growth rate to over 5%, but it was only in the late 1990s that the growth rate of around 6.5% for a decade was achieved. Now with estimates of India growing at 7% (double the world's growth rate), it is expected to be the 3rd largest economy by 2050 behind China and US.

    By 2030, every fifth person in the world will be an Indian
    Being the second most populous nation in the world with a population in excess of 1.1 bn and still growing at an attractive pace of 1.7%, India provides a huge customer base to service. By 2030 it will have 18% of the world's population. India is very attractively poised because of the emergence of a new "middle class" which has the propensity of consume and is also more open to life-style related changes. India's consumption share of GDP is 64% - higher than that of Europe (58%), Japan (55%), and China (42%). This provides a large domestic base. India is one of the largest economies in the world in terms of purchasing power and has a strong middle class base of 300 m.

    The Indians will be younger...
    As per the India's Ministry of Labour and Employment, India already has an advantage over more advanced economies. The median age in India in 2000 was 24 years, compared to 30 in China, 38 in Europe and 41 in Japan. With half of India's population younger than 25, it gives the country a potential edge over the other economies as a greater proportion of working people reduces spending on dependants, aiding economic growth. Between 2003 and 2020, it is estimated that India will be adding about 250 m workers to the labour pool. This means roughly 15 m on average per year. Putting in another way, India would be adding all of Germany's labour force in two years.

    Source:Goldman Sachs

    More productive and aspirant...
    While a large young population is beneficial, productivity and skill-sets are also important determinant factors. India ranks 5 in the quality of technical education, ahead of China's 51, Brazil's 100 and Russia's 21. Hence, India is preferred over its global counterparts especially in the areas of ITES, engineering processes and pharma contract research.

    The increasing literacy levels will also facilitate rise in income levels. The country's per capita income has already increased 5 times since 1991 and doubled in the last 8 years. Top 10% of India population has per capita income that is same as 60% of those in Malaysia. The number of households in the aspirant segment is expected to increase from 46 m in 2003 to 124 m in 2013. This would provide new opportunity to manufacturers, retailers and service providers. The opportunity gets multiplied due to the fact the country has one of the lowest penetration in the world across most categories of consumables.

    The 3D effect
    As said by Mr. Anand G Mahindra, Vice-Chairman and Managing Director, Mahindra and Mahindra, India has the 3D advantages - Democracy, Demography and Durability. While democracy is a prerequisite to a healthy society, qualified and competent human resource base is also abundantly available in the country. Durability stems from the fact that India is a peaceful and stable nation despite several internal disturbances.

    In the next article of this series we shall focus on some of the weaknesses.



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