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12 April 2022

India: 1,380,004,385 and Counting

As one of the countries hardest hit by the COVID-19 pandemic, registering over 480,000 deaths, India was once an epicentre of this global crisis. Though, behind the tragedy lies a country with burgeoning optimism for its future and an opportunity for investors. With a fast-growing population of nearly 1.4bn people and a relatively young demographic, India is just one step away from becoming the world’s largest country.
 
Investing in India is no new story. For years, the country’s young and dynamic workforce has demonstrated a unique example of economic growth in the 21st century, providing an antidote to China’s shrinking labour force and tightening government control over business growth. From a structural point of view, it has bypassed the challenge of an ageing population that weighs on China, while having an open and democratic political system, which you will seldom find in emerging markets.
 
As with any emerging economy, there are numerous hurdles to overcome to compete with the likes of its eastern neighbour. Firstly, agriculture makes up around a fifth of the country’s economic output and around 40% of the total employed workforce. As an industry with extremely tight costs, the average annual national income is stifling the potential for workers spend beyond their essential means. Likewise, the reliance on a rural industry, makes workers isolated. Only a third of the population live in urban areas, compared to twice that in China, and steering a ship of this size requires a huge amount of investment, but only if investors can see clear reward for their risk.
 
While there has long been an economic case for India, its investible market has fallen somewhat short of expectations. China’s dominance has overshadowed the region with high-tech innovation and a world leading export market, but India remains a domestic story, with a lesser-known handful of global enterprises.
 
It is not for lack of trying by the central Government. Since assuming office in 2014, the country’s Prime Minister Narendra Modi promised a package of reforms that would help balance inequality, spur entrepreneurship and open India’s business to international markets. However, much of the country’s industry remains state owned, and the opposition party remain staunchly against privatisation (See: Easy Street: A Cherry-picked Liberalisation). Nevertheless, Modi’s key successes are his efforts to boost financial inclusion and encourage enterprise, where he has given credit access to low-income workers by introducing a fully digital banking network.
 
Despite its roadblocks, India has fostered some world-leading industries which are playing a part in shaping the country’s future (See: Renewable Energy: Powering India’s Development and Tata Motors: Driving the Market). 2022 has got off to a good start and the country’s leading stock index is in positive territory in the year-to-date, flying in the face of a wider global sell off (See: Eyes on India – The New Norm in Asia). This follows an encouraging trend from 2021, where investment flows into private equity topped US$40bn and companies with public market ambitions raised US$15bn through initial public offerings. As China pulls the curtains on the international investment community, India will no doubt welcome displaced investors with open arms. Whether they reap rewards or not is an open verdict.
 
This article was taken from the Winter 2022 issue of 1875. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
India: 1,380,004,385 and Counting
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