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Resilient India
If the UK ruled the world in 19th century and the US in 20th century, India and China are all set to rule the world in the 21st century. The indications are clear and the baton has already been passed on. The rich countries of Europe have seen the greatest decline in global GDP share, followed by the US and Japan, while the share of India in world GDP is increasing.
Performance vouches for the predictions. During 2005 to 2007 the economy grew at an average rate of over 9%. India’s unanticipated 6.7% growth the economy recorded in 2008 - 09 despite surviving the worst global economic crisis in 70 years, the ‘26/11’ terrorist attack on the financial capital, facing 25% deficit seasonal rainfall followed by floods in a certain areas and being an election year proves India’s resilience. We expect India to continue to demonstrate stronger resilience and steadier growth over the next few decades. Many factors are responsible for this robust performance.
India’s growth story is characterized by strong domestic consumption. Unlike its East Asian peers, exports form a small share of its GDP. This implies a healthy mix of savings and consumption. While the country’s consumption stands at 50% of GDP its savings are adequate at about 36%. China, for instance, is now facing problems being overly dependent on exports due to its low domestic consumption and unusually high savings. To a great extent this healthy mix immunes India from the global demand conditions.
While Indian markets are one of the least penetrated, it still is the fourth largest in the world. The huge untapped market offers a great potential for growth. Under developed infrastructure also adds to the scope. This potential fires the multiplier effect - with increased consumption resulting in increased production, more revenue, increased investment and in turn more income, again leading to more consumption. These opportunities ensure the incessant flow of the much needed foreign capital to India.
India’s relatively huge young population will also ensure the pace of growth. The country will continue to benefit tremendously from one of the lowest ‘elderly dependence’ ratio amongst the world for at-least another 30 years.
Additionally, public and private sector saving which together constitute domestic saving; typically finance over ninety per cent of India’s investment. This prevents it from being overly dependent on foreign capital. Increasing domestic savings and inflow of foreign funds will ensure funds availability for investments. Also there has been a colossal migration to higher income classes going on in India – from lower class to middle to upper class. This had led to a burgeoning middle class. These factors in addition to the immeasurable parallel economy ensure sustainability of the economy’s independent growth.
When the Indian economy broke free from the shackles of ‘control regime’ about two decades back, several sectors began to blossom while others didn’t enjoy similar growth. Many of these sectors have now started emitting growth signals. Even within the sector, we find companies, which are likely to outperform their peers. In the times to come, they could replace the ‘hitherto’ leaders.
You can catch our detailed view and analysis of these sectors, companies, and the economy on this website. While we place before the investing community our views on the economy, a particular sector or company based on our research and understanding of things, investing community are well advised to make their own enquiries before taking an investment decision.
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