Indian summer

Despite a bleak overall global scenario, India’s economy is growing at an impressive pace of over 7%. Swati Prasad explains how the country is offering healthy returns and new investment opportunities to the global investor

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In March and April this year, when multilateral agencies like the International Monetary Fund (IMF) and the Asian Development Bank (ADB) came out with their annual outlook reports, they pointed to one bright spot in the bleak global picture – India.

According to the IMF, India will be the fastest growing major economy in 2016–17, growing at 7.5%, ahead of China. The ADB projected India’s economic growth for 2016–17 at 7.4%.

“The macros of the Indian economy look healthy,” says Dharmakirti Joshi, Chief Economist, CRISIL – a Standard & Poor’s company. This can be seen in several areas. PwC’s India budget 2016: accelerating the momentum says that economic growth is moving up while fiscal deficit came down to 3.9% of GDP from 2015 to 2016, against 4% the previous year.
Racing ahead Inflation is under control, with the consumer price index declining to 4.9% from April 2015 to January 2016, against 5.9% in the corresponding period for the previous financial year. Its current account deficit is down too, dropping to 1.4% of GDP in April to December 2015, against 1.7% in the corresponding period for the previous year. And last year, India bettered China in foreign direct investment (FDI) inflows. Even more encouraging for investors, the country has a majority Government at the centre after 15 years of coalitions. 

7.5%
The rate at which India's GDP is set to grow by during 2016-17
Reforming the titan For many years, India has been known as the market with strong potential but feeble performance. Despite 25 years of its New Economic Policy, India continues to have widespread poverty (170 million Indians live on less than $1.90 a day) and a largely agrarian economy.

But the Modi Government is addressing the challenges, and foremost amongst them is generating employment. “Job creation is a large challenge to tackle,” says Ambarish Datta, Managing Director and CEO of BSE Institute, a training partner of the CISI in India. 

Increased economic growth is putting pressure on urban infrastructure. To address this, the Modi Government’s Smart Cities Mission – an urban renewal programme – hopes to create 100 smart cities by 2020.  Favourable fundamentals While most nations are impacted by the crash in commodity and oil prices, India has benefited by virtue of being a major importer of commodities and energy. Being an IT superpower, its growth relies more on the services sector, including IT and software exports.

In the latest World Bank Doing business 2016 report, India ranked 130 out of 189 countries for ‘ease of doing business’ – it ranked 142 under the previous government. The current Government is targeting the top 50 by 2019.
India ranked 130 out of 189 countries for ‘ease of doing business’ Moreover, India’s foreign exchange reserves are at an all-time high, according to the Reserve Bank of India, covering imports for over eight months. And the rupee has performed the best amongst BRICS (Brazil, Russia, India, China and South Africa) currencies over the same period. 

CISI India has made good progress in meeting training needs in the field of wealth management, with its qualifications gaining popularity following recent collaborations with the National Institute of Securities Markets (NSIM) to launch the International Certificate in Wealth and Investment Management (ICWIM) India. This qualification ensures candidates have a basic knowledge of the regulations and legislation underpinning the financial markets and the conduct of investment business in India. Upon successful completion, practitioners will qualify as a level 1 Investment Advisor in India.
Legislative delays Despite its enviable position amongst the BRICS, India has several challenges to contend with. Apart from the need to create millions of jobs each year, it also has to deal with a paralysed legislative machinery which takes a long time to pass critical bills.

“Investors are looking at the execution of big ticket policy changes,” says Datta. The ruling party needs to get major policy-related bills cleared in both the houses. Unfortunately, it lacks majority in the Upper House. And this is where critical bills get stuck. 
 
“Private investment is still not picking up,” says Joshi. The financial sector is not in a position to aggressively finance growth due to non-performing assets. But then, when you compare India with its peer group, “it definitely looks better,” he adds.

“Beyond 2016–17, the corporate cycle has to revive,” says Joshi. It seems like there is no stopping this emerging economic superpower.

The original version of this article was published in the July 2016 print edition of The Review.
Published: 25 Jul 2016
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