Is the economy of India a good long term investment? The economy of India has had some impressive growth in the last few years, and this trend looks set to continue. Evidence suggests it will be one of the best performing markets for the next decade, and then some. This is not without some key risks you need to be aware of.
Did you know that back in 1-1000 AD, India accounted for almost 30% of global GDP? Sadly, by 1870, it had fallen to 12%, and by 1947 to 4%. However, India is bouncing back and over the past 10 years the global economy has grown by over 35%. India’s share of Global GDP in 2022 was 9.3%. India’s economy is expected to grow by 6.8% this year.
Not only that but India has been making strides in space science and the economy, with the notable successes such as the launch of the Chandraayan-3 mission. It also has and ambitious economic goals. The IMF estimates India will become the world’s third-largest economy by 2027. Which suggests, that like India’s space program, the economy of India is set for astronomical growth.
India looks set to outperform developed economies such as the United States. With countries such as the United Kingdom at risk of stagflation. Even China, once an epitome of rapid growth, appears to have reached a plateau. India is poised to be the next nation to sustain consistent and robust economic growth year after year. Looking at some Franklin Templeton analysis, you can already see India outpacing China.
Disclaimer: This is not financial advice and your are responsible for your own investment decisions. When investing capital is at risk.
Is India the Next Investment Hotspot? Why Investors Should Prioritize India in Their Portfolios
In the ever-evolving landscape of global investment opportunities, one nation is standing out as a rising star: India. With a burgeoning economy, transformative trends, and a promising future, India is fast becoming a must-consider destination for investors looking to diversify their portfolios.
The numbers alone tell a compelling story. According to Deloitte, India is on track to overtake Japan and Germany as the world’s third-largest economy by 2027. Its GDP, already showing remarkable growth, is projected to more than double to $7.5 trillion by 2031. What’s fuelling this meteoric rise are three pivotal megatrends: global offshoring, digitalization, and a transition to clean energy. This transformation is set to reposition India in the global order, presenting a unique opportunity for investors and companies alike.
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The Factors Driving The Economy Of India To Success
Morgan Stanley’s Chief Asia Economist outlines, “India will be one of only three economies in the world that can generate more than $400 billion annual economic output growth from 2023 onward, and this will rise to more than $500 billion after 2028.” By 2025 there are estimates that the Economy of India will be $22.2T, up from it’s current value of $1.4T.
India is also set to become the factory to the world, offering tax incentives, investment opportunities, and robust infrastructure to multinational corporations. This combination of factors has created a powerful allure for investors. Digitalization, with initiatives like IndiaStack, is reshaping the financial landscape, increasing credit availability and unlocking tremendous potential for growth. The IMF has cited this as revolutionising access to Finance.
As India’s income distribution shifts, consumer spending is on the cusp of a massive surge, particularly in non-grocery retail sectors. Additionally, the transition to renewable energy sources and improved energy access promise to elevate living conditions and create new markets, such as electric vehicles and green hydrogen-powered solutions.
The Potential Economic Pitfalls Of India
Morgan Stanley, do however caveat that investing in India is not without its risks. This includes global economic downturns, geopolitical shifts, and domestic policy changes.
Investors considering India as a potential investment destination should be aware of several factors that might make them cautious. Geopolitical tensions pose a significant concern, with India involved in disputes with neighbouring countries like China. Especially as India starts to compete on a greater scale with China the world’s manufacturing hub.
These tensions can create uncertainties and potential disruptions that may negatively impact investments. Rising inflation is another issue, as it can erode the real value of investments and lead to increased business costs, potentially affecting corporate profits.
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India and Climate Change
External economic factors also present challenges. India heavily depends on oil imports, and rising oil prices can have a detrimental impact on the country’s trade balance, fiscal deficit, and overall economic growth. Although, as India is likely to transition to a green economy, this may offset this risk.
Moreover, India is vulnerable to extreme weather events like heatwaves and droughts, which can affect agriculture and rural recovery, potentially leading to supply chain disruptions and food security issues. As this effects of global grow, this could disrupt India’s economic viability.
India Current Account Deficits
The widening current account deficit is a significant economic challenge, and a loose monetary policy from the Reserve Bank of India, while conducive to short-term growth, may create financial imbalances in the long run.
India has traditionally faced challenges related to current account deficits due to its reliance on commodity imports, particularly energy. In recent years, India has made progress in reducing macroeconomic vulnerabilities by targeting inflation and increasing services exports.
Will India Be Able To Sustain This Pace Of Economic Growth?
Sustainability of growth is a concern as well, with economists suggesting that India needs to address productivity issues to maintain long-term growth, which could become problematic in the coming decades if left unaddressed. Additionally, the global economic outlook is uncertain due to factors like the Ukraine war, high inflation, and the ongoing impact of the COVID-19 pandemic. These global challenges can indirectly affect India’s economic stability and investment climate.
While India offers promising growth opportunities, potential investors should carefully consider these challenges and risks to make informed decisions. Diversifying investments and assessing the risk-reward profile can be crucial strategies to mitigate potential downsides in an investment portfolio.
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Flipping The Economic Risks In India’s Advantage
India is likely to turn many of its risk factors into an advantage. For example, The transition to green energy is seen as a significant opportunity for India, with ambitious targets to achieve net-zero emissions by 2070 and a substantial share of clean energy by 2030. While fossil fuels will continue to be a major part of India’s energy mix in the short term, the country is actively pursuing renewable and clean energy sources.
Morgan Stanley’s Chief Asia Economist continues to make a compelling case. Ahya says, that that India’s trajectory is reminiscent of China’s growth in the past, making it an increasingly compelling opportunity for investors. As the world searches for new growth frontiers, India’s decade has arrived, and investors would do well to consider prioritizing this economic powerhouse in their portfolios. Ahya argues that…
“In the coming decade, as India’s economy transforms, we think that it will be increasingly relevant for global investors in a similar way that China is today,”.
The Chief Asia Economist added…
“that India’s next decade could resemble China’s path from 2007 through 2012. “We think that India offers the most compelling growth opportunity in Asia in the coming years.”
Conclusion: The Economy Of India As The Next Global Success Story
India’s economy is poised for significant growth, with the potential to become the world’s second-largest economy by 2075, according to Goldman Sachs Research. Key drivers for India’s long-term economic forecasts include innovation, increased worker productivity, and capital investment.
Favourable demographics, with a growing working-age population and lower dependency ratios, contribute to India’s potential for growth. To realize this potential, India needs to focus on creating opportunities for its labour force, increasing labour force participation rates, and providing training and upskilling.
India’s demographic transition is gradual, and its dependency ratio is expected to be among the lowest among large economies for the next two decades. This presents a window of opportunity for India to invest in manufacturing, services, and infrastructure development to create jobs and absorb its vast labour force.
In conclusion, India’s economic growth potential is promising, driven by a favourable demographic profile, innovation, and investments in infrastructure. To realize this potential, India must focus on increasing labour force participation, improving productivity, and transitioning to green energy sources. These factors position India to become the world’s second-largest economy in the coming decades.
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How To Invest In India Equities For Long-Term Growth
I’ve been checking out the India funds available to UK investors, and I’m pretty excited about the growth potential there. My current investment portfolio has a bit of exposure to emerging markets, but it’s spread out across different countries, so I’m not fully tapping into India’s potential.
So, I’ve decided to shift my focus and put more of my investment into India. I’ve handpicked a few funds that I think are a good bet for long-term growth. These are the funds I’ll likely be using to get in on India’s bright economic future.
If you’re interested in exploring these funds and making the most of India’s growth, check them out here. It’s an exciting journey toward financial success, and these funds might just be the ticket. Check out these India funds here.
Further resources:
All of the information I’ve published here is verifiable on the below links.
https://en.wikipedia.org/wiki/Economic_history_of_India
https://www.worldeconomics.com/Share-of-Global-GDP/India.aspx
https://www2.deloitte.com/us/en/insights/economy/asia-pacific/india-economic-outlook.html
https://www.morganstanley.com/ideas/investment-opportunities-in-india
https://www.oecd.org/economy/india-economic-snapshot/
https://www.imf.org/en/Countries/IND
