Could India be the New Economy to Watch?
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The International Monetary Fund (IMF) has released an estimate that places India’s growth for 2015 to 2016 at an astounding 7.5 percent. That puts India’s growth slightly higher than China’s. Many investors had overlooked India, assuming its outrageous deficit spending would hamper its economic growth, but it seems to have had little or no negative consequence yet. This leaves many in the financial industry asking if India is the best emerging economy in which everyone should invest.
History
The International Monetary Fund (IMF) has released an estimate that places India’s growth for 2015 to 2016 at an astounding 7.5 percent. That puts India’s growth slightly higher than China’s. Many investors had overlooked India, assuming its outrageous deficit spending would hamper its economic growth, but it seems to have had little or no negative consequence yet. This leaves many in the financial industry asking if India is the best emerging economy in which everyone should invest.
History
India has not always been the biggest grower of the emerging market economies. For most of the 20th Century, India’s government followed a socialist policy that largely hampered growth. In 1998, Prime Minister Atal Bihari Vajpayee came to power, bringing with him sweeping reforms that opened up India economically. In 2004, he lost his bid for reelection, replaced by Manmohan Singh, who returned to a more conservative approach. This led to a spiraling budget deficit that claimed nearly 10 percent of India’s annual gross domestic product (GDP).
In 2014, Narendra Modi won his bid for Prime Minister, and he has adopted a set of economic reforms that, though slower and more measured than some had hoped, appear to be having a highly positive impact on the economy.
By the Numbers
How big of a change has Modi made in his first year? First, the bad news. While the aggregated deficit has dropped from 10 percent of the GDP down to around 7 to 8 percent, that improvement is not as stellar as some had hoped. Also, and perhaps more importantly, India ranks only 142nd out of 180 countries on the World Bank’s Ease of Doing Business Index. That puts it below many nations that are both poorer and more troubled than India.
Still, the economy has many positives going for it. As noted, the International Monetary Fund predicts India’s growth for the year at 7.5 percent. The IMF also predicts that the central government’s budget deficit will drop to a mere 1.5 percent by the end of the year. Most importantly, despite the difficulty of doing business in India, investment has risen to almost 30 percent of GDP.
Is it Time to Stake a Claim?
India seems poised to climb the economic ladder towards a modern, high-income economy. This will require a number of additional reforms, but the political and financial climate appears to favor such changes (at least for now). Although the Indian market has been somewhat overvalued for a number of years, with the economy performing so strong, now may be the perfect time to investigate Indian stocks.
