India – the drivers of long-term growth

 
May 2023 | 2 min read   

India – the drivers of long-term growth

Key Takeaways

• Solid demographics, urbanisation, rising middle class and investments should spur long-term growth in India 

• Corporates are healthy and show modest levels of debt, but periods of low investments have created the need for private 

• Manufacturing is expected to growth further, re-attracting parts of the supply chain from China

• Tax revenues as percentage of GDP will likely rise, propping up infrastructure investments 

 

India’s economic growth has raised considerable attention over the last decades. The country’s solid macroeconomic fundamentals could contribute to position India as a global key player, and may offer unique opportunities for investors both over the long and short-term.  

We have identified a number of positive trends in a long-term perspective. First, we believe that solid demographics, the rise of the middle class and urbanization could substantially increase the median income, which is projected to rise from the current $1700 per capita (estimated for 2022) to $3400 per capita by fiscal year 2030; this may prop up consumer spending, leading to an improvement in their standards of living.

On the corporate side, in our opinion the strength of balance sheets makes a compelling case for investing in the country, as over the latest 7- 8 years companies have deleveraged substantially, while their counterparts in other key markets have done the opposite. The long period of low investments in the Indian growing economy has now created the need for private financing, which should focus not only on traditional industries, but also towards green and sustainable segments of the market.

Manufacturing has always been one of the key drivers of Indian growth, which has been reinforced thanks to the Production Linked Incentive scheme introduced for the first time in 2020. The long-term objective of the scheme is to re-attract some components of the supply chain, especially the ones adding more value, back to India and away from China, and encourage a local production of semiconductors and renewable energy. We also recognise that the China plus One, strategy implemented by multinational companies to invest in India, Thailand and Vietnam, rather than just in China, has also shown its beneficial effects: India’s share of global trade exports has risen 20 basis points, from 1.6% over the last decade to 1.85% over the last two years.

The introduction of the Goods and Services Tax (GST) in 2017 is another positive development; it has led to a rise in government tax revenues as a percentage of GDP to a record 18%, and could lead to another 1-2% raise in the next couple of years, which could spur infrastructure investments further. Additionally, the Indian Government has integrated the database for multiple direct and indirect tax collection over the years, improving compliance and reducing tax avoidance.

Looking ahead, we believe that India’s solid macro fundamentals should support a multi-year improvement in terms of economic growth and earnings, thanks to its demographics, urbanisation, rising middle class and strong balance sheets. The corporate world is solid and deleveraged, banks are more resilient and we believe that the local government should support green investments and focus more on innovative industries. As a result, India should experience stronger growth in the next ten years, but some risks continue to exist, such as the ones related to national and geopolitical developments and the evolution of commodity prices.

                                  

                                                 Average expected GDP growth, 2023 - 2033

Source: Amundi Institute central scenario forecasts as of 3 May 2023.

  

Read more from the Amundi Institute on India 

Read more

Source:

Amundi Institute,Themes in depth, Building bridges to India’s future investment opportunities, May 2023

Important information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 17 May 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 17 May 2023
Doc ID: 2890657

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