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LISTEN: In this episode of No Ordinary Wednesday, Ali Nortier, Joint Head of National Wealth Management for Investec Wealth & Investment, and Neo Mahlangu, Regional Head of Investec Private Bank discuss India's growth story, its trajectory, its future prospects, and explore opportunities for investors.
India’s rapid economic growth has the attention of the world. It has overtaken China as the world's most populous country, and it's tipped to move from the fifth to the third largest economy in the next few years.
The International Monetary Fund forecasts an overall year-on-year growth 6,7% for the fiscal year ending March 2024. But the New Delhi government projects much higher growth, revising its expectations for the same period from 7,3% to 7,6%.
Amidst a global economic landscape facing pressure on GDP, the question arises: Can India's current growth spurt be sustained? What opportunities exist and what are the key considerations to investing in India?
Investec experts Ali Nortier, Joint Head of National Wealth Management for Investec Wealth & Investment, and Neo Mahlangu, Regional Head of Investec Private Bank, share their insights on India’s growth trajectory, its future and investment opportunities.
The pair joined an Investec delegation from across the globe, for a fact-finding mission.
What is driving India’s rapid economic growth?
The Indian economy grew by 8.4% during from October to December last year, bolstered by a strong construction and manufacturing sector. What’s been driving growth over the past few years, is the country’s youthful population that’s set to strengthen the country’s work force. Not to forget the government’s massive investment in infrastructure programmes and clean energy. It’s no wonder that India’s NSE Nifty Index surged by nearly 20% in 2023 as investors climb in to get a piece of the pie.
The digital transformation sweeping across India is also a cornerstone of its economic ascent. There were 692 million internet users in India at the start of 2023, when internet penetration stood at 48.7%.
India is the home to 467 million social media users equating to 32.8% of the total population and just over a billion cellular mobile connections were active in India in early 2023, with this figure equivalent to 77% of the nation.
As Nortier points out: "Over a billion people have got an ID card, which has increased digitisation of the entire economy. This leap, necessitated by the Covid-19 pandemic for banking and identification, has catapulted India into a new era of economic activity, fostering an environment ripe for growth and innovation.”
Is India’s growth sustainable?
The International Monetary Fund estimates global growth for 2023 at 3.1% and believes it will remain the same for the 2024. While advanced economies’ 2023 numbers are all lower with the United States at 2,5%, the Euro area and the UK at 0,5%, and Germany sitting below zero at -0,3%.
For emerging markets, the picture is a little better with emerging economies expected to come in at 4,1% with China growing at 5,2% in 2023 Brazil at 3,1%, and Russia at 3.6%. South Africa is at the bottom of the BRICS pack with growth of only 0,6%. . India is expected to record the highest growth number of 6.7% for 2023, outpacing advanced economies and its emerging market peers.
But is this growth sustainable? Mahlangu believes in the sustainability of India's robust growth rates, supported by its ability to attract foreign investment. He adds that india's labour force is a strategic advantage in the global marketplace.
India has managed to keep its labour force competitive in terms of how it's priced for the skill that you get.
Yet, it's the potential of India's nascent manufacturing sector and the government's incentives for foreign direct investment that underscore the opportunities for transformative economic development. “I think the production-linked incentive schemes that the government put in place has helped in that regard. There's also quite a lot of support to diversify manufacturing in that part of the world with some countries looking to diversify risk away from a single large player like China,” says Mahlangu.
What are the key sectors to look out for in India?
The country is known for its agricultural and service sectors, but with a growing economy other sectors are piquing interest.
I think there's great potential for industries such as western data centres, green tech and renewables, hotel and travel.
What are the challenges that could impede India’s success?
Although the country is on a path of success, it does have its fair share of challenges. On its government balance sheet, India runs a deficit and fiscal consolidation is important to lessen the risk to the economy and its currency the Rupee. “There are also looming social problems and a bit of instability. There are high levels of pollution, the cities are construction sites, the education system still needs to be reformed and there's lingering corruption,” says Nortier.
She adds, “there's a fair amount of unfinished government reform in terms of its programmes and they don’t tolerate criticism. The corporate sector is struggling under heavy regulatory oversight, in contrast the manufacturing sector is growing quickly, but you have to ask if the infrastructure can keep up.”
Listen to the podcast for more.
Podcast key moments
00:00 – Introduction
01:10 – What is driving India’s rapid economic growth?
02:26 – Is India’s economic growth sustainable?
04:05 – What makes India’s economy resilient?
05:28 – How will India’s large young population contribute to its economic growth?
06:16 – Where do investment opportunities lie in India?
08:30 – What challenges could impede India’s growth aspirations?
11:25 – What are the key sectors to look out for in India?
13:36 – India’s business growth
14:51 – What are the key considerations for investing in India?
17:17 – Lessons from India
19:50 – Impressions of India
Hosted by seasoned broadcaster, Jeremy Maggs, the No Ordinary Wednesday podcast unpacks the latest economic, business and political news in South Africa, with an all-star cast of investment and wealth managers, economists and financial planners from Investec. Listen in every second Wednesday for an in-depth look at what's moving markets, shaping the economy, and changing the game for your wallet and your business.
Listen to other episodes of No Ordinary Wednesday with Jeremy Maggs.
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