Proving the doomsayers wrong, India has reclaimed the position as the fifth largest global economy in terms of nominal gross domestic product (GDP), surpassing France and the UK.
The country is now projected to cross the magical $3trn-economy mark, from the current $2.94trn, in another six months.
The bullish growth projection does not end there if the data published in the World Economic Outlook report by the International Monetary Fund is any indication.
By 2026, the largest democracy in the world will be a $5trn economy, though the Indian government had boasted that the economy would reach this milestone by 2024.
The positive growth outlook and other factors are widening the investment scope for NRIs, who have been less confident to commit any further investment in view of the gloomy growth expectation.
“Many of our clients were either slowly withdrawing from the Indian market or reducing their exposure. But things have changed overnight as they are showing much enthusiasm in the market.
“We advise our clients to strengthen their engagement with India, rather than just remain invested,” said PK Sajithkumar, CEO of Dubai-based financial services and advisory firm IBMC International.
Many reasons for optimism
The reasons are many for their optimism and confidence. In the longer-term, the economy is expected to go higher. India has become the fifth largest economy in the world and is set to overtake Germany as the fourth largest by 2026 and to beat Japan to grab the third largest position by 2034, according to the World Economic League Table 2020 prepared by the UK-based Centre for Economics and Business Research (CEBR).
But the reality has to be accepted that India’s growth slowed to a five-year low of 5% in 2019-20, thus falling short of its goal of becoming a $5trn economy by 2025.
The benchmark Sensex index has been gaining continuously in the past one week on the strength of increased inflow from foreign institutional investors.
Bullish all the way
Analysts are bullish on Indian equities for the next three to five years as opposed to bearish over the past two years. India is increasingly becoming attractive from a taxation stand point for new investments. Corporates are witnessing earnings recovery with exports picking up. Net electronics exports are rising from India, which is a huge positive.
The other firsts are: India is among top tier pick as a manufacturing destination. The country is already the largest manufacturer of mobile chargers globally, which is massive feat.
China’s loss, India’s gain
It may sound inconsiderate, but the fact is that China’s loss is going to be India’s gain, in the long run. The second largest economy in the world is still grappling with a slowdown inflicted by the debilitating Coronavirus pandemic.
“India can benefit from the void created by China in world trade. In all probability, though historically resilient, China will take a long time to regain the lost markets. If Indian manufacturers can prove their mettle, they can enjoy a large slice of the market share globally.
“Already buyers are shifting their preference to India. Trade insiders say that many manufacturers have received enquiries, mostly from the US and the European Union, as foreign buyers are contemplating to replace China as a supplier,” said Manoj Vallikudiyil, partner Manjul Associates, securities and investment consultants, Dubai.
It is expected that exports will improve meaningfully over the next three years, the main reason being China’s near absence. Analysts say that India can ‘steal’ more manufacturing related activity from China. As it is, India is the preferred destination in Asia for manufacturing relocation.
The flip side
The flip side is that those Indian manufacturers dependent on Chinese imports will be adversely affected. For example, Indian pharma industry is dependent on Chinese imports to make medicines. The $30bn domestic smartphone market, world’s second largest now, will see major disruptions as it is heavily dependent on imports from China.
As imports from China are drying up, companies in the US and Europe are turning to India to meet their requirements. Many of them are already seeing double-digit growth and expect the momentum to continue for a long time.
Exporters of chemicals, engineering goods and marine products would benefit the most from China’s absence as major manufacturing activity in China has come to a standstill rendering them helpless to meet the export obligations.
“So, this is the time to rewrite the India success story in spite of some minor domestic glitches. NRIs have always been proactive and stood by India. There is much to be gained in the long run. So, keep invested and reap the rewards,” said IBMC International’s PK Sajithkumar.