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27th December 2011 |
Structural story for India remains strongShiv Puri
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- It is indeed unfortunate that the policy bottlenecks and inaction has resulted in a slowdown in growth and more importantly a massive change in sentiment. These factors seem to have undermined the structural resiliency of consumption and infrastructure investment in driving GDP growth, a key premise for investing in India. However, this key premise still remains firmly in place.
- There is a shortage of infrastructure, with under capacity in virtually all manufactured products, rising disposable income, high savings rate and the desire and demand of this generation, who have had their first taste of capitalism and high income growth rates, for more of the same.
- We would be concerned on the structural story if there was a change in the democratic functioning the country, a banking or financial systemic risk, a massive oversupply in manufacturing or infrastructure, imminent geopolitical risks, etc.
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It is indeed unfortunate that the policy bottlenecks and inaction has resulted in a slowdown in growth and more importantly a massive change in sentiment. These factors seem to have undermined the structural resiliency of consumption and infrastructure investment in driving GDP growth, a key premise for investing in India. However, this key premise still remains firmly in place. There is a shortage of infrastructure, with under capacity in virtually all manufactured products, rising disposable income, high savings rate and the desire and demand of this generation, who have had their first taste of capitalism and high income growth rates, for more of the same. The government policies will have to enable this move.
We would be concerned on the structural story if there was a change in the democratic functioning the country, a banking or financial systemic risk, a massive oversupply in manufacturing or infrastructure, imminent geopolitical risks, etc. None of this is remotely in the horizon today. We expect strong growth in per capita income will result in a growing middle class population. With median age at 29, India should also significantly benefit from the “demographic dividend” over the next decade, which along with better productivity is one of the key drivers of growth. Infrastructure in India remains grossly inadequate and the government plans to spend $1 trillion over the next 5 years in this area, with a significant portion of this being driven by private public partnership. The household savings rate of 36% is also sufficiently high to fund this investment.
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