Ready, Steady…..Go!

India and China have been in competition from a geopolitical stance for years but their rivalry doesn’t stop there. As far back as the late 1940s, their respective financial markets have been in opposition and the race to achieve the greatest economic growth isn’t showing any signs of slowing.

India, Asia’s third-largest economy, presents a profitable opportunity for both short-term traders and long-term investors. In 1970, the GDP of India was $63.5 billion and in 2014, GDP stood at $2066.90 billion. With its staggering market size – the country is home to 1.25 billion people; with more than 65% of the population younger than 35 – India is an untapped resource.

Indeed, Finance Minister Arun Jaitley estimates that India’s economy will accelerate from 7.4% GDP in fiscal year 2014-2015 to 8%-8.5% in 2015-2016. Projections show India has the fastest GDP growth rate in any developing market and if it grows above 7.5% next year it will overtake China, as per the recent report by The World Bank.

While investment prospects are rare within developing markets, India offers an exceptional growth opportunity for business, not least because of the Seventh Pay Commission, structural reforms and monetary policy support, strengthening the economy. Pay Commissions assess the salary structure of central government employees and occur every decade. The Seventh Pay Commission will revise salaries effective of January 1, 2016, and, if the results of the Sixth Pay Commission are anything to go by, it is set to kick-start the economy.  Wages of government employees increased by circa 35% after the Sixth Pay Commission authorisations. According to Neelkanth Mishra of Credit Suisse, approximately 33% of India’s middle class is employed by the government, highlighting the large percentage set to benefit from such reforms. When the Seventh Pay Commission comes into effect, there will be an increase in discretionary expenditure, strengthening the economy even further.

 “While investment prospects are rare within developing markets, India offers an exceptional growth opportunity for business”

No one could say that the Indian Prime Minister Narendra Modi and the government don’t have high expectations. Aiming to secure a place in the top 30 of the World Bank’s Ease of Doing Business rankings by 2018, this country is on the up. That’s a grand old jump considering it took 142nd place in this year’s rankings. So, what reforms will help India up its game? Headway that has been made to enhance ease of doing business in the country includes eliminating the need for minimum paid-up capital and common seal for businesses. In the latest budget, chief reforms have been planned to ease ambiguity for, and increase the positive effects of, investment. Furthermore, cross-border trade has been simplified by decreasing the number of necessary forms for export and import to three. In addition, there is a goods and services tax update and labour laws are also set for a big overhaul, streamlining the present labour law regime, merging 44 laws into five. It is thought that the current labour regulations are a major restriction on Modi’s ‘Make in India’ goal, which hopes to encourage a manufacturing boom producing employment for 200 million Indians over the next twenty years. 

The inflation rate in India was recorded at 3.78% in July of 2015, its lowest level on record, aided by lower food prices of certain items including vegetables, fruits and cereals, supporting the case for another cut. This percentage is considerably below the Reserve Bank of India’s forecast for this period, which had aimed to keep retail inflation below 6%. The RBI has cut rates, adding fuel to the Indian economy, helping to encourage businesses to start borrowing and investing again, increasing employment and boosting salaries. The government also aims to provide the primary, minimum requirements such as shelter, clean drinking water, health, education and skills to everyone by the 75th anniversary of India’s independence in 2022. 

Even today, with oil prices increasing and productivity decreasing, India is still growing at approximately 7% a year. That’s more than twice the rate in the U.S. India’s economic position is only getting stronger just as that of its BRIC counterparts is weakening. After 12 months of Modi’s government, India’s economy has seen increased growth, lower inflation and a relatively stable currency. Showcasing an energetic, entrepreneurial culture, an appreciation of property rights and an effective judiciary, Indian markets are deemed investment worthy, with the International Monetary Fund presenting it as the fastest growing major economy by 2016. 

India is a long-term venture and prospects will carry on improving into the future. With the shine going off China and the economic activity in India gaining speed, it looks like it’s going to be an exciting race!