The Leader and the Sign of the Times
It is undeniable that Narendra Modi has reshaped both India and international perceptions of it during his three years in office as Prime Minister. Having been overwhelmingly voted into power in 2014 on the promise of economic growth, Mr Modi set out to execute a wide-ranging reform agenda focused on domestic development, securing foreign investment and playing a more proactive role in regional and international affairs. Based on macro-economic data alone, it would appear that Mr Modi’s BJP party has been on track to deliver on his promises. GDP growth has averaged 7.5% over the past three years, with growth fuelled, to a large extent by an inflow of US$175bn capital from foreign investors, making India both the world’s fastest growing economy and the largest destination for foreign direct investment. Further, the government has also taken steps across a wide swathe of areas such as infrastructure development, financial inclusion, digitisation, foreign investment and graft, in its bid to secure the country’s long-term growth potential. A previous Sign of the Times had assessed the BJP’s performance in terms of reforms at the 24 month mark following the general election. With less than two years to go until the next general election, this month’s Sign of the Times takes a closer look at India’s progress both economically and in terms of its reforms in order to assess the Modi government’s performance. More importantly, it identifies the core priorities yet to be addressed to make advances towards its medium to long term potential, thereby providing the agenda for the next stage in the journey.
Digital technology features as the enabler to overthrow governments, corrupt elections, reveal secrets, destroy jobs and undermine the integrity of major corporations. It is now one of the major disruptive forces at the start of the 21st Century. It is also very clear that the underlying digital data being generated by individuals, companies and governments combined with the capabilities to sort, filter and analyse this data will transform – threaten and enhance - our economies, our societies and even our political systems as we transition fully into the Information Age. In a new series over the next 12 months, the Sign will look at how digital technology is changing our world through a series of lenses and assess its socioeconomic and political impact, as well as broader implications for the global order as a whole. In the first of this series, this month’s Sign provides an overview of the how digital technology is already changing politics, society and commerce and how this might develop over the next decade. The next parts of the series will drill down into implications and challenges and the final part in the series will put forward a perspective on how individuals, societies and states will need to prepare for the digital future.
India’s attractiveness as a destination for international investors has been increasing in the context of both its projected high growth as well as the ongoing shifts in risk among major economies and investment destinations. A previous Leader in the Sign of the Times demonstrated how India was improving its relative positioning in terms of risk-adjusted returns vis-à-vis other major markets, having not only improved returns during the past decade but, uniquely among major economies, having simultaneously reduced risk. In order for international policy makers seeking to build their relationship with India and also for international investors seeking to participate successfully in this market, they will need to form a clear view on the sectors that will drive India forward. This will require them to understand the value, growth and risk dynamics of India’s various industries, and how they are changing. The Modi government has developed an ambitious blueprint for the future of India encompassing increasing manufacturing, agricultural reform, and the growth of services, particularly in the digital space. However, the nature of Indian industry stands to be quite different from the rest of the world’s given that its mass industrialisation is occurring in the information and internet era, while all other major economies came of age in the industrial era . This more than any other factor needs to drive both policy decisions at home and abroad as well as investment allocations abroad. Any successful India allocation strategy will also need to tap into the country’s core macro-economic drivers, aligning with government priorities and recognising the local and global challenges facing potential target industries. This imperative is not lessened by the more free-market characteristics of India. Indeed, it may be even more critical for a successful investor to understand sectors where there is less government-led surety of outcomes. This month’s Sign of the Times examines the risks and opportunities facing major industries and their sub-sectors in India in the face of its unique transition, and attempts to provide a perspective on how international investors might participate in the most attractive segments of the country’s economy.
India today continues to be the world’s fastest growing major economy. At nearly 8% annual GDP growth, India handily outgrows its closest major competitors and neighbours such as China (at c.6.0% growth) and Indonesia (at c.5.5% growth). In addition to this fundamental shift in growth, there is another equally important shift occurring, that of risk. With India entering into a phase of increasing political and economic stability, and with the momentum of structural reforms building up at a strong pace under the Modi government, the country’s fundamental risk profile is changing at the exact moment when developments in other major markets, developed and developing, are either leading to increased risk, lower growth, or both. The United States is rapidly reaching political stasis as both the executive and legislative branches find themselves encumbered by effective resistance, while the problems of Brexit and the need to rethink the European programme are creating uncertainty in the EU and the potential exhaustion of Abenomics in Japan is leading to doubts over its economic path ahead. Meanwhile, China, after two decades of rapid growth, has moved to a lower growth trajectory with an increasing risk profile. At this stage, the global risk-reward profile is fundamentally shifting, with major regions being re-rated across both axes. India appears to be a strong beneficiary, away from the global trend-line, improving its relative positioning in terms of risk-adjusted returns vis-a-vis other major markets. It is a good time for India to continue its focus on executing the reforms that address structural and systemic risks while driving economic higher to potentially double digits.