Investors waking up to the force of India rising

OVER the past decade, India has moved relentlessly towards claiming its place as one of the world's most powerful nations. Amid the cacophony that represents Indian politics, India's rulers have slowly but surely put together a fabric that allows business to prosper.

There has been a gradual opening up of the economy in key sectors and today, tangible evidence of reforms can be seen in the financial sector, consumer sector and the telecommunications industry, among other arenas. Never before has international big businesses been quite as interested in India as an investment destination, and for very good reason.

A giant landmass making up the bulk of an entire subcontinent, India is a country in which 1,2-billion people — of different languages, cultures and just about every religion on the planet — miraculously live together in relative peace and harmony, despite some deep schisms and fault lines emanating from those differences .

This melting pot of cultures has resulted in the country walking a tightrope amid the coalition politics that have kept the current government in power and still managed to bring about transformation.

Economic and demographic statistics make the picture very intriguing:

India has the fourth-largest economy after the US, China and Japan.

India is one of only 10 countries with a gross domestic product (GDP) of over $1-trillion.

At its current rate of growth, the Indian economy will add nearly one France every three-and-a-half years and one Australia every year.

The middle-income category is currently 50-million strong.

The number of middle class people is expected to reach 583-million by 2025.

One percent of the hitherto low-income group has been shifting into the middle class every year for the past 10 years.

In pure numbers, this is the largest segment of the population, of around 40 million people annually.

India has the highest growth rate of dollar millionaires and billionaires, yet 25% of people earn below $1 a day.

India's economy has grown 8% a year in the past decade.

Although India's employment numbers are very high, so is its unemployment rate.

India is such an interesting investment prospect because of four very powerful themes, which have underpinned growth:

Outsourcing and information technology. These already make up more than 20% of the GDP and are growing at a faster rate than the overall economy.

Consumption. Feeding and selling ordinary daily essentials to a 500-million-plus consumer base is a lucrative business.

Infrastructure. Meeting the challenges of growth in this country is a huge task. Already an estimated $1-trillion is being proposed for spending in the next five years.

Financial products: A huge opportunity in an increasingly urbane population, which, as matters stand, has only 5% of national savings in financial markets.

Most notably, information technology in India has successfully moved up the value chain. Whereas it was once a mere labour cost arbitrage-driven outsourcing business, today it is a highly acclaimed treasure house of intellectual capital. Ironically, this IT-led surge and increasing liberalisation have forced the historically lagging public sector companies — with their much-maligned bureaucracies and inefficiencies — to wake up and start to make dramatic changes.
This is a unique transformation, in which the public sector, instead of withering away as predicted, has become stronger and proved itself to be an able competitor to the private sector.

State-owned behemoths such as the State Bank of India, the Life Insurance Corporation of India, ICICI Bank, the Steel Authority of India and the Oil & Natural
Gas Commission, among others, have shaken off their historical images and confounded their critics by capitalising on opportunities available to them to become powerhouses in their respective arenas.

India has historically, thanks to its
post-independence state-subsidised education focus, produced surplus labour. This has changed and, for the first time, Indian businesses are now beginning to face a skills shortage. Long criticised for its failure to curb population growth, suddenly its young population is being hailed as its biggest advantage. India is therefore in the midst of a transformation few nations have managed. A sharply divided and highly politicised country with significant polarisation and populism set amid a long-suffering and largely "unconscious" electorate can be fraught with pitfalls. There are bound to be disappointments in the pace and quality of some of the reforms.

But India has become a relentless force with awe-inspiring momentum. The
energy and enthusiasm of the citizenry in India will pave the way for sustained growth and development. India is poised to become the most important economy in our lifetime and Indian-owned businesses are set to dominate the world markets. Admittedly, the jury is still out on where it will all finally lead to. But never in the history of modern times has such a story unfolded, and big business cannot afford to remain a bystander. "Go east" should be our mantra.

Gupta is CEO of Sanlam Investment Management Emerging Markets.