Economic growth in India is expected to overtake China within the next decade, according to Citi India managing director and chief economist Samiran Chakraborty, further adding to the country’s appeal as an investment destination.
Mr Chakraborty shared a bullish outlook for India during a panel discussion at the Association of Superannuation Funds of Australia (ASFA) Conference on Wednesday.
“India’s growth is not really a flash in the pan. It’s from the 1980s onwards that India’s growth has always exceeded [emerging market] growth,” Mr Chakraborty said.
“What is changing a little bit is that, for the first time after the 1960s, if our forecasts are correct, then in this decade India’s growth will exceed China’s growth. This has not happened after the 1960s and the whole investor and corporate community is looking at India with a different lens.”
In Mr Chakraborty’s view, India’s demographics are a key part of its appeal to investors.
“There are 10 million people who are going to enter the working age population every year for the next decade. India is going to be the first and probably the only country ever to have one billion plus youth or working age population,” he said.
Economic reforms over the past decade, including a reduction in corporate tax rates, add to the case for India, according to Mr Chakraborty.
“Beyond that, what makes me most excited is that today, the economy’s balance sheet is the cleanest that I have ever seen. So if you look at the corporate balance sheet as well as the financial sector balance sheet, they’re extremely geared up for the next credit cycle,” he continued.
“Just to give you a sense of numbers here, the banking system’s non-performing assets were 14 per cent before the pandemic. Now, it’s down to 3 per cent. If you look at the private sector credit-to-GDP ratio. It was 66 per cent before the pandemic, it’s down to 52 per cent now. So that creates the right backdrop for the next level of growth.”
Finally, Mr Chakraborty highlighted the importance of India’s political and policy stability.
“We are having five consecutive governments running their full term, [that’s] never happened in India. It’s a very noisy democracy, but we are most likely to have the sixth one also in place very soon next year and that has created a sense of policy stability among investors that we will continue on this path,” he said.
“All these factors make me somewhat more optimistic that we will be able to deliver on the growth promise that India always had, but sometimes failed to deliver on.”
Akihito Watanabe, managing director of Keppel Credit, said that he shared many of Mr Chakraborty’s positive views on India.
“The structural positive changes that you’ve seen in the last few years, that’s manifested itself in our portfolio. About 30 per cent of our portfolio is in India. We probably would have done more if there weren’t fund diversification limits, frankly,” he said.
Mr Watanabe explained Keppel Credit is a real asset specialist private credit manager and is looking at the opportunity set across real assets.
“In India, the renewable story has been a big topic for us. If you look at the fundamentals, obviously the population is there, the growth of industry is there. But it’s been on a per capita basis that the consumption of electricity is still low, has room to grow,” he said.
“We’ve funded and backed a number of renewables platforms that are backed by global blue chip sponsors and that is a space that we play, and in terms of just the calibre and the overall quality of counterparties that have been available, and they’ve grown in the market.
“If you look at, across our portfolio on average, these are businesses with $500 million plus of equity invested before we lend to these businesses. There are projects that are up and running with, on average, $150 million of EBITDA generation. These are not startups. These are very viable, strong-performing businesses.”
But Nicola Yeomans, partner and co-head of private capital at King & Wood Mallesons, noted that investors, including super funds, need to be mindful of the risks of investing in India and emerging markets more broadly.
“If I think about superannuation investment into India, the amount of work that needs to be done to understand country risk, bribery and corruption risk, currency risk. We’re talking regulatory risk, tax changes being made retrospectively, understanding the impact of that,” Ms Yeomans said.
“These are the sort of things that all of you know are a major issue for any foreign market, but certainly in emerging markets like India.”
