While the hurdles to increased Indian prosperity should not be underestimated, there are irresistible forces emerging which should see the young tiger increasingly prevalent on the international stage over coming decades, says Greg Goodsell, global equity strategist at 4D Infrastructure.
He said the ability of India to become a global economic force is reliant on key aspects of the Indian tiger including: population and labour force, education and, last but not least, infrastructure.
“India and China, with populations of 1,326 million and 1,382 million respectively, dwarf all other nations when it comes to population size, but there are some key differences in the demographic make-up of the Indian tiger compared to the Chinese dragon,” Mr Goodsell said.
“While both countries’ populations are comparable, India’s labour force is less than two-thirds that of China. Clearly, increasing the level of labour force participation will help energise India’s growth.
“However, the real challenge lies in female empowerment and increasing their labour force participation.
“In India, the level of female participation is only around 29 percent, having declined over the last 20 years. This compares with a female participation level in China of approximately 70 percent.
“It is clear that increased female involvement is one of the key opportunities and challenges to accelerating India’s growth. Harnessing this will be key to India’s future prosperity.”
Mr Goodsell says another important catalyst for improving India’s labour force is improving its educational outcomes.
“China has an overall literacy rate of 96 percent – split 98 percent for males and 95 percent for females. However in India the male/female divide is stark. The overall literacy rate is 72 percent: split 81 percent for males and only 63 percent for females.
“Promisingly, Indian Prime Minister Narendra Modi understands the critical importance of improved educational outcomes to India’s future prosperity and has initiated two skill-development programs involving total spending of US$3.3 billion.
“This aims to equip 15 million people by 2020 with the skills necessary to bring more high-grade manufacturing to the country.”
However, Mr Goodsell said improved education is only one of the steps needed for an Indian success story, and India will not achieve anywhere near its full potential unless its infrastructure is improved and expanded.
“Around 87 percent of China’s roads are paved versus only 50 percent in India, while China’s road network is 4.5 million kilometres in length, which is 33 percent longer than India’s.
“The divergent quality and length of the road networks is also reflected in the two countries’ usage patterns on their rail networks. Although China and India’s rail networks are of a comparable total length, China has a far greater volume of goods transported, while India’s system has a more significant passenger focus.
“This likely reflects India’s poor road network and China’s larger manufacturing base. The recent slow-down in Chinese rail passenger numbers reflects growing car use and national prosperity: both goals of the tiger.
“What is highly significant is that PM Modi has recognised that the Indian rail network is in need of a serious upgrade. He plans to put US$130 billion towards improving the Indian rail system by 2020.”
Mr Goodsell said that while there are enormous opportunities and considerable challenges facing an emerging India, PM Modi appears well versed in both, and is enacting the necessary policies to properly unleash the tiger.
“For investors, while India has enormous potential, accessing opportunities such as pure play listed infrastructure has historically not been easy. However, gradual reform is underway and, combined with increased focus on the sector, we expect to see more opportunities in the future.
“There is enormous scope and daunting challenges before the Indian economy. The challenges are significant but nevertheless, all signs point to increased Indian prosperity in coming decades.”
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Bennelong Funds Management is a thriving, boutique fund manager nurturing a growing suite of asset management teams. Bennelong’s boutique partners collectively manage approximately $6.5 billion in funds under management. It is a wholly owned subsidiary of the Bennelong Group, a privately owned funds management and investment business. Visit bennfundsmanagement.com.au
4D Infrastructure is a boutique asset manager investing in listed infrastructure companies across all four corners of the globe. 4D’s mandate is to invest in listed infrastructure companies from around the world; a value-driven, benchmark agnostic investor looking to run a concentrated investment portfolio of 30-60 stocks.
Established in partnership with Bennelong Funds Management in April 2015, the 4D team comprises three experienced infrastructure investors, Sarah Shaw, Michael Morrison and Greg Goodsell, supported by Senior Investment Analyst Mark Jones and Investment Analyst Kon Kim. Visit www.4dinfra.com