Pro-business Reforms Under PM Modi Have Accelerated India's Economic Growth: Capital Group

India is poised for a period of secular growth, fueled by significant expansion in direct and fixed asset investment, said Capital Group, one of the world's oldest and largest investment management organisations in a recent report. This comes at a time, when India is projected to become the world's third-largest economy behind the United States and China by 2027, according to the International Monetary Fund (IMF). 

According to the report, in India corporate confidence is high, the economy is expanding at a decent clip and technological innovation is leading to new areas of growth.

The report said that pro-business reforms by the current government led by Prime Minister Narendra Modi have accelerated growth by facilitating the expansion of credit and bringing large swaths of the economy into the formal sector. These reforms include Aadhaar — a voluntary biometric identification system similar to the social security number in the US, the Implementation of GST- a digitalized system that can also track goods and services at each point in the supply chain, and the launch of UPI- which created an instant real-time payment system. 

These reforms have bolstered Indian stocks and revolutionized credit underwriting and sped up the lending process. This should boost the economy and meaningfully expand the market for banks and non-bank financial companies.

Another standout aspect highlighted in the report is the infrastructural development in India over the last five years. The report said, “Over the past five years, the government has pumped billions into building out roads, railroads, airports and seaports.”

Apart from reforms, other factors highlighted in the report that make India appealing compared with other emerging markets are --, India becoming a manufacturing hub, growing capital market, investment opportunities in sectors including real estate, and industrials, scope in the chemical industry, and demographics.

Demographics are the biggest advantage

While India will very likely benefit from Western countries exploring China-plus sourcing strategies, the bulk of economic growth will come from domestic consumption and investment. "With a median age of 29 years, India has one of the most attractive demographic profiles among the world’s largest economies and can reap benefits from its productive capacity, provided the right policies are in place," the report said.

Another focal point in the report is India's concerted effort to become a major player in manufacturing and expand its presence in global export markets. Manufacturing capacity is expanding for mobile phones, home appliances, computers and telecommunications equipment. As companies seek to diversify their supply chains away from China, India aims to position itself as an appealing destination. 

“We anticipate India will become a desirable location for companies looking to diversify their supply chains outside of China, a strategy commonly known as China plus one. That said, it likely has many years to go before it can challenge China as a global manufacturing powerhouse. On the flip side, the upside looks promising,” said the report. 

Banks

When it comes to banks, the overall environment looks positive, said the report. Loan growth remains solid in both the retail and corporate categories and the credit environment remains benign. It said: “We could be entering a favorable cycle for banks given the trajectory of the economy and several rounds of consolidation among weaker state-owned banks in recent years.”

On Sunday, Prime Minister Narendra Modi shared the report on Twitter and said, "Youngsters and entrepreneurs will find these 9 points interesting. And yes, India is a global bright spot with a strong desire to grow even more!”