Almost a year after the world’s biggest democracy sent a reform-minded, pro-business candidate to its top political office, the bulls still have a case to make in favor of India—at least in the longer term.
Narendra Modi’s election whipped up an optimism that soon played out in India’s markets. The BSE Sensex, India’s chief stock index, shot up roughly 40 percent after his election last year. But things have cooled a lot in 2015, with the Sensex lower by 1.8 percent year-to-date.
But in the longer term, the bulls are still making a case for India. The nation is likely to become an increasingly important source of labor for global corporations. It has the best demographics among the big emerging-market countries, said Jim O’Neill, the former Goldman Sachs Asset Management chairman who famously coined the term “BRIC”—a catch-all for Brazil, Russia, India and China. A strong domestic market and a credible legal system are factors that make India slightly more balanced than China, he said.
“India has fantastic demographics. With urbanization in its early stages, size of the working population and productivity, India has great growth potential,” said O’Neill, now a visiting research fellow at leading European think tank Bruegel.
China’s market is the world’s hottest so far this year, but the Asian giant has seen double-digit slumps in its manufacturing jobs, prompting some market-watchers, including Barron’s on Monday, to question how long the China bull can last.
India is expanding its supply of labor, and that’s likely to draw more foreign direct investment into the country. According to Boston Consulting Group, India’s hourly wage in the manufacturing sector is 92 cents, compared to $3.52 in China. O’Neill said by 2030, India’s nearly 500-million-strong labor force could grow by an amount equal to the combined labor force of France, Germany, Italy and the United Kingdom.
“India has a labor opportunity and can see substantial investment throughout the next 30 to 40 years,” said Rafiq Dossani, director of Rand Center for Asia Pacific Policy. “Europe, USA and Japan are very keen to look at India as an alternative for labor.”
Another reason the $2 trillion economy could draw in more foreign investors is Modi’s relatively pro-business stance, particularly a campaign called “Make in India” that aims to boost manufacturing by improving national infrastructure.
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