WEEKLY E-MAIL

11 September 2017

INDIA TURNS 70

By Bree Hallett

Our Blue Chip Weekly last week highlighted India, who celebrated their 70th birthday of independence last month.

On the 15th August 1947 the Union Jack was lowered and Jawaharlal Nehru, the first prime minister of India, raised the Indian national flag in Delhi and history was sealed. There has been a significant level of change since then. In 1947 Indian life expectancy was 32, now it is 68 and the economy has become the world’s seventh largest at $2 trillion. According to the IMF’s World Economic Outlook, the Indian economy grew by 6.6% in 2016, just behind China at 6.7%.

However, growth is never a straight line upwards and economies often pause for breath. Last month news of an overall slowdown in economic growth and a drop in consumer prices led India’s central bank to lower its benchmark interest rate to a six and a half year low, from 6.25% to 6%. Inflation in India has fallen to a five-year low of 1.25% in the 12 months to June and the country’s gross domestic product grew just 6.1% in the first quarter of this year, which is its slowest pace since late 2014.

The introduction of the long awaited Goods and Services Tax (GST) reform on 1 July also saw the latest Purchasing Manager’s Index (PMI) figures for India’s services sector fall sharply. Implementation of the new tax policy has seeded confusion among manufacturers over the pricing of their products, leading to a reduction in activity and slowing down the demand for services.

The new GST aims to economically unify the country under a single nation-wide indirect tax system. Up until now, each of the country’s 29 states and 7 union territories were imposing their own set of taxes and levies. The new tax regime is expected to reduce inefficiencies, improve tax compliance and expand the country’s tax base over the long term. A reform of such large scale is unprecedented for India. It is expected to be disruptive in the short term however it is viewed as a strong positive over the medium to longer term.

Whilst some of the recent data coming out of India has been weaker, many view India’s long term outlook as extremely positive due to their favorable demographics. India is on track to become the youngest country in the world by 2020. The median age is just 29 and nearly 7 in 10 Indians are currently under the age of 35.

Projection of India’s Millennials Population Growth (Source: Morgan Stanley)

The expected increase, not only in the number of Indian Millennials (those born after 1982) and their share of the overall Indian population, but also their growing spending ability and embrace of the Internet, will make them a powerful economic force. They have disposable income, a strong reliable Internet connection and there are 400 million of them. They account for a third of India’s population and 46% of its workforce. The may be young but they are already the chief wage earners in most households, with Millennial income contributing 70% to total household income.

India’s Millennials are identified are being better educated, better connected to information, and better connected to the world than their predecessors in prior generations. They are also part of a rising middle class. While India’s current per capita income of $1,700 ranks well below that of other emerging markets, such as China and Brazil, its GDP is expected to increase from an estimated $2.2 trillion in 2017 to around $5 trillion in 2025, with per capita annual income also rising to $3,650 over that eight-year span. Demographically, India also stands apart from many other Asian economies, such as China, which are grappling with the prospect of declining a working-age population, even as the number of retirees keeps growing.

The Millennials in India are starting to become one of the world’s strongest sources of untapped economic potential. Their rising incomes offer unprecedented opportunities for consumer industries, such as auto, telecommunications, finance and real estate. As India enters their 70th year, they form a key part the investment thematics which are expected to play out in Asia over the medium term.

Bree Hallett
Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 452911

If you have any questions or comments, please email me at bree@gfmwealth.com.au

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