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How did India get to where it is today?

Prior to 1991 the Indian economy was plagued with corruption, slow growth, protectionism, central planning and extensive regulation which discouraged economic expansion. The Prime Minister at the time, P.V Narasimha Rao appointed a career economist, Dr. Manmohan Singh as Finance Minister to “save” the ailing economy. Dr Singh opened up India to the world so that they can accept foreign direct investment as well many government run enterprises were privatized. Many of the socialist policies which discouraged business operations were removed (such as protectionism and central planning) and the economic system became substantially more of a free market/capitalism. Dr Singh is the current Prime Minister of India and is amongst the most admired and respected heads of state worldwide.

Where is India today?

As a direct result of Dr Singh's policy, it is estimated that at least 300 million Indians were able to move out of poverty and in to the working class over the last 20 years. India was the fastest growing economy for the second half of the 2000s and is the seventh largest exporter and eleventh largest importer in the world. The economy is fueled by the large amount of skilled and unskilled laborers. Education is accessible and highly encouraged and English is widely spoken which facilitates international trade.

The Agriculture, forestry, fishing and logging accounted for 15.7% of GDP in 2009-20010 so needless to say the agriculture and allied sectors are extremely important to the Indian economy. The sector employs over 50% of the entire nation's workforce and provides an income to an extremely large portion of the unskilled labor force. India is the largest producer of fruit, spices, lemos, limes, milk, chick peas and second in the world to China in production of rice. India is the second largest producer of fruits and vegetables. India has the largest livestock population with over 485 million! India is also the sixth largest coffee producer in the world. Indian produces are highly regarded of being high quality and delicious!

industrial sector accounts for a large part of the Indian economy. Textile and clothing manufacturing employs over 20 million people. The industry is valued at around US$40 billion and accounts for approximately US$17 billion of exports per year. In terms of GDP, the textile industry represents around 4% of the entire economy. The industry is so vital to the Indian economy that one out of every six households are directly or indirectly dependent on the industry to survive and earn a living. Foreign investment in to textile manufacturing has been on an upward trend for many years, and in 2012 it is expected to produce another estimated 17 million jobs.

Mining also plays a vital role of the Indian economy as the sector employs tens of millions of people. Indian mines produces and exports over 79 different minerals such as coal (third largest producer in the world), iron ore (fourth largest in the world), aluminum (eight largest in the world.) There are in total over 3100 mines, of which 550 are fuel mines, 560 for metals, and 1970 extraction of nonmetals. India is one of the largest exporters of minerals and as such the nation enjoys excellent economic and political relationships with United States, Japan, United Kingdom, South Korea.

Despite the fact that India is experiencing rapid economic boom poverty still remains an issue. India's per capita income is measured at US$1440 and around 75% of the population lives on less than US$2 a day. 37% of the population live below the poverty line. While these statistics are clearly not reflective of a trillion dollar GDP nation, these figures are improving at an extremely fast rate, income has grown for the lower class by 14% per year since the mid 2000s! Infrastructure remains a serious issue which is hindering economic growth. Roads and railways are outdated and haven't been upgraded in decades, resulting in serious delays in the transferring of goods. In 2010, the government announced that it will invest a record US$1 trillion in improving the nations infrastructure which is a necessary investment that will increase employment, and facilitate trade.

Is there any cause for concern moving forward?

One of the greatest cause of concern can be found in the fact that foreign investors have been running away from Indian equities. A year ago foreign investors had invest almost US$30 billion and the figure now stands at around US$530 million. The Bombay Sensex index lost 23.73% and was by far the worst performer amongst the world's emerging markets. In late 2011 the Indian national currency, the Rupee hit a historical all time low against the US dollar. Reasons for this include slowing growth, increased competition from other emerging economies such as China and a slowdown in industrial output (output fell 5.1% in October versus a 0.5% expected drop) Economic concerns in Europe are also not helping India. Economists and financial advisors do not believe the Indian government's 9% growth projections and believe that 7-7.5% is more realistic. While these are indeed impressive figures, other developing nations such as Brazil and South Korea have better growth prospects.

A Few Indian ETFs

Invesco PowerShares India Portfolio Fund (NYSE: PIN) holds 50 of the largest Indian based companies that trade on any of the Indian stock exchanges. The index is highly diversified covering 11 unique sectors such as energy, telecommunications, financials, and consumer staples. Perhaps the most well known Indian corporation Reliance Energy accounts for over 10% of the fund. Reliance is a global behemoth, operating in petrochemicals, refining and oil with assets totaling over $US60 billion, and $US 4 billion in profit during 2010. The ETF fund also includes multinational large cap companies such as Airtel, the fifth largest telecom operator in the world (largest provider in India) with 230 million users spread across 19 countries. Another multinational giant held in the fund is Oil and Natural Gas Corporation, a Fortune 500 company that is one of Asia's largest producer of oil. ONGC owns and operates more than 11,000 kilometers of pipelines in India and occupies a spot in top 20 global energy company rankings.

Emerging Global Advisors India Infrastructure Fund (NYSE: INXX) holds 30 of the largest Indian based companies that derive the majority of their revenue from the manufacturing, selling, maintenance or construction of anything relating to “infrastructure” such as metal mining, energy and power producers, transportation, utility, water companies. The fund specifically includes companies that are poised to benefit from the government's $1 trillion infrastructure investment. An example of a company included is Tata Motors, India's oldest and largest automobile manufacturer. Tata will likely benefit from the infrastructure investment as the nation's roads, bridges and highways would see drastic improvement and Tata's fundamentals will allow them to better serve the transportation needs of the Indian population as public transportation still remains a method of choice for many Indians especially among the middle and upper class due to the horrendous traffic situation caused by outdated roads.

Van Eck Global Market Vectors India Small Cap Index (NYSE: SCIF) holds 124 Indian based small cap companies that represent an important subset of India's economy and are poised for growth as the economy continues to grow. Many of the stocks in the fund are companies that do not conduct business internationally and as such grow when the domestic economy grows. India's bustling domestic consumer market is one of the reasons why companies in the fund are profitable and will continue to grow. An example of a company in the index is Reddif.com (NASDAQ: REDF) which is a news, information, entertainment and shopping portal offering consumers web based e-mails, an instant messenger service, search engines, social networking and many other services. Reddif.com ranks in the top 200 most viewed websites in the world, with almost 90% of the traffic coming from within India. As income continues to rise in India companies like reddif.com can expect to see an increase in revenue as individuals see more money in their pocket they are more likely to spend and stimulate the economy further.

Notable Companies

Infosys Ltd (NASDAQ: INFY) is the world's second largest IT exporter with operations in 33 countries and over 130,000 employees. Infosys is a global leader in business process outsourcing (BPO) as well as sales order processing. Infosys has provided support to other multi national giants such as Proctor and Gamble (NYSE: PG) where Infosys has trained PG executives on how to utilize Infosys' proprietary technology in improving their global supply chain. PG executives based the decision on hiring Infosys as consultants simply due to the fact that they are the only company in the world with the technology and know-how. With offices in 33 different countries worldwide and clients including Fortune 500 companies Infosys may continue to grow and maintain its position as one of India's most respected and important companies.

Tata Motors (NYSE: TTM) is South Asia's largest automobile company, and worldwide the fourth largest truck manufacturer and second largest bus manufacturer. Tata Motors offers a wide range of products as they develop both the cheapest car in the world, the Tata Nano at US$3,000 as well as high end luxury SUVs such as the US$100,000+ Range Rover. Tata Motors has purchased both Jaguar and Land Rover in 2008 forming the Jaguar Land Rover (JLR) group giving the company a large presence in the high scale/luxury automobile market. With global revenues of US$25 billion in 2011, Tata Motors may be able to offer products that suit clients needs at all price levels in many countries.

ICICI Bank (NYSE: IBN) offers a highly diversified range of banking products and financial services to corporate and retails customers. ICICI is expanding rapidly setting up shop in 19 countries. As an example, in Canada ICICI is a full service online only bank offering savings and checking accounts that are able to offer a superior rate of return on deposits as well as investment products and travel insurance. An online only banking system allows CICI to minimize on overhead costs and offer superior products which will attract customers away from the more traditional brick and motor alternatives. CICI is in direct competition with other multinational online banks such as ING Direct. CICI is continuing to position themselves in key markets, both in emerging and developed nations to capture as much as the market as possible.

Conclusion

Many economists predict that India will grow to become the world's second largest economy within the next 50 years. India will be second to China, and will outrank the United States. Current finance minister Pranab Mukherjee is quoted as saying: “Our growth story is intact and the fundamentals are strong…Our markets have the capacity to withstand the negative sentiments affecting the external world.” India's economy is still on track to grow at approximately 8% a year, and as investor's have more access to international markets today through ETFs and direct listing on American exchanges. As economic difficulties in Europe are becoming more and more alarming, India is certainly a suitable investment choice that has the potential to outperform many developed, advanced countries and other developing nations.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

 

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