India and beyond.

Since the beginning of 2023, various organizations, bankers, businessmen, and central banks have been sharing their opinions about India 2040. Some of them went the extra mile and said things like, "India would become the world's largest economy in the next 10 years". As an Indian, I get an adrenaline rush when I hear things like that, but as an investor, I need to separate facts from opinions. For an economy to become the world's largest, you need to experience tremendous amounts of growth in various sectors of the economy. I believe the best way to judge an economy is through economic indicators, and that's what I am going to do. Being a rational guy, no other thing than numbers can satisfy my doubts. That's why I am going to talk about a few economic indicators, and based on those indicators, you all decide what's realistic and what isn't. I would love to hear your side of the story in the comments below. So, without further ado, let's get those indicators rolling.

 

1. GROSS DOMESTIC SAVINGS: 

    The country's Gross domestic savings are expected to grow to $103 trillion in the next 25 years. This number was around $12 trillion 25 years ago. Rising domestic savings mean either of the two is expected to happen. One, that savings might get diverted into the Indian equity markets through various instruments, or India can experience a rise in fiscal deficit. Savings are a part of an economic equation that can either increase or decrease the fiscal deficit. If the savings increase faster than government spending, then India would certainly experience a fiscal deficit and if government spending increase faster that domestic savings, a decrease in fiscal deficit or an increase in fiscal surplus is possible. Talking about Indian equity markets, the D-MAT accounts opened during August 2020 were 48 million which has risen to 123 million, as of August 2023. India's working population stands at 410 million which is expected to grow by 6%. D-MAT account opening will grow exponentially as average Indian is getting educated about investments and has an ambition to live a more comfortable life. NIFTY 50 at 20500 is just the beginning. 

2. PER CAPITA INCOME:

Per capita income means the average income earned by the population of a country. Currently, India's per capita income stands at $2450, which is expected to grow to $4000 by 2030, which is 70% higher, helping India become a middle-income country. Per capita income has risen from $100 in 2001 to $1413 in 2011 to $2150 in 2021. Per capita income is directly related to spending in an economy. When you have surplus cash in the bank, it can either get parked in financial assets or flow into the economy in the form of spending. Either way, India would experience a lot of growth in spending, which can influence the GDP.

 

3. HOUSEHOLD CONSUMPTION: One of the biggest growth factors for India to become the world's largest economy is going to be household consumption. The beauty of economics is that everything is connected. This interdependency can become a solution to the problem or the problem itself. A rise in per capita income would definitely increase household consumption. This consumption would focus more on durable goods as compared to necessities. Durable goods are bought with disposable income, and India experienced this during 2022. A total of 38 lakh cars were sold during 2022, and this was solely possible because of the rise in disposable income. Household consumption currently contributes 57% to the GDP. State-wise GDP is also expected to grow. Currently, Telangana holds the number one spot with Rs 2,75,433 in per capita GDP, followed by Karnataka, Tamil Nadu, Kerela, Andhra, and Maharashtra. These states collectively contribute 25–30% to national GDP, and a rise in per capita income in these states would speed up the process.

4. INDUSTRIAL ACTIVITIES: The Indian government has been proactive in increasing infrastructural activities. An index called the IIP, or the index of industrial production, has been rising for the last 21 months consecutively. IIP measures the volume changes in the production of an economy and, therefore, provides a measurement that is free from the influence of price changes, making it a leading indicator of the economy. The IIP comprises mainly 8 sectors, which are electricity, crude oil, cement, steel, refining products, natural gas, and fertilizers. These 8 sectors make up 40% of the weight of items included in IIP. The good thing about IIP is that it is a monthly indicator, and a continuous drop in this economic indicator can be interpreted as indicating that a slowdown might be approaching. As of now, India's industrial activities are rising. Electricity consumption, the whole and sole of every sector, has been reaching new heights every quarter. We all can sleep well right now because this indicator is pointing toward tremendous growth.

5. CORPORATE PROFITABILITY TO GDP: A very efficient way to measure the growth of Indian corporations is to measure their profitability with the GDP of a nation, and this ratio helps us get this job done. Rising GDP but declining corporate profitability means the economy isn't actually growing. And the opposite isn't actually possible. Corporate profitability is meant to rise when the economy rises and is not certainly meant to fall when the GDP falls. Even if the GDP is rising and the profitability isn't, the detective inside you should rise. This ratio has been on a downtrend since 2007. The highest corporate profits to GDP ratio ever measured was 7.8% in 2007, and since then, the ratio hasn't touched a new high. Just for the sake of comparison, the same ratio for the US in 2022 was 16.4%. It is true that corporations have found new ways to either completely or partially defer taxes, but a continuous decline in this ratio can be doubtful for the economy. A recent report published by the Business Standard states that Indian individuals have collectively paid more taxes than Indian corporations. This indicator needs to rise in the future as India embarks on a $5 trillion economic journey.

6. DEBT TO GDP: 

This is a metric comparing a country's public debt to its GDP. By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country's ability to pay back its debts. Often expressed as a percentage, this ratio can also be interpreted as the number of years needed to pay back debt if GDP is dedicated entirely to debt payments. According to the World Bank, if any country's debt-to-GDP ratio exceeds 77% for prolonged periods, the economy will certainly experience an economic slowdown. India's debt-to-GDP ratio has surpassed the benchmark, but the good thing is that it has been consistently averaging between 85-88%. This indicates that even though debt has been fueling the growth, most of the growth comes from instruments other than debt. The same ratio for the US is hovering around 122%. Japan is even worse. It is 224%. Considering the developed economies, India is pretty safe.

7. INFRASTRUCTURE PUSH: India is experiencing one of the greatest infrastructural pushes that this nation has ever experienced. Not just in terms of roads or express ways, but also in terms of residential and commercial buildings, changing the power infrastructure, new metro lines, electrification of railway lines, skyscrapers, etc. Infrastructural growth in any nation signifies long-term growth because of its cyclical nature. Infrastructural investments are large and require a lot of time and effort. If I am undertaking a commercial project, I am thinking about the next 5–6 years ahead because that's when I should expect to earn a profit. Even the railways have been proactive in expanding and electrifying their lines. During the year 2013, electrified railways were just 4100 km, which stands at 28100 km as of 2023. By the end of December 2023, we should expect 100% electrification. India has the largest population, and this rise in population should be countered with proper and efficient infrastructure.

What we all experienced in 2023 was just the trailer. The introduction of trains like Vande Bharat, the Mumbai trans-harbor link, the Chenab Bridge, Samruddhi Mahamarg, the new Parliament building, the Delhi-Mumbai industrial corridor, and Navi Mumbai Airport were all part of this trailer. If you want to watch the entire movie, then wait until the Lok Sabha Elections get over. You all would love the movie, provided we have the same government directing it.

 

During his speech in 1991, India's then finance minister, Dr. Manmohan Singh, said something that is relevant even today: "There is no power on earth that can stop an idea whose time has come." The idea was India. I feel grateful to have taken birth in these auspicious times when my country is experiencing one of the greatest developments it has ever experienced. I certainly believe that, apart from religious riots, Congress in 2024, or World War 3, nothing, and I mean nothing, can stop India from becoming one of the top 3 economies in the world.

 

JAI HIND.

Happy Investing.