Domestic consumption the theme of India’s growth

Domestic consumption is the theme behind India’s growth story, according to visiting Indian fund manager Sundaram Asset Management.

Speaking at the Fiducian India Fund Roadshow in Sydney yesterday, Sundaram’s head of global business development, Viju Ranganatha Rao, said dramatic population growth over the next eight years, an increasing middle class and the Government’s realisation that it must support growth are some of the factors in India’s favour going forward.

“In the next 30 to 40 years the Indian population will be the youngest population in the world,” he said, adding that there was also a growing middle class.

“We are in a very interesting phase — what China did over the last 25 years, India will do in the next 25 years.”

Rao said one of the differences between India and China was that China was an ageing population.

“Secondly, China has been dependent on manufacturing to a large extent. In India, 80 per cent of our GDP is consumed within the country and only 20 per cent is dependent on exports,” he said, adding that China is trying to achieve just that as it realised that the world was not growing and exports as an engine were not working.

Rao said about 140 million people would contribute to earnings growth in the next eight years and a higher per capita income would in turn push consumption levels, which would feed into a stronger domestic growth. He added that the country was also seeing increasing rural consumption as rural famers were provided with secondary income through infrastructure projects.

Recent oil and gas finds would also lead to less reliance on fuel imports, he added.

Rao said India saw 6 per cent growth in 2008, and in 2009 and 2010 it recovered strongly with its growth rate currently close to 8.5 per cent.

“We see that because of the way our demography is changing and the way our domestic consumption is growing, a 10 per cent growth in the next ten years is not a difficult thing,” Rao asserted.

While he conceded that India did have its negatives, which included a high fiscal deficit and high inflation, he said the Government was taking action as it realised it must promote growth and jobs for a growing population if it was to avoid civil unrest. He added that there has been little impact on investment in the country due to the troubles surrounding the Commonwealth Games.

Jai Singh, Fiducian’s manager of investment projects, said India’s capitalist and democratic nature along with its growth story is an exciting prospect for investors.

“For us that’s quite an exciting prospect because it’s quite sustainable,” he said.