The Delhi Auto Show held last month is reputed to have become the world’s largest in terms of footfall. It certainly serves to demonstrate India’s rising importance and growth potential. With the country enjoying greater political stability and strong levels of growth JP Morgan India Investment Trust (LSE, JII) continues to provide sound exposure to the region.
India’s economy has been impressively resilient to the global downturn. As such it managed to achieve growth of 6.1% in 2009 and looking forward the OECD expects growth to rise to 7.3% in 2010. This is despite 2009 being a difficult year due to an inadequate monsoon.
On a less positive note the Government’s fiscal deficit was 10.3% of GDP which is not a measure to be proud of. Furthermore, the OECD has cautioned that reining in the Government’s deficit will be difficult due to its size and the permanent nature of the spending increases. As ever India remains a mixed picture while the long-term prospects are compelling.
An interesting area of debate is whether the relative economic performance of India, and other large emerging markets, shows that the de-coupling theory is credible. The theory holds that emerging markets are now less dependent on Western economies as together they make up a greater share of world output. Belief in the idea was so strong that commodities and emerging market stock markets hit new highs in early/mid 2008 even as Western markets started to become weak in mid-2007.
For India the theory is particularly relevant as the economy has been developed since independence with policies to promote self-sufficiency (although clearly liberalisation since the 1990’s has reduced this). Exports as a percentage of the economy are therefore low and foreign direct investment is not critical to growth. Domestic savings of around 38% of GDP have funded investment while even in India’s best year for net foreign direct investment, 2007-08, the inflow was $15.5billion, less than 2% of GDP.
Nevertheless an important driver for India has been the service sector and particularly outsourcing. This has made the country at least to some extent dependent on the fortunes of Western economies. This sector is also important for the stock market and in JP Morgan Investment Trust (JII) two of the top ten holdings are present in this…
