With the Great Rotation out of US assets appearing to be under way, it might now be a good time to consider India, where the recent federal budget provides a generally positive view of prospects and investment opportunities, and potentially significant reforms for foreign investors.
One of the most promising highlights is that India will increase infrastructure spending 8.8% to US$133.08 billion in the year ahead. This should help reduce poverty and sustain growth in official target ranges. The government has forecast the economy to grow 7.4% in the current fiscal year ending March 31.
According to the World Bank, India will need to achieve an average annual growth rate of 7.8% over the next two decades to reach its target of becoming a high-income economy by 2047.
But in a 2024 report, the World Bank underlined what an ambitious target this is to achieve in a generation. It pointed out that countries that graduated to high-income status, such as Chile, Poland and Romania, did so in very different circumstances, and that India will have to chart its own path.
While the Indian economy has nearly quadrupled in real terms since 2000 to become the fifth largest in the world, the World Bank said the country has room to improve in the key ingredients of growth – capital investment, labour force growth and total factor productivity.
As for ways to invest in this growth story, Nirmala Sitharaman, India’s finance minister, said in her budget speech on February 1 that the government plans to issue $187 billion of bonds from April 1. This, according to Bloomberg figures, is a record high figure and 16.5% more than the previous year’s issuance. The government aims to trim the federal deficit from 4.4% to 4.3% in the year ahead.
One of the most promising features that Sitharaman announced in her speech is a comprehensive review of foreign exchange management rules to create “a more contemporary, user-friendly framework for foreign investments”.
Although the details remain to be worked out, Indian news reports are already hailing this as a major reform that will make the South Asian nation a more attractive destination for global capital.
Sitharaman said that although India faces “an external environment in which trade and multilateralism are imperilled and access to resources and supply chains are disrupted”, it needs to “remain deeply integrated with global markets, exporting more and attracting stable long-term investment”.
