India reforms are gathering pace

By Avinash Vazirani, director and the head of the South Asia equities team at Jupiter Asset Management.

Prime Minister Modi’s recent high profile visit to the UK shines a light on Anglo/India relations, and the potential for closer ties between the two countries on issues such as climate change and defence.

While this is very interesting for politicians and general observers, Modi’s comments on the attractiveness of India as an investment destination should be a focal point for investors.

As a long term investor in the Indian market, the background changes discussed below, and which are receiving little or no publicity, are setting the scene for a transformation of the Indian economy the likes of which we have not seen in recent history, according to fund manager Avinash Vazirani.

Indian stocks have been an isolated area of relative calm amid the storm that has raged across global emerging markets in recent months[1]. Avinash Vazirani, manager of the Jupiter India Fund, believes the game-changing reforms that have helped drive growth in India are continuing to gain momentum, and together with strongly positive business conditions, will help power the next leg of Indian economic growth.

Meetings with government have also left him confident that the government will do whatever it takes to ensure fiscal and monetary policy are aligned to protect India’s low-inflation, rate-cutting cycle.

One of the flagship reforms of the Modi government has been its introduction of a programme of universal social security designed to help lift hundreds of millions out of poverty, for the first time establishing minimum living standards and bringing vast swathes of the population out of the shadow economy and into the formal banking system.

A system of biometric identity records, linked to bank accounts and mobile phone accounts will provide basic health and life insurance and social security benefits. This should dramatically reduce the waste and inefficiency of the state’s payment of subsidies.

The speed and success of this scheme has been breath-taking.

Since its launch in September 2014, 190m bank accounts have been opened and 165m debit cards issued. Shared ownership of bank accounts means that this figure already covers a large portion of the estimated 600,000 Indians who did not have access to bank accounts before the programme was rolled out. With around 2m new accounts opening per week, the remaining pool of 2-300m people without access to a bank account is decreasing fast.

It’s easy to overlook the amount of job creation that’s happening in India as a result of other government initiatives. The ‘Make in India’ scheme aimed at persuading foreign companies to manufacture in India has already seen Taiwanese electronics giant Foxconn sign up to spend $5bn building its factories in Maharashtra State, while the ‘Skill India’ programme aims to give 4m Indians the skills that should help fuel India’s burgeoning economy.

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