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India, For Better Or For Worse!

Investors' sudden enthusiasm for Indian equities has pushed them to excessive values.

By EC Invest

As of April 19, almost one billion Indians are called upon to choose their 543 parliamentarians for the next five years. The coalition around the current Prime Minister should prevail, and Narendra Modi will have a third term to shape the country as he sees fit, not without risks of abuses.

A strong growth to put into perspective!

The Indian economy is in full, fifth globally, according to the IMF (base 2022), with an average GDP growth of more than 7% in the last three years. And everything indicates that economic activity will still be very dynamic in 2024 and 2025. However, we must relativise this performance.

The recent economic boom is partly due to a sharp increase in public spending, some useful, others less. It was, therefore, essential to increase investment to improve notoriously inadequate infrastructure. But not all the money is well spent. Wanting to build a high-speed train network was not necessarily the best choice when the conventional network is entirely dilapidated.

At the level of social action, if this allowed Modi to maintain its popularity, the distribution of essential products to the greatest number did not improve the country's economic situation or really benefit the poorest who already benefited from these aids.

Strong GDP growth is also a result of many economic changes, particularly the rural exodus. Millions of small farmers leave their countryside each year to work in the commercial sector of the cities. Statistically, this phenomenon inflates the value of GDP without increasing the country’s wealth by the same magnitude.

Moreover, while official high growth has reduced extreme poverty by 80% over the past two decades, other indicators show that most Indians have not really benefited from the rise in GDP.

Rising inequalities

Despite annual GDP growth of 8.4% in the fourth quarter of 2023, household consumption has grown by only 3.5% over the past twelve months. This gap between the rise in economic activity and household spending shows that the economic boom benefits only very partially to Indians, or at least to the most significant number.

Consumption is very dynamic among the wealthiest households. Over 4 million cars were sold last year, and their average price jumped 50% in five years. The number of airline tickets for domestic flights reached 150 million compared to 141 million during the pre-covid peak. At the same time, sales of two wheels were 18 million against 21 million before the pandemic. The number of train passengers has fallen by almost 20% in 10 years. If more Indians buy cars and fly, it will be less accessible for as many people to acquire a scooter or train ticket as possible.


Today, the richest 1% hold 40% of the wealth. They receive 22.6% of the income against only 15% for the poorest 50%. Far from diminishing, these inequalities are growing. They have never been greater. The economic boom mainly benefits the wealthiest and large conglomerates that invest in sectors that create few jobs, such as petrochemicals or telecoms. On the other hand, the manufacturing industry that has lifted hundreds of millions of Chinese out of poverty is atrophied in India. Nearly half of Indians still work in the unproductive agricultural sector because of a lack of better.

Capitalism of connivance

If India officially dreams of replacing China as a factory of the world, this is very far from being the case today. And this will probably never be so much the Indian shortcomings are many.

The first is poor education. A quarter of Indians, 350 million people, cannot read or write, which often limits their employability to odd jobs. Overall, education is of poor quality. And having a degree opens a few doors to the job market. High school graduates are six times more unemployed than illiterates, and those who graduate are nine times more!

On the other hand, there are too few Indians who have a professional qualification sought in factories.

Government interventionist policies are another major obstacle to the country’s industrialisation. The Indian economy is closed, with many customs barriers favouring local producers. This deters manufacturers from locating their factories in India to supply the global market. Instead, they invest in the country mainly to provide the local market.

The unhealthy collusion between the big Indian conglomerates and the political class also hampers the establishment of major foreign players. Thus, the Indian bosses have massively supported Modi’s party, which favours them in public procurement and defends their interests against foreign competition.

An overheating market

Over the past twelve months, the Indian stock market has seen a meteoric rise. This development results from the country’s good economic performance and China’s setbacks. Many investors who have left the Chinese markets have opted for India as an alternative to maintain their exposure to Asia. This caused an absolute frenzy for Indian actions that was hard to justify.

The influx of foreign investors also supported the rupee's value, which is now significantly overvalued in the foreign exchange market. With excessive valuations, Indian stocks are not attractive.

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