(June 9th, 2023)
By (Barbato Filippo Chiesa, Equity Analyst)
Edited by (Ascanio Cicogna, Head of Research)
India and China’s growth
According to a new estimate from the United Nations, by mid-2023 India should become the world’s most populous country, reaching 1.429 billion people. Today, both India and China have around 1.426 billion people, but India is growing much faster than China. In terms of economic prowess, India is the fifth largest economy in the world, with a GDP of $3,176 billion in 2021. China is the second largest economy in the world, with a GDP of $17,734 billion in 2021. Even though China’s economy is a lot bigger than India’s, its GDP growth (annual %) is slowly decreasing. Will India be able to grow as much as China?
India’s macroeconomy and its populous
As previously mentioned, India’s population is growing much faster than China’s. China’s annual population growth had its boom during the second half of the 1960s and the 1970s, but then it started decreasing due to its implementation of the one-child policy introduced in the 1980s. During the last five years, its annual population growth has been rapidly decreasing, recording its first population decrease last year since the 1960’s. India, on the other hand, had an annual population growth of around 2.3%-2% between 1960 and 1990, then it decreases constantly but now it is still positive at 0.8%. Just to compare the two nations, China’s annual population growth was 0.8% in 2000. As a result, according to the U.N., India’s population could peak as early as 2047.
Figure 1: GDP comparison between China and India.
Source: World Development Indicators
Another important data to consider, is that Indian population is much younger than Chinese: its median age is 28.7 while Chinese is 38.4. About 40% of India’s population is under 25 years old, these means that about 200 million young people are going to enter the workforce in the next decades.
However, despite the great population data, India has some problems to solve. The most critical right now is its labor market instability. China’s unemployment rate from 2003 has been around 4.5%, while India’s has moved between 8.7% to 7.7%, with a spike during covid-19 at 10.2% (a lot higher than China’s 5%). This is also a consequence of Indian education level, which is still poor in quality. Last year, business advisory Wheebox found that only 47% of male and 53% of female graduates passed its National Employability test. To reduce unemployment, India is trying to create new manufacturing jobs, following the Chinese model, where in 2021 27% of its economy was manufacturing, while in India it was only 14%, according to the World Bank. What it seems to need is heavier infrastructure investment and labor market reforms.
Although labor market is still weak, India was able to reduce poverty problems over the past two decades. From 2000, GDP per capita increased by 410%, passing from $442 to $2,256.6 in 2021. It is still far from China’s GDP per capita, which was $12,556.3 in 2021, but the trend shows a great perspective for the next years. Considering that GDP per capita is not influenced by populous’ dimension, this increase is driven partially by the decrease in unemployment, and by an increase in wages and salaries. In 2019 only 10% of population lived with less than $2.15 a day, while in 2004 they were 39.9%. India has the aspiration to achieve high income status by 2047. If they succeed, it will probably mean an increase in demand and consumption.
Figure 2: GDP per capita comparison between China and India.
Source: World Development Indicators
Who is investing in India?
Demographic data suggest high potential for India to grow rapidly over the next decades, while China seems to slow its expansion. Some companies understood this opportunity and are investing in the country. Here is a quick overview of the main and the most interesting companies.
Apple just opened in Mumbai its first Apple Store in the country and the second one will be opened soon in New Delhi. Since now, Apple sold its products online or through resellers and retail chains, but its share is rapidly increasing and the premium phone market (which considers phones costing above $365, according to Counterpoint) is rapidly growing too. According to Prabhu Ram, head of CyberMedia Research, Apple’s share year-to-year growth has been fantastic, from 1% three to four years back, to about 6% estimated for this year.
Moreover, Apple’s desire to diversify its supply chain from China could be reached by making India an alternative Asian manufacturing location. India currently accounts for less than 10% of global iPhone production, but according to Ming-chi Kuo, an analyst at TF International Securities, Apple’s longer-term goal is to produce 40% to 45% of its iPhone in India. Apple’s main manufacturing partner, Foxconn Technology Group, is also considering an expansion into the country.
Daikin Industries sees India as a big manufacturing opportunity too. Daikin aims to make India its biggest manufacturing hub for export, as the company targets a near tripling of exported Made in India products by 2025. “India would turn into a market as giant as China in the future, as the middle class and the wealthy are growing tremendously.” Said chief executive Masanori Togawa. Daikin estimate an increase in European, American, and Asian demand for the next years, and it had already planned to quadruple its European manufacturing capacity by 2025. In India instead, Daiking is constructing a new plant which will begin operation in August, making room air conditioners and compressors.
Conclusion: Summary
To sum up, demographic data are accommodating for India’s expansion in the manufacturing business. The main reason for that is the youth of its population. China, today, is the main manufacturing market in the world, but Chinese are getting old. India, instead, has young workers looking for a job due to the instable labour market. Therefore, with new foreign investments, unemployment would reduce and the middle classes, estimated to be 66 million to 100 million according to the Pew Research Centre, would grow and so would do the demand of goods and services.
How to not miss the opportunity.
India offers different opportunities that investors could take. There are companies investing in its manufacturing market, which will probably reduce costs and diversify supply chain risks. New investments would reduce unemployment and consequently increase India’s GDP per capita. Richer populous means rise in demand, so higher sales in the country.
These opportunities can be taken by investing in single stocks which estimate an increase in demand and so is looking to increase its production by producing in India. Another investing idea could be to invest in companies which estimate an increase in Indian demand, as they are planning to sell more inside the country. It is likely that, as India grows, more and more people could afford premium price products, so their market would be one of the most lucrative. In conclusion, we can mention that the easiest way to invest in India is by ETFs replicating BSE Senex index, the main Indian stock index.
References:
The Wall Street Journal, L.V. (2023) India’s population is overtaking China’s, U.N. confirms - The Wall Street Journal Google Your News Update - WSJ Podcasts, The Wall Street Journal. Available at: https://www.wsj.com/podcasts/google-news-update/indias-population-is-overtaking-chinas-un-confirms/816b0189-bcb0-4d29-8d59-a944025dbbd2?mod=Searchresults_pos7 (Accessed: 09 June 2023).
Images, M.M. (2023) India’s population boom is an opportunity-and an economic threat, The Wall Street Journal. Available at: https://www.wsj.com/articles/indias-population-boom-is-an-opportunityand-a-threat-68633728?mod=Searchresults_pos1&page=1 (Accessed: 09 June 2023).
India Overview (no date) World Bank. Available at: https://www.worldbank.org/en/country/india/overview#1 (Accessed: 09 June 2023).
Lukpat, A. and Tilley, A. (2023) Apple opens first retail store in India as it looks to country for manufacturing, The Wall Street Journal. Available at: https://www.wsj.com/articles/apple-opens-its-first-retail-store-in-india-7f3a7035?mod=Searchresults_pos7&page=1 (Accessed: 09 June 2023).
Sugiura, E. (2023) Japan’s Daikin targets India as air-con and heat-pump manufacturing hub, Subscribe to read | Financial Times. Available at: https://www.ft.com/content/a677c087-ef43-4100-9705-27e131846625 (Accessed: 09 June 2023).
Legal disclosure:
The projections or other information generated by BSTA regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. As such, BSTA does not assume any legal responsibility for actions that may have been taken by readers associated with any investment projections made by the members of BSTA. There are risks associated with investing in securities. Investing in stocks, bonds, exchange traded funds, mutual funds, and money market funds involve risk of loss. Loss of principal is possible.
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