Favorable Conditions Exist for India to Achieve $5 Trillion Economy Target

By Amit Rupani

Prime Minister Narendra Modi on August 15, 2019, India's Independence Day, said it should be the dream of every citizen to make India a USD 5 trillion economy in next five years. There are many opponents and proponents to this ambitious goal. I have no doubt in my mind that India will be a USD 5 trillion economy in next few years. As part of my equity research to look for good Indian listed businesses available at reasonable valuation, I have gathered some interesting facts about India. I would like to share these facts which shows where India stands today as a country and where is it headed in the future. Obviously it is not exhaustive data, but good enough to give us an indication as to how long the runway is in certain sectors and how fast are we headed on this long runway.

• With the growth of the Indian economy and people coming out of poverty are aspiring to enjoy the fruits of growth and the wealth generated in this process by the Indian economy. The huge middle class population which has come into existence by this economic miracle has presented great opportunities for businesses in India. It is expected that this middle class population will grow by 10 times in the next 15 years.

• Over the next 15 years, 375 million Indians will reach the 25+ age group and further populate the Indian workforce, based on UN data. In a simplified macroeconomic context, this also means that India will carry the distinction of having a working-age population larger than its non-working age population, providing contrast to developed world economy demographics in the decades to come, including some more extreme cases such as Japan where there is an expectation for 58 non-working people per 100 as soon as 2025.

• Less than half a million Indians are paying more than $1500 in personal income taxes. There is no doubt that if you fast forward 10-20 years that number is going to change dramatically. Housing, insurance, healthcare – all these items have such a low base that we have a huge runway of scope. It will have its own bumps, but still opportunity is huge.

• India is expected to become the third largest construction market in the world by 2025 (Source IBEF). The construction sector contributes 15 percent of India's GDP today and is the largest economic activity after agriculture.

• India is estimated to have 730 million mobile Internet users by 2020, according to the latest report from NASSCOM, titled “The Future of Internet in India." While a majority of this number will belong to the urban areas, rural India is said to hold the potential to further fuel the growth of mobile Internet in the years to come.

• There are an estimated 247 million households in India and ~ 65 percent of them own ceiling or table fans. A mere ~ 4 percent of households own air conditioners and approximately 10 percent own air coolers. Rising temperature levels have caused cooling solutions to be viewed as necessities as opposed to luxury items. Long-runway of growth expected for cooling solution businesses.

• According to Airbus, in the 20 years from 2015 to 2034, India will require over 1,600 new passenger and freighter aircraft to help meet growth in demand. Valued at USD $224 billion, these will include 1,230 new single aisle aircraft and 380 wide-body passenger and freighter aircraft. By 2035, the number of Indian cities with over one million monthly air passengers will more than triple. In terms of origin and destination (O-D) traffic, passenger growth is expected to grow nearly six times in next twenty years from 2015.

• Carriers, modern airports, greater use of technology, Foreign Direct Investment (FDI) and increased emphasis on regional connectivity. These factors have placed India to be the third largest aviation market by 2020 and the largest by 2030.

• A decade ago 50 million Indians were taking flights each year – now three times that number are flying each year.

• The association of mutual funds in India (AMFI) is targeting an AUM of 95 trillion rupees by 2025! This is an almost five-fold increase from current levels.

• The automotive industry has produced 29.07 million vehicles during the financial year 2017-2018, which is one of the largest in the world.

• Length of roads increased from 3.9mn km to 5.6mn km in last 10 years.

• 15 years ago only 1 in 3 Indian families had a bank account; now nearly all Indian families have a bank account. This inclusiveness in the banking system will help the economy to get more savings in the financial system.

• National Digital Communications Policy (NDCP), 2018 has set a target of increasing the level of tower fiberisation to 60 percent by fiscal year 2022 from the existing level of 25 percent. The second and the third phases of the world's largest rural fiber roll-out initiative through BharatNet project will continue boosting the country's fiber infrastructure. Meanwhile, development under the government's Smart Cities Mission hinges on a robust common digital infrastructure backbone that includes fiber as the core component.

• Bharat Net is the world's largest rural broadband initiative undertaken by the Government of India (GOI). The project includes provision for on demand affordable broadband connectivity of 2 Mbps to 20 Mbps for all households and on-demand capacity to all institutions. It is a part of the Digital India vision implemented through a partnership with states and the private sector.

Given the strong demographics advantage of 375 million Indians reaching 25+ age group to further populate the Indian workforce in next 15 years, the best days of India as country are in the upcoming years. There will always be few hiccups on the way but given the strong tailwinds, India's future looks very promising. It's a perfect time to “Buy Right & Sit Tight" and selectively bet on the future of India.

Happy Investing!

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Amit Rupani, CFA is an Independent Investor, practices Value Investing principles, manages money for long-term wealth creation through Equities asset class. Email: rupaniamit@yahoo.com