Emerging markets

Biz@India

India has just taken up the presidency of the Brics (Brazil, Russia, India, China, South Africa) group. It has become the strongest economic performer of this heterogeneous ensemble, with the highest growth and the most readable investment context among these five countries.

Since February 15, India is new the president, for the next 11 months, of the influential Brics (Brazil, Russia, India, China, South Africa) group, which weights more than two fifth of the world population and totalizes a Gross Domestic Product (GDP) of more than 16,000 billion dollars.

India takes the helm after Russia of this rotating presidency and will organise the 8th BRICS summit this year at home, after the last one in July 2015 in the Russian city of Ufa, in the Urals.

A lot of ground has been covered since the concept of BRIC, – completed later with the “S” of South Africa, as a representative of a fast growing African continent -, first appeared in the years 2000s. Jim O’Neill, an economist at US investment bank Goldman Sachs, coined it in 2001 to describe the emerging countries expected to become the giants of the world economy : Brazil, Russia, India and China.

At the time, complementarities were obvious between countries blessed with natural ressources (Russia, Brazil), an industrial giant (China) and a services giant (India). But since then, the specific investment fund dedicated to the BRICS closed at Goldman Sachs, for having performed poorly lately, after however having been very lucrative for a decade or so.

And indeed, everything is not rosy anymore in the BRICS panorama, where only India still pulls out of the game, in terms of growth and investment.

Brazil and Russia are suffering from the collapse of commodity prices, a major source of income for them. They particularly take the blunt from the economic slowdown in China, whose appetite for natural resources does moderate accordingly.

As a result, Brazil and Russia experience a deep recession and they are also penalised by political problems (corruption scandals in Brazil, geopolitical tensions between Russia and Europe or the United States, against a background of crisis in Ukraine and Syria).

South Africa is not at its best either, with a growth revolving around 1%, which is a almost a stagnation for a country whose population is growing. Again, the downfall of commodity prices weighed on its accounts, with a public deficit and a current account deficit.

Similarly, the political and social contexts in South Africa do not provide a clear investment horizon. The country still experiences heavy political tensions, corruption scandals, high crime rates, huge unemployment and deep inequalities.

China is going through an economic slowdown and grows now at a slower pace than India.

“I” for India

Economically, India is the good pupil of the group, with an annual growth of more than 7%, an increasing economic openness to investment and a still dynamic catch up process at work.

Credit rating agency Moody’s forecasts that the Indian economy will experience a 7,5% growth in 2016 and 2017. It expects India will take advantage of low commodity prices and limit its exposure to external problems like the Chinese economic slowdown.

It warns though against negative factors still in place, such as “banks’ balance sheet repair and elevated corporate debt” and against the persistent pressure on consumers, because of food price inflation and droughts, notably in rural areas.

Nevertheless, the Indian economic landscape, despite some weaknesses and its dependance on a sluggish global economy, remains the most readable for investors, compared to other BRICS.

India still enjoys a catch up pattern in consumers spending, sustained by favourable demographics in a young country. It has a relatively moderate inflation, in line with the 5% target of the Reserve Bank of India, helmed by Raghuram Rajan, whose skills and world vision are praised by his peers.

There is also a pick-up in investment, notably in Foreign Direct Investments (FDI). Not to forget a more than 20% increase of salaries decided in the public sector.

India, or the strongest of the BRICS … In an group of countries that would need a greater economic consistency to cement such a disparate ensemble.