April 25, 2017
India has the fastest growing large economy in the world and by 2020 it will also have the biggest population on the planet, currently second only to China; and the alignment of those two statistics is certainly no coincidence. Together they help explain why Red Ribbon Asset Management has worked so hard to acquire its leading position in the sector. India is the most dynamic Growth Market in the world and, to adapt a phrase famously coined by Jim O’Neill of Goldman Sachs Asset Management, it has the greatest potential as a catalyst for world economic growth of any economy on the planet (goldmansachs.com/our-thinking/archive/oneill).
But lets look at those two opening statistics again. India is currently the fastest growing large economy in the world and it has the second largest population. Are those two facts connected?
In a word, yes.
Because all other things being equal, domestic consumption is a key driver of GDP and it is directly correlated to population growth. To put it simply, the greater the putative, pent up demand for consumer products and services is in an economy, the higher the rate of economic growth is likely to be and this overall demand is a product of the propensity to consume spread across the economy as a whole. In developed western economies that propensity to consume has been fuelled and managed over the past forty years by the increased availability of consumer credit, which of course came with its own special problems as we found out in the aftermath of the economic crash of 2008. But lower absolute spending, spread per capita across a much larger population, will be much less reliant on the availability of consumer credit (the population of the United Kingdom is nearly twenty times smaller than India’s which means equivalent growth can be fuelled by a twentieth of the same spend in the UK).
All of which means that growth will be generated more readily in India without the risks of an expansion fuelled primarily by consumer credit. It has the population to make that possible. Most developed economies don’t.
Take a recent example to prove the point. As we noted on this site last month, Jio is making waves in the Indian telecoms sector (as well as internationally) even though it is well recognized that historic data usage across India is low, that there are very few fixed lines and that most people don’t have smartphones; but India’s burgeoning population is so large that the company has been able to win 100 Million new customers in the last six months alone; the only other company in the world with an acquisition rate capable of even getting close to that figure is Facebook (www.crossroadstoday.com/data-acquisition-hardware-market).
That’s why Growth Markets are so important to the global economy; they are powerhouses for growth without the risks associated with a developed economy expanded through central government credit initiatives. And when any investment is deployed in a Growth Market, especially one as fast growing as India, those factors can turbo charge their success. That’s why Red Ribbon Asset Management is committed both to India’s future and to high growth strategies for our clients (https://www.redribbon.co/).
Red Ribbon CEO, Suchit Punnose said:
Of the small number of Growth Markets identified around the World at the moment; those Markets that are the key powerhouses for future economic growth globally, there is one factor which sets them apart from almost every other developed economy and other emerging markets: they all have a burgeoning population demographic, and that is important because, as the article points out, an expanding home population will inevitably provide a solid and sustainable demand base for future markets to grow into. So I was interested to read of the distinction between consumption patterns in a developed, credit fuelled economy and a high population growth economy, which seem to me to underscore that point very well.And of course this demographic dynamic will give an added impetus to India’s future status as a Growth Economy. It is projected to have the largest population on the Planet by 2020 and I wouldn’t be surprised to see it harness the added potential this will provide as additional leverage so as to start pulling away from its BRIC compatriots as we go forward.