At a far earlier stage of development and with a population soon to surpass that of China, but with a less autocratic government, India deserves attention from long-term investors.
Gary Greenberg is head of emerging markets at Hermes
INDIA: CHALLENGES AND SOLUTIONS
Challenge 1: Power
The lack of reliable power is a key impediment to the development of the informal sector in which only 27 per cent of rural and 52 per cent of urban manufacturing enterprises use electricity for production purposes.
Solutions
Power sector reforms – the government of India has embarked on power reforms such as fast-tracking 23,000MW of power projects and 1,600km of transmission lines.
Challenge 2: Availability of capital
Limited access to funds acts as a major constraint to development for entrepreneurs in the informal sector.
Solutions
Banking reforms and a better micro-finance (MFI) initiative – MFI legislation has just been introduced by parliament which, if passed, should help provide stability for the sector. Further, new banking licences set to be issued could help the growth of MFI lending as it will give access to deposits.
Driving exports – India’s chronic current account deficit results in periodic interest rate spikes and a higher than average cost of capital. Developing industries that generate foreign exchange could stabilise the rupee and lower interest rates, making capital cheaper.
Challenge 3: Skills gap
Only about 11% of the youth in India have received or are receiving any training, whether formal or informal. Lack of skills has a direct impact on overall productivity and income levels.
Solutions
Educational reforms – the Indian government is allocating US$20bn to vocational training and modernising classroom learning in an effort to create a skilled workforce of 500 million by 2022.
Source: Hermes
