India will weather China’s crisis

While Indian stocks have fallen amid worries over a Chinese slowdown, India is well-placed to stage a recovery.

India has "felt the full force of an icy blast blowing south across the Himalayas", says Robin Pagnamenta in The Times. Indian stocks have fallen amid worries over a Chinese slowdown. But India "is well-placed to weatherthe China crisis".It has the lowest trade exposure (5% in 2014) to China of any major economy in the region, and falling commodity prices help India, which depends heavily on raw material imports. Oil comprises around a third of these.

The oil price plunge has helped reduce the current account deficit by more than 90% since January 2014. This makes India less vulnerable if global investors pull money out of the country as US interest rates rise. In all, a $10 drop in the oil price will lower the current account deficit by 0.5% and the fiscal deficit by 0.1%, reckons Meghana Gaikwad of CB Capital Partners.

Falling oil prices have also cut the cost of fuel for consumers and businesses and helped lower inflation, which has halved to 3.8% in the past year. That should allow the central bank to trim interest rates. What's more, there are signs that GDP growth is bottoming, although claims that India is now growing faster than China are "overdone", says Capital Economics, given the questionable accuracy of data from both countries.

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But India now needs to push on with structural reforms, says Niharika Mandhana in The Wall Street Journal. It has eased foreign-investmentlimits in some industries and tried to cut red tape. Along with the huge domestic market, this helps explain why foreign direct investment was up by 40% year-on-year between October and May.

Unfortunately, the latest parliamentary session has ended without two key reforms being passed. The first is a constitutional amendment to replace a hodgepodge of state levies with a single, "business-friendly" nationwide sales tax. The government also appears to have ditched legislation that would have made it easier for the government to buy land to develop infrastructure on it.

Continuing to deregulate the economy would allow India to better exploit its long-term advantages, including a presence in global services and a huge workforce: half the 1.2 billion-strong population is under 25. These, alongwith India's ability to ride out the China storm and the prospect of eventual progress on reform, make India well worth a look. The New India Investment Trust (LSE: NII) is currently on a discount of 9% to its net asset value.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.