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Stage is set for India to go for growth

All the ingredients for good growth are in place in India: the budget deficit has shrunk, inflation is down, and there has been a massive simplification of the tax system.

Theresa May's trip to India marks her first bilateral international visit outside Europe, says Patricia Hewitt in The Daily Telegraph, which suggests that the prime minister has made India "an even higher strategic priority" than her predecessor. You can see why.

"All the ingredients for good growth are in place," says Arjun Divecha, who runs an emerging-markets fund for asset managers GMO, in the Barron's Emerging Markets Roundtable. The budget deficit has shrunk, thanks to careful management. The central bank, the Reserve Bank of India (RBI), has brought down inflation: consumer prices are rising at an annual rate of 4.3%, down from 6% a few months ago and below the central bank's near-term inflation target for the first time in seven months. This gives the RBI scope to bolster growth with interest rate cuts.

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By far the most promising recent move has been a massive simplification of the tax system "that will help cut out bureaucracy, boost profitability and accelerate growth", says Michael Kass, who runs the Baron Emerging Markets fund. At present it is hard for India's 29 states to trade with each other, because the same products in different regions, or different products in the same region, are taxed at varying rates, says The Economist. "Tariffs are enforced by internal borders at which lorries languish for hours."

The plan is to replace hundreds of taxes nationwide with seven GST (VAT-equivalent) categories. "That levies will be the same across India will create a true single market for the first time." The reform should free up money and encourage corporate investment. Throw in India's promising demographic profile and strong presence in global service industries, and the outlook is compelling. Investors can gain exposure through the Aberdeen-managed New India Investment Trust (LSE:NII), now on a 12% discount to net asset value.

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