AXA IM: India attractive over next five years

AXA IM: India attractive over next five years

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Danny Richards, Emerging Asia Economist at AXA Investment Managers, describes his outlook for the Indian economy as Narendra Modi remains prime minister for a third term, albeit for the first time without a majority.

'Barring major shocks to the global economy, India’s economic expansion should continue to outpace most other major emerging markets in the next five years. A continuation of current pro-business and investment-promoting policies, combined with its growing consumer market, should keep annual growth above 6%.

Over a five-year horizon, India therefore continues to present investors with a compelling growth story, and this pace of growth could be faster if Modi manages to accelerate reform, which could unlock potential growth closer to the double-digit rates recorded by China and other East Asian economies during their acceleration phases.

However, challenges look set to grow over the longer term. India is among the most vulnerable markets to the adverse impact of climate change, notably the potential reduction in productivity from extreme heat, the damage to physical assets from extreme climate-related events, and the required diversion of resources to disaster risk management and mitigation projects.

Modi has achieved a rare political feat in winning a third consecutive term, but the decline in support compared to the previous election in part reflects his government’s failure to ensure the spoils of the growing economy are shared widely. With the BJP losing a majority, and facing a rejuvenated opposition, Modi will need to adopt a more conciliatory and consensus-building approach to policymaking to push through difficult but necessary reforms.'