The memories of June 1991, when the foreign exchange reserves fell to a level equal to barely a few week’s imports, are way behind us. India’s purchase of 200 tonnes of Gold from the IMF in November 09 was a watershed event in the context of history. India has indeed come a long way from 1991 when it had to airlift 67 tonnes of gold to pledge it to BoE to tide over the Balance of Payments crisis. This proved to be a blessing in disguise, because it provided the right backdrop to usher in the new bold economic reforms in 1991.
The far-reaching structural economic reforms of deregulation and liberalization undertaken by the government since then have unlocked the enormous growth potential of the Indian economy. A more flexible exchange rate, stronger fixed income, commodities and equity markets, and lower trade barriers accompanied with rationalisation of import tariffs have injected a strong resilience into the Indian economy, leading to higher savings and income. With a GDP of more than $1 trillion, India has become the 10th largest economy in the world and the 3rd largest economy in Asia today. It is heartening to note that the Indian GDP has grown at 7% p.a. over the past decade and has firmly withstood the temporary setback of the recent global economic crisis.
Favourable demographics, rising consumer power, huge domestic market with relatively low dependence on exports and a strong push for infrastructure development make India a compelling investment story. The rise of a young and vibrant India with an improving purchasing power in the hands of a growing middle class is turning out to be an exciting consumer landscape. As a consequence, India has emerged amongst the most preferred investment destinations in the world, with both outbound and inbound FDI rising at a rapid pace over the last 5 years. Further, a dormant and vigorous Indian entrepreneurial gene has been resurrected with corporate India rising up to the new challenge. This has found echo in Indian capital markets with establishment of an effective market regulator, increasing degree of sophistication and improvement in levels of transparency and corporate governance. India has truly emerged as a new separate “asset class” in itself.