Long relegated to second place behind China, Asia’s economic leader, there are clear indications that India is on the verge of a dramatic growth phase, according to analysts from the international investment bank, Credit Suisse.
“India looks to be firing at last,” was one of the headings in the bank’s report which also contained a warning for international mining companies hoping to sell bulk materials, such as iron ore and coal, to the country.
Self-sufficiency, which has long been a political objective in India, appears to be developing in bulk commodities with distribution problems that have dogged coal and iron ore being overcome.
Piles of coal stand near a rail yard at the coal-fired NTPC Ltd. Badarpur Thermal Power Station in Badarpur, Delhi, India. Photographer: Prashanth Vishwanathan/Bloomberg
The aim of the week-long visit by the Credit Suisse team was to see whether commodity intensive growth has started in India. The answer was positive, but with a mixed outlook for investors hoping to capitalize on commodity demand.
Copper Best For Miners
The mineral offering the best opportunity for miners looking for market opportunities was copper, the bank said, with India having limited local supplies of the metal which has widespread uses in the electricity, construction and transport sectors.
However, it was a different picture for coal and iron ore thanks to the government overcoming obstacles which means domestic supply is rising, and the call on seaborne supply (imports) is diminishing.
“India has long offered potential for super-cycle growth, but has been slow and halting in its development ,” Credit Suisse said.
“Gross domestic product (GDP) per capita peaked in 2010 but then faltered and went backwards for three years. It is now back on positive course.”
Comparisons between India and China have been a source of embarrassment for the Indian Government over the past 22 years with 1994 the last time the two Asian giants had similar rankings of income per person.
“Since then China has pushed ahead and per capita GDP is now 5-times greater than India,” the bank said.
16-Years Behind China
“In real terms, India is 16 years behind China in its GDP. For consumption of metals, India is 22-to-24 years behind China, having reached the per capita steel use that China achieved in 1992, and 1994 for aluminium.
“The higher GDP versus metals consumption when compared to China presumably reflects India’s move into Information Technology and services, whereas China focused on manufacturing and infrastructure.”
The Credit Suiss assessment of India’s outlook was based on meetings with government agencies and companies in Delhi, Kolkata and Mumbai, focusing on demand for bulk companies such as coal and iron ore but also with discussions about fertilizer and aluminum.
“We came away convinced that India really is on the cusp of a major growth phase,” the bank said.
“Companies pointed out the positives they see from government policies; an anti-corruption focus, a level playing field without favoritism, clear high level policies, and government ministries and State-owned companies driving to implement the policies, and overcoming many problems of the past.”
Credit Suisse noted that ultimately India will consume more resources, and growth in that direction was about to start.
Power For All By 2019
“Government policies include power for all by 2019, and housing for all by 2022.” the bank said.
“These policies are not empty statements, they are being pursued vigorously.
“Also, heavy government investment in transport infrastructure is underway, on the view that faster and more efficient freight transport is needed to power the country’s growth.
“The difference now from previous optimism may be that (Prime Minister) Modi’s election platform reflected the desire of the population for jobs and growth.
“State governments have seen how the jobs and growth mantra brings electoral success and are copying the focus.”
Credit Suisse added that for Indian and the rest of the world: “this is a positive story”.
I cover the mining and oil industries in Asia.
Opinions expressed by Forbes Contributors are their own.
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