`India's growth helps to paint brighter global economic outlook, but risk may come from inside`

Washington: India's rising growth helps in painting a brighter global economic outlook despite China's slowdown, a well known global investment strategist has said while cautioning that India's biggest risk may come from "inside the country".

And with India still being predominantly an agricultural country which depends on the rain God, the analyst cautioned the global investor community that from now on, weather may be a factors in deciding the fate of the global economy.

"India's rising growth helps to paint a brighter global economic outlook, despite a slowing China. In the near-term, interest rate cuts by the central bank combined with government infrastructure spending is helping to boost growth in India," Jeffrey Kleintop, senior vice president, Chief Global Investment Strategist of Charles Schwab said in analysis released yesterday.

Observing that India's biggest risk may come from inside the country, he said India's economy is much more dependent on consumer spending than on demand for exports, unlike that of China.

"Over the longer-term, investors should take note that India's unique strengths require inflation to remain contained, structural economic reform efforts to take root and drought conditions to improve in order to support the strongest growth among the world's economies," he said.

Noting the differences between China and India may be most pronounced in the composition of their economies, he said China's growth has slowed down as it has evolved from an economy focused on export-driven manufacturing and infrastructure spending to a more services and consumer-driven economy.

While China's economic transition has resulted in a near balance between sectors, with services at 48 per cent and manufacturing at 43 per cent of GDP (with the rest in agriculture), Kleintop said that in contrast, India's services sector makes up 23 per cent more of its economy than the manufacturing sector (at 53 per cent and 30 per cent respectively).

"This has left India well insulated from the manufacturing slowdown affecting the globe and China, in particular. It also illustrates the different path India is taking from the one taken by China," the analyst said.

India is a democracy, unlike China's one-party system, which can mean quicker policy actions to enable growth.

Prime Minister Narendra Modi is focused on reforms intended to simplify regulatory red tape, make the business environment friendlier to foreign firms, develop the nation's infrastructure, and build an educated workforce, he said.

"While India's government can be a strength compared with China, it also bears risks. India's multi-party elections mean that proposed reforms may be at risk if Modi's party is voted out of power," he said.

"The World Bank estimates that 47 per cent of jobs in India are in agriculture. India has seen two back-to-back years of drought, further bad weather could mean job and income losses that could weaken consumer spending growth," he said.