India may be the last BRIC standing

As Brazil, Russia and China hit hurdles, it's the poorest member of Goldman Sachs' emerging-market group that's proving a darling of global investors. The International Monetary Fund (IMF) is predicting India will next year grow faster than each of its BRIC counterparts for the first time since 1999.

So far this year, more than $7 billion has poured into the country's stocks and bonds, on top of last year's $42 billion of inflows. The country's benchmark equity index reached a record at the end of last month. Falling oil prices are helping the government reduce its budget deficit and giving room to the central bank to lower interest rates.
 

Adding lustre are Prime Minister Narendra Modi's pledges to make it easier for businesses to invest in India, and the determination by the central bank, helmed by former IMF chief economist Raghuram Rajan, to keep inflation contained.

"There are probably more positive stories to tell about India than there are about the other BRICs at this stage," said Neil Shearing, chief emerging markets economist at Capital Economics Ltd in London. "The market has corralled behind Modi and the idea of very rapid growth."

India isn't without its challenges as it continues to play catch-up with other major developing nations. Its gross domestic product per capita, at $1,165 as of 2013, is less than a third of China's $3,583, according to World Bank data. When China was at India's level of development, it went on to record average economic growth of about 10 per cent over the following decade. Beset by power shortages, transport bottlenecks and a dearth of skilled labour, few forecasters see India emulating that performance.

"There's huge potential in India, but the optimists may have got a bit ahead of themselves," said Shearing. "The jury is still out, but by the end of the year we'll know more."

Brazil has been pounded by the collapse in commodity prices as its policy makers face a looming recession and run up record budget deficits. The biggest drought in decades is adding to the pressure, and the real dropped 18 per cent against the dollar in the past six months.

In a sign of the times, onetime darling state-run oil giant Petroleo Brasileiro SA is mired in a corruption scandal that last week cost its chief executive officer her job. It has fallen short of growth targets and is now worth a fraction of its $310 billion 2008 market-peak.

As for Russia, its incursion into Ukraine has left it a pariah in financial markets, and a cocktail of sanctions, plunging oil prices and capital flight is propelling it toward recession. Inflation is running at the fastest pace since 2008, amid the worst currency crisis since the nation defaulted in 1998.

While China is faring better, its leaders are contending with capital outflows, depreciation pressure on the yuan and the risks of a property crash and deflation. The world's second largest economy is steadily decelerating, with last year recording the slowest pace of growth since 1990.

2015 outperformer

"We expect India to be a relative outperformer in emerging markets in 2015," Tushar Poddar, an economist at Goldman Sachs in Mumbai, said in remarks on the year's outlook last month. He cited boosts from external demand thanks to many central banks easing policy, domestic rate cuts and pro-growth structural changes from the government.

Today, the Modi administration releases its updated estimate for GDP for the fiscal year through March. Rajan, for one, has underscored that his nation has plenty of work to do to assure a sustained pickup in growth.

"We're still sort of reaching the outskirts of the woods rather than out of them," the Reserve Bank Governor said in a Feb. 4 interview with Bloomberg TV India. "What I see in the Indian economy is a recovery."