India is on investors' radars. Shares reached a two-year high this month as international investors look to South Asia for emerging economy growth. But does India have what it takes to sustainably grow its economy? I'll use three different indicators to contextualize four different companies and let you be the judge.
1. GDP per capita
Marilyn Monroe,Pink Floyd, and Ludacris all agree on one thing: money matters. Gross domestic product per capita is one of the simplest metrics, but it's also one of the crudest. Equal to average income, it reveals little about the rising middle class or purchasing power of Indians. Currently, India's individual income clocks in at $1,489 a year.
India's GDP per capita has improved nearly 50% in the past 15 years, but it still lags far behind the world's average earner.
For a peck of perspective, Indian automaker Tata Motors (NYSE: TTM ) has found fame and fortune through its $2,000 Tata Nano, the world's cheapest car. Although the average Indian would have to put 16 months of wages toward the purchase of this car, India's 1.2 billion person population creates a lot of customers. For fiscal year 2012, Nano sales increased 5.8% to 74,521 and, more important, Tata enjoys 100% market share in the "micro" vehicle category.
2. Doing business
For 10 years, the World Bank and International Finance Corporation have published a Doing Business report to provide objective measures of 185 countries' regulatory frameworks. The analysis examines the "user friendliness" of the regulatory process, as well as regulatory enforcement .
For 2013, India came in 132nd place -- hardly a frontrunner on regulation. Even worse, India was also one of just two countries where business is more difficult to conduct today than it was in 2005 (the other was Zimbabwe, where inflation reached 79.6 billion percent in 2008).
But it's not all bad news. India created its first credit bureau in 2004, and has since made significant strides in improving international trade and citizen taxpayer rates. In parts of India with looser employment standards, informal firms dropped by 25% and real output grew by 18% compared to regulation-heavy areas.
But companies headed to less regulated areas need to recognize that employee safety, product quality, and environmental stewardship cannot be sacrificed. Dow Chemical (NYSE: DOW ) has been struggling with this reality since 2001, when it acquired Union Carbide and its 1984 Bhopal chemical spill. India's loose regulatory environment has helped it evade direct liability, but Dow's brand is now infamous for its corporate irresponsibility.
3. Human Development Index (adjusted and unadjusted)
If you're looking for a metric to measure a society's sustainable standard and quality of life, the United Nations Development Programme's Human Development Index is the biggest name around. Incorporating wealth, health, and education into one inequality-adjusted metric isn't perfect, but it does say a lot about the future employees, consumers, and citizens of a country. For 2011 (most recent data), India falls in 134th place out of 187 countries.
Even worse, the country's inequality-adjusted index drops the country's rating by around 30%. Although advancements have been made to move away from the caste system and other historical inequalities, cultural and religious barriers still hold back significant portions of the country's population. Most recently, gender issues erupted when the gang rape of a 23-year-old woman brought the government's archaic discrimination against women to the forefront of national discourse.
India's health index is the country's strong point, while education continues to lag. Even as life expectancy tops 64 years, the average adult enjoys just 4.4 years of schooling. Education is an important backbone to any country, but especially so for India's technology-based aspirations. Infosys' (NYSE: INFY ) 156,000 employees have helped the company grow sales more than 800% in the past 10 years, but the company is facing increasing competition from other ASEAN tech corporations. Likewise, consulting firm Accenture (NYSE: ACN ) looks to India for many of its outsourcing solutions. It employs 70,000 people across seven cities, and works in 14 sectors from media to logistics. Over the past 10 years, both companies' stocks have hammered the S&P 500's returns.
And while India's low cost of living and large labor supply currently fatten these companies' margins, education and health need to improve to keep the country's population competitive.
The proof is in the people
It's easy to get excited about an "emerging middle class" and international growth stocks, but deeper analysis can help investors understand the true viability of their investments' aspirations. The China bubble burst humbled many shareholders headed east and reminded us that it takes both a well-managed company and a well-managed country to move markets higher. Arm your investing thesis with these three metrics and head forth a more informed, more confident, and more Foolish investor.
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