Although India is not immune from the impact of higher oil prices and inflation, it remains one of the world's fastest growing economies. 

There are several high-profile trends underpinning the country's growth story including healthy growth in government tax collections, impressive long-term consumption, well-capitalised banks and a stable currency. 

While much has been written about what is happening in India at a macro level, investors would also do well to pay attention to trends and developments that are not mentioned in mainstream media, but still contribute significantly to India's positive investment story.

The rise of domestic air travellers

April 2023 saw the highest ever domestic passenger air traffic in India. This can be traced back to 2016 when the Indian government launched a scheme called ‘Ude Desh ka Aam Naagrik' (UDAN) which translates as ‘Let the common citizens of the country fly'.

To sustain economic development, it was considered necessary to improve India's regional connectivity via air travel. This led to the construction of over 74 new airports and over 470 new air traffic routes. Furthermore, these new routes are cost effective for airlines thanks to lower fuel taxes and affordable for travellers due to airfare caps.

India Capital Growth Fund (ICGF) is playing this theme through VIP Industries, India's largest luggage manufacturer and a direct beneficiary of the boom in domestic air travel.

Rethinking India's defence policy

Historically, India's defence policy prevented tourists from visiting border areas such as the Himalayas, and the infrastructure was also relatively poor, predominantly to limit the potential of enemy invasions.

Since 2020, a reversal in this policy has transformed villages across the border into tourist destinations, boosting employment and investment across infrastructure (roads, bridges, communication).

This shift in defence policy is also an attempt to reduce India's reliance on defence imports as the country is currently the world's largest arms and weapons importer.

 The government has compiled a list of 411 defence products that will be restricted from being imported over a defined time period. This has created a huge market opportunity in India with the private sector now willing to invest resources in developing these products and consequently, global players also looking to develop partnerships in India.

Vande Bharat Trains: ‘Train 18'

When the decision was made to upgrade India's railways, the Indian government decided to send a team to Europe to study their railway systems and shortlist partners to import their trains to India.

The story goes that Prime Minister Modi questioned why these could not be made in India. In the end, the head of rail coach manufacturing unit, who had 18 months left until he retired, took it upon himself to build it out.

The project was named ‘Train 18' and within these 18 months, on 15 February 2019, India had the first two prototypes of the new ‘Vande Bharat' train ready. At present, there are 15 trains in service, and orders for another 200 have been placed with the goal of having 400 trains in service in the next five years.

Crucially, policy makers are thinking of scale and not focusing on short-term annual orders.

With this long-term vision, companies are willing to invest and build capacities; the likes of Alstom and Siemens have set up locomotive plants in India and Indian railways that used to order 20-35,000 wagons per year are now placing orders in excess of 84,000 wagons in one go.

One of ICGF's largest holdings is Ramkrishna Forgings, a big beneficiary of increased spending on railways. The company has seen rising order wins and is also setting up a greenfield plant to manufacture wheels specifically for domestic railways.

There are various counter arguments used by India-sceptics, claiming these initiatives are simply a marketing exercise from the current party in power and several of the new airports and routes are actually unviable. Likewise, the Vande Bharat trains are just 10-15% faster than the existing ones.

The fact does remain, however, that as we delve deeper into the fine print, we see a common thread: India's government is thinking outside the box when it comes to development projects and long-term targets. Furthermore, the pace of execution has seen a steep jump providing confidence in India's future which in turn helps drive private sector investment.


Gaurav Narain is fund manager of the India Capital Growth fund

This article was first published on sister website Investment Week.