Recently, India officially became the most populous nation on the entire planet with over 1.4 billion inhabitants.
Yet unofficially, India had already surpassed China in terms of population several years ago.
A cursory glance would tell you that investing in India is a good idea. The country’s GDP growth rate commonly exceeds 6% while its economy has missed almost every recession since the late-1970s.
India’s large and technically skilled labor force gives it a unique competitive advantage as well, helping to make the case for investment in India.
You won’t find anywhere else with such a plentiful supply number of English-speaking, competent workers who are willing to accept below $500 per month in salary – except maybe the Philippines!
But despite India’s massive consumer market and solid potential overall, incredibly restrictive laws on foreign investment along with countless economic issues are holding them back.
You probably shouldn’t invest in India… at least not now. The country’s major systemic issues outweigh the benefits, especially if you’re a foreigner.
The Rupee’s Constant Depreciation
Many investors don’t fully realize that when you own offshore assets, you’re not just holding a stake in a business or a piece of property. You’re most likely betting on a different currency as well.
Because of that, it’s crucial to research the stability and historical performance of any currency you’re buying property or stocks denominated in terms of.
The Indian rupee is among Asia’s worst currencies for its part. Over the past several decades, it has consistently fallen against the US Dollar and all other major global currencies.
Here’s a 20-year chart showing the Indian Rupee’s constant depreciation against the US Dollar. Remember: if you’re investing in India, you’re also in some form taking a stake in the future of its currency.
We expect the rupee will continue its terrible performance in the future. Such a scenario is in India’s best interest because they want to become a top global exporter.
Whereas a weak currency is a good thing for export numbers, it’s horrible for any global investors who own stocks or real estate in India.
Here’s an example: the Indian stock exchange’s main benchmark index, the NIFTY 50, has quadrupled over the past decade.
The gains in India’s stock market isn’t anywhere near as impressive after we consider the rupee’s nearly 50% decline against the U.S. dollar throughout that same period though.
If you bought Indian stocks ten years ago, they’ve probably showed poor performance in terms of most foreign currencies.
Risks of Investing in India
Determining whether a country has good investment potential is the easy part. The challenge is following up and going through the process of actually buying property or stocks in a foreign market.
Foreign stock traders and real estate buyers face numerous hurdles when investing in India.
In fact, you can’t even legally purchase India property as a foreigner. You must either have status as an Indian citizen or PIO (Person of Indian Origin) to own freehold land.
Investing in India is also difficult if you’re a stock trader. You can only directly buy Indian stocks if you’re a Qualified Foreign Investor (QFI) and achieving this status isn’t easy.
Unless you’re a citizen from a list of about thirty countries, are willing to go visit India, register with several departments, and jump through hoops, your sole realistic option for buying Indian stocks is through a mutual fund or ETF based outside of India.
A few India-focused funds that come to mind are the iShares MSCI India ETF (INDA) and VanEck Vectors India Small Cap ETF (SCIF).
Generally though, your options to invest in India as a foreigner are rather minimal aside from these ETFs.
Forming and maintaining an Indian company is a bureaucratic nightmare too – even as a local, let alone a citizen!
Corporate taxes in India are relatively high at between 25% and 30%. Meanwhile, foreign investment laws are often vague and corruption is rampant.
To briefly summarize: there aren’t any simple ways you can invest in India as a foreigner.
Your two main options, buying stocks in India and starting a business, are both restrictive and highly bureaucratic.
Debt Problems in India
India faces several economic issues. Quite frankly, covering them all would take too long for a single article.
The country’s rising debt levels are perhaps its most pressing concern. Public debt rose by more than 50% over the past decade.
Nowadays, public debt in India is over 70% of the entire nation’s GDP. And it appears like those numbers will only climb further from here.
Even worse yet, about half of India’s foreign debt is held in terms of U.S. Dollars. That means the rupee’s decline mentioned further above will magnify India’s debt struggles.
The main point here is: Indian borrowers must pay back their debt, plus interest, in terms of currencies that are increasingly rising against the Indian rupee
Needless to say, Indian businesses are making most of their profit in terms of rupee. It’s a tough position to say the least.
India boasts immense human capital and a rather skilled workforce. The nation’s quality of infrastructure remains poor though, which makes doing business as a foreigner in India difficult.
You Have Better Alternatives to India
A main reason why you shouldn’t invest in India is because of the opportunity cost involved. Simply put, there are dozens of easier countries with greater economic potential than India.
Why should you invest in India, a place that doesn’t permit foreign property ownership and makes entrepreneurs’ lives unnecessarily difficult, when you have far better options elsewhere in Asia?
Asia is the most dynamic region in the world, after all. Don’t waste the bountiful opportunities here by investing in a country like India that looks good on paper but isn’t suitable in practice.
For example, anyone can legally purchase freehold land in nearby Malaysia regardless of their nationality.
It’s the exact opposite of India’s restrictive property sector where only citizens and those of Indian descent are allowed to buy anything at all.
Places such as Cambodia and the Philippines are way easier than India for getting a long-term business visa. Both those countries are growing just as fast, if not quicker than India.
As India’s economy develops, it’ll almost surely open up to foreign investment. You should reconsider investing here for now though. It’s simply not the right time.
