When foreign investors lose interest in an emerging market’s stock exchange, stock prices usually decline. However, this hasn’t been the case for the world’s fifth-largest economy. India’s stock market is defying economic expectations, buoyed by domestic mutual funds, despite significant foreign outflows, Sadanand Dhume writes for The Wall Street Journal. According to recent reports, foreign investors have sold over $1 billion in India-listed shares, contributing to the country’s relatively low foreign inflows of $2.6 billion this year, a stark contrast to last year’s $22 billion. Despite this, the Bombay Stock Exchange’s BSE Sensex has surged by 12.8% in 2023, driven by India’s rapidly growing affluent population.
Goldman Sachs estimates that India’s affluent class—defined as individuals earning at least $10,000 annually—will grow from 60 million to 100 million by 2027. Blume Ventures, an Indian venture fund, estimates that around 120 million people now form the country’s “consuming class.” These individuals, with per capita incomes of approximately $15,000, are propelling domestic consumption and investment in the stock market.
However, India’s wealth gap remains significant, with the affluent class representing only 8% of the total population. Many wealthy individuals are opting to leave the country. In 2022 alone, 7,500 millionaires exited India, according to Henley & Partners, a firm that facilitates foreign residencies. India’s tax structure, where 0.3% of the population pays 80% of income taxes, coupled with limited government services for wealthier citizens, has led to dissatisfaction and the search for better opportunities abroad.
Political discourse in India has long leaned toward wealth redistribution, with opposition leader Rahul Gandhi advocating for policies targeting economic inequality. Prime Minister Narendra Modi, meanwhile, relies heavily on support from lower-income voters through welfare schemes. Critics argue that India’s political class has failed to address the concerns of its wealthy citizens, focusing more on populist policies than fostering an environment conducive to retaining its affluent class.
With affluent Indians contributing significantly to the economy, experts suggest that retaining them is vital for India’s long-term growth. Expanding the affluent class and viewing it as an asset could enhance India’s economic standing globally, particularly as the country aims to position itself as a key player in global markets and a counterweight to China.
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