Isa ideas: Should you invest in India? Why is India important? Not only is India a huge country, but it is more densely populated than China - and has younger demographics too. China is soon to be crippled by the one-child policy - not only are fewer people contributing to the public purse through taxes, but an ageing population has fewer children to support it and those retired spend far less than those of working age, curbing economic growth. But India has a growing working-age population, although Sherene Ban of the J P Morgan Far East equities team said demographics should not be the sole reason to invest. "A lot of young people are only an asset to an economy if you have growth and jobs," she said. Otherwise it simply means rising unemployment. India has a very strong exports industry, providing the world with support services, technology, automobiles, commodities, pharmaceutical companies, textiles and chemicals. India's family-run conglomerates challenge the West in these markets - one of the most successful, Tata, bought luxury UK-based car brands Jaguar and Land Rover from Ford in 2008 for £1.15bn. Reliance Industries is a world leader in oil and gas, biotechnology and pharmaceuticals. As China becomes an increasingly expensive country in which to do business, thanks to rising wages, multinationals will favour countries with cheap labour such as India. What's changing? India is home to more than a billion people and the economy has a socialist bent, providing subsidies for many essentials such as food and petrol. The system is currently unregulated, meaning huge amounts of waste - and corruption. But the introduction of identity cards and a direct cash transfer scheme will change all that. Subsidies will be paid directly into a recipient's bank account that is linked to the biometric unique identification number given by the authorities. Avinash Vazirani, manager of the Jupiter India fund, said January's cut in Indian interest rates, coupled with the launch of the new subsidy scheme for India's poor, will be good for the stock market. Indian companies focused on the consumer are likely to be some of the key beneficiaries from the rollout of direct cash transfers. We think analysts underestimate the positive impact on consumer-facing companies of millions of poor people about to find themselves with a lot more money than they ever had before in their pockets," he said. Banks should benefit from having a significant number of new account holders, and consequently a large float, and an increase in cashless transactions. ISA ideas: Order free brochures How has the stock market performed? Before the credit crisis India was the emerging markets success story benefiting from an almost unbroken stock market rally. But people were too optimistic with their valuations of companies, and in 2008 there was a big correction. Indian shares still look expensive compared with China's stock market, according to price-to-earnings ratios. This is where you divide the share price or a stock market value by profits. The lower the P/E ratio, the cheaper the share or market. According to analysts at the Aberdeen New India Investment Trust, the forecast P/E ratio for the MSCI China index this year is 9.8, while the MSCI India P/E is 13.9. In the boom years, the P/E ratios for India was 23. Even with historically more expensive shares, over the past 20 years, India has significantly outperformed China. And last year the country's benchmark equity index, the BSE India Sensex 30, made impressive gains rallying more than 25pc. "India does best when it is staring adversity in the face," said Ms Ban. Last year, ratings agencies threatened to downgrade India and since then there has been a new finance minister who has pushed through some major reforms which are a lot more company friendly. The retail sector is now open to foreign investment for example. What are the big investment risks? Jim O'Neill, the man who coined the investment phrase Bric (an acronym of what he thought were the four most compelling emerging markets: Brazil, Russia, India and China), has reshuffled the list. "In terms of investing now, my list would be China, Russia, Brazil and India in that order," Mr O'Neill said recently. China's doing better than we assumed and it is in the strongest position. India is the most troubling because its growth rate has slowed significantly. Lack of investment opportunities can be a problem too. Kathryn Langridge, a global emerging markets fund manager at Jupiter, said there was a real shortage of quality companies in India that are open to investors compared with China or even Latin America. Making cross-border comparisons, although India is cheap, I look for companies that are best in class around the world and I see better opportunities elsewhere. As a democracy, India should have the political edge over its autocratic peers such as China, but Indian politics are far from simple. Elections are due next year with another fragmented coalition the expected outcome. Sweeping reforms to help the economy will therefore be unlikely. India's debt levels are much higher than other emerging markets. China, in comparison, large foreign exchange reserves. How can you invest in India? In the long term, Juliet Schooling Latter of Chelsea Financial Services thinks India has a lot of opportunities for investors, with a vibrant stock market and vast number of listed companies, and a culture of entrepreneurship and investment. She tipped Fidelity India Focus and Jupiter India funds. For a more diversified play, JO Hambro Capital Management Asia managers are pretty bullish on India and both their Asia ex Japan and Asia ex Japan Smaller Companies funds have placed significant chunks of investors" money in the Indian market - 26pc and 20pc respectively. Another way to invest in the positive demographics of India without the stock market - or currency - volatility, is to hold a multinational which makes a large proportion of its money in India. Several global funds hold the British-listed household goods company Reckitt Benckiser, for example, which last year earned 46pc of its sales from emerging markets. For low cost options, wealth manager Philippa Gee recommends iShares MSCI India ETF, with an annual charge of 0.67pc but investors should bear in mind that this is dollar denominated which may add another risk factor into the equation, depending on their currency view. Advisers say that tracker investments are generally better suited to developed markets, such as Europe and the US, where information on stocks is more readily available, making it harder to beat the market. In emerging markets, funds run by managers may find it easier to find shares with unnoticed potential.