India and China both have sky-high growth potential. But India holds an edge over China as an investment play, says Martin Hutchinson in Money Morning: It’s problems are out in the open whereas China’s are not.

Global investors need to “hit the BRICs” – literally. Back in 2003, the Goldman Sachs Group Inc. (GS), eager to push its clients towards global investing – especially in the emerging markets – invented the acronym “BRIC” (Brazil, Russia, India and China) to represent the four emerging markets it believed were destined to become dominant economies in the years to come.

India is suffering high inflation, its growth is slowing and there are signs that a credit crunch is about to hit. But this can work to the advantage of investors. Without these problems, India’s stock market would be trading at 40 times earnings - and not 18 times earnings, as it is now.

US stocks haven’t exactly been putting in stellar performances lately. But that’s not the case for emerging market stocks. Taipan Emerging Markets blog editor Irwin Greenstien’s Emerging Market Index is up 9.3%. That’s after 5% gains last week…

India’s economic boom will continue into 2009, according to influential think tank Center for Monitoring India Economy (CMIE).

The forecast 9.5% expansion will be driven by fixed investment, which should offset any slowdown in consumption.

However, inflation reached 8.75% at the end of May, forcing the central bank to raise its key lending rate by 25 basis points (0.25%).

The India story is still good, largely due to the demographic dividend, with a young, well educated population who are free to pursue dreams. At a recent analyst meet of NIIT it was pointed out that India will have an addition of some 47 m. educated people in the 19-25 age group. The rest of the world (including China) will have a reduction of some 53 m. in this age group.