New Delhi
CNN
—
India’s economy is like an elephant. Analysts often say the world’s most populous nation is difficult to move but a force to be reckoned with once in action.
As the global economy has lurched from one crisis to the next in recent times, India has shed its lumbering gait and entered a steady trot.
He started the year by showing his skills at the World Economic Forum in Switzerland. Envoys from India were so dominant on the main street in Davos that one investor referred to the thoroughfare as “Little India”.
When Prime Minister Narendra Modi opened the Group of 20 (G20) leaders’ summit in New Delhi a few months later – a first for India – the country’s stock market soared to dizzying heights.
Growing economic confidence is not just limited to Earth. In August, India joined the tiny club of countries that have safely placed a spacecraft on the moon, underscoring its scientific and technological ambitions.
The euphoria surrounding India comes at a time when China, which has been the engine of global growth for decades, is experiencing a sharp economic downturn. Its southern neighbor is quickly emerging as a potential successor. From a growing young population to humming factories, the country has many advantages.
“The Indian economy is undeniably on the path to greatness, and a series of reforms implemented in recent years are finally paving the way for solid growth,” said Eswar Prasad, professor of trade policy at Cornell University, and added that “the country is attracting great interest” from foreign investors, at least for some good reasons.
New Delhi also has warmer relations with the West, which has become increasingly suspicious of China, meaning investors now see the world’s largest democracy as a bright spot in an increasingly fractured world.
There have been further phases of global upward movement in recent decades India, but the excitement gradually faded while China came out on top.
The gap between the two Asian economies is enormous. India’s economy is currently worth nearly $3.5 trillion, making it the fifth largest in the world. China’s economy, the world’s second largest, is nearly $15 trillion larger.
According to the International Monetary Fund, the two together are expected to account for about half of global growth this year, with 35% of that coming from China.
To overtake China as the largest contributor to global growth in the next five years, India will need to achieve a sustained growth rate of 8%, Barclays analysts wrote in an October report. The IMF expects India to grow by 6.3% this year.
China, on the other hand, has set an official growth target of about 5% as it faces increasing challenges, from weak consumer spending to a worsening housing crisis.
“India’s economy is well positioned to grow at an annual rate of at least 6% in the coming years,” Barclays said. However, to achieve the “historically targeted” growth rate of 8%, the private sector in India needs to “increase its investment levels”, she added.
Bhushan Koyande/Hindustan Times/Getty Images
A view of the ongoing road construction in Sewri in Mumbai
The Modi government, whose goal is to make India a $5 trillion economy by 2025, is certainly laying the foundation to make doing business easier and attract more companies to invest.
Much like China did more than three decades ago, India is embarking on a massive infrastructure transformation, spending billions on building roads, ports, airports and railways. This year’s budget alone allocated $120 billion for investments to stimulate economic expansion.
The results can be seen on the ground as there is heavy construction going on across the country. India expanded the national highway network by 50,000 km (approximately 31,000 miles) between 2014 and 2022, representing a 50% increase in total length.
The Modi government said the daily pace of construction of national highways has more than doubled since it came to power nine years ago.
India, home to some of the world’s largest software companies, has also built a number of digital platforms – so-called digital public infrastructures – that have transformed commerce.
“Digitalization has fundamentally transformed the country’s citizens and businesses,” Prasad said. “The formalization of the economy has reduced many friction points in doing business and given Indian citizens a sense of ownership in the country’s economic success.”
For example, the Aadhaar program, launched in 2009, has transformed the lives of millions of Indians by providing them with proof of identity for the first time ever. The world’s largest biometric database now covers most of them India has a population of 1.4 billion and has helped the government save millions by reducing corruption in welfare initiatives.
Another platform, the Unified Payments Interface (UPI), allows users to make payments instantly by scanning a QR code. It was embraced by Indians from all walks of life, from coffee shop owners to beggars, and enabled the inflow of millions of dollars into the formal economy.
Ludovic Marin/AFP/Getty Images
Prime Minister Modi addresses the G20 Summit at the Bharat Mandapam in New Delhi on September 9, 2023.
In September, citing a World Bank report, Modi said that thanks to its digital public infrastructure, India “has achieved financial inclusion goals in just six years, which otherwise would have taken at least 47 long years.”
Indian companies are getting involved. Some of the country’s biggest conglomerates, including Mukesh Ambani’s Reliance Industries and Gautam Adani’s eponymous conglomerate, are spending billions on 5G and clean energy, even though they have built their empires on traditional industries like fossil fuels.
India is aggressively trying to capitalize on the massive shift in corporate thinking about supply chains. International firms are looking to diversify their operations away from China, where they have faced obstacles during the pandemic and are threatened by rising tensions between Beijing and Washington.
Asia’s third-largest economy has launched a $26 billion manufacturing incentive program to encourage companies to set up production in 14 sectors ranging from electronics and automobiles to pharmaceuticals and medical devices.
As a result, some of the world’s largest companies, including Apple supplier Foxconn, are significantly expanding their operations in India.
But even as India’s importance grows, it is far from restoring the economic miracle that China unleashed decades ago.
“India is not like China in the late 1990s and early 2000s in that the government is not removing barriers to foreign direct investment [foreign direct investments] so quickly,” said Willy Shih, a professor at Harvard Business School.
“I think the perception is different than China in the early 2000s – just more bureaucratic, more unpredictable in terms of non-tariff barriers and things getting in the way.”
This unpredictability was on full display in 2016 when Modi suddenly banned most cash in India, causing long-term problems for citizens and businesses. And while the country is taking many steps to woo foreign companies, its authorities are cracking down on companies from China.
In an October report from HSBC, economists Frederic Neumann and Justin Feng wrote: “India is currently running on too few cylinders to pick up the slack from China’s sputtering growth engine,” before highlighting differences in consumption and investment in the country’s two economies .
China accounts for about 30% of global investment, while India accounts for less than 5%. “Even assuming zero growth in China and a tripling of India’s capital spending growth over recent averages, it would take another 18 years for India’s capital spending to catch up with China’s,” they wrote.
According to the report, it would take another 15 years for India’s consumption to reach China’s current level in terms of total spending.
“All this does not mean that India will not have an impact. It undoubtedly will be – although it will not be enough to shield the global economy, should China’s economy stumble badly,” they added.
Comments are closed.