Published - Fri, 06 Jan 2023
Thanks to global trends and important investments in technology and energy, India is on course to become the world's third-biggest economy by 2027, overtaking Japan and Germany, and to have the world's third-largest stock market by 2030.
India already has the world's fastest-growing economy, with an average GDP growth rate of 5.5% over the last decade. Three megatrends—global outsourcing, digitization, and energy transition—are now laying the groundwork for unprecedented economic expansion in the country of over 1 billion people.
We believe India is on track to overtake Japan and Germany as the world's third-largest economy by 2027, and to have the world's third-largest stock market by the end of this decade. As a result, India is gaining weight in the international order, and these idiosyncratic shifts, in our judgement, signify a once-in-a-generation shift and an opportunity for investors and corporations.
Overall, India's GDP is expected to more than double from $3.5 trillion now to $7.5 trillion by 2031. Over the same time span, its proportion of global exports may treble, and the Bombay Stock Exchange could rise at an 11% annual rate, achieving a market value of $10 trillion.
In new research, analysts from various sectors examine how this new era of economic development could bring about dramatic changes, such as increasing India's share of global manufacturing, expanding credit availability, establishing new businesses, improving quality of life, and spurring a surge in consumer spending.
In a world that is now starving of development, the potential presented by India must be on the radar of global investors. From 2023 onwards, India will be one of just three economies in the world that can achieve more than $400 billion in annual economic production growth, rising to more than $500 billion by 2028.
Since the early days of the Internet, companies throughout the world have outsourced services such as software development, customer care, and business process outsourcing to India. Tighter global labour markets and the growth of remote work patterns, on the other hand, are giving fresh life to the image of India as the world's back office.
"In a post-Covid climate, CEOs feel more comfortable working from home and working from India," Desai adds. He expects that during the next decade, the number of people employed in India for employment outside the country would at least double, reaching more than 11 million, as global outsourcing expenditure grows from $180 billion per year to about $500 billion by 2030.
India is also on course to become the world's factory, owing to corporate tax cuts, investment incentives, and infrastructure spending, all of which are pushing capital expenditures in manufacturing.
"Multinationals are increasingly optimistic about the possibilities of investing in India, and the government is assisting them by investing in infrastructure and providing land for factory construction," says Upasana Chachra, Chief India Economist. According to research, international firms' confidence in India's investment prospects is at an all-time high. Manufacturing's proportion of GDP in India might rise from 15.6% to 21% by 2031, more than doubling India's export market share.
With the launch of the Aadhaar national identification programme more than a decade ago, India laid the groundwork for a more digital economy. Among other things, the system generates biometric IDs to verify evidence of residency and has been crucial in digitising banking transactions.
This project is currently a component of IndiaStack, a decentralised public utility that provides a low-cost full digital identification, payment, and data-management system. "IndiaStack is likely to result in a significant shift in how India spends, borrows, and gets healthcare," Desai predicts.
IndiaStack offers a wide range of uses, including a network for cutting credit costs, making loans more accessible and inexpensive to individuals and enterprises alike. According to Desai, whose team estimates the credit-to-GDP ratio might jump from 57% to 100% over the next decade, credit availability is a critical component of economic growth.
Indian customers are also more likely to be wealthy. Over the next decade, India's income distribution could shift, with overall consumption more than doubling from $2 trillion in 2022 to $4.9 trillion by the end of the decade—with non-grocery retail leading the trend, including clothes and accessories, leisure and recreation, and domestic products and services, among other categories.
Energy are also important for economic growth since it affects education, productivity, communication, trade, and quality of life. Because of recent modifications to transmission and distribution, as well as other developments, all of India's 600,000-plus villages now have access to electricity. Over the following decade, this might increase India's daily energy usage by 60%.
Although India will need to use fossil fuels to fulfil its expanding energy demands, renewables such as biogas and ethanol, hydrogen, wind, solar, and hydroelectric power are expected to supply two-thirds of India's new energy consumption. This might lessen India's dependency on imported energy while also improving living conditions in a country that presently has 14 of the world's 20 most polluted cities. It also stimulates demand for electric solutions such as electric automobiles, bicycles, and green hydrogen-powered trucks and buses.
"The surge in India's energy demand, in tandem with the energy shift, creates a new market to promote investment development," says Girish Achhipalia, India Utilities and Industrials analyst. "We anticipate that this increase in capital investments will assist to kickstart a virtuous investment cycle, with more employment and income, more savings, and, in turn, more investment."
A lengthy global recession, bad geopolitical events, domestic policy changes, a lack of a qualified workforce, energy issues, and commodity volatility are some of the risks associated with investing in India.
While there are obvious differences between the economic growth of India and that of China, many investment themes that have played out or are now playing out in China, such as the emergence of financial services, industrials, and consumer goods, are gaining ground.
"In the future decade, as India's economy develops, we believe it will be increasingly relevant for global investors in the same way that China is now," Ahya says, adding that India's next decade may mimic China's journey from 2007 to 2012. "We believe that India will provide Asia's most compelling growth potential in the coming years."
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