Excitement is building around India’s economy. With the other BRICS economies mired in challenges, India’s growth has moved to top spot, and there’s no real challenger. Cynics can be forgiven; modern India has had episodes that looked promising, only to see them fizzle. There are certainly factors, some of them age-old issues, that could play the spoiler this time. But is it possible that today’s conditions make a more compelling case that ‘this could be it’? Consider these six stage-setting factors:
Global growth. The world economy is poised for further growth, and for some years to come. The US market has taken its time, but business finally appears ready to engage large groups left out of the post-recession economy. This will extend and enhance its growth phase, and give Europe more runway to get going. This is a needed backdrop for emerging markets in general, as even the big ones are still ‘follower’ economies, and for India in particular, as generalized growth is a necessary precondition for leveraging India’s other budding opportunities.
Aspirations. Indians want more than they currently have. Programs are leading to significant progress on the poverty front. It’s a good thing, as prosperity is far more visible to a greater number of Indians than in the past. They can more easily see the prosperity of other countries through increasingly-present media and smart communication devices. They can also see it on their own doorstep: the evidence of India’s recent growth is hard to hide, especially the excesses of neo-wealth. All this is feeding a more broadly-based desire for a better life, and as the movement hits a critical mass, there’s inevitability to it.
Reform. India itself has long since realized the inefficiency of many of its internal systems, and the difficulty that poses for investors both inside and outside of the country. That gives it a 2017 ranking of 130 among the 190 countries in the World Bank’s Ease of Doing Business rankings. But the number is improving; India moved up one spot last year, due to significant improvements in getting electricity and enforcing contracts. Reforms are steadily occurring, as evidenced by the progress of the GST, greater inclusion of people and the expanding coverage of the biometric ID system. There is clearly still a lot more work to do on this front, but momentum is building.
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Infrastructure. Long a nemesis of the subcontinent, this category is also on the up and up. An oft-cited improvement is transportation networks that together with an increase in cold-storage facilities, are increasing the amount of foodstuffs that make it to market before spoiling. India also appears to be turning very backward infrastructure into an advantage: the ability to leapfrog generations of technology, moving to the forefront of systems like smart cities, the next-generation Aadhaar ID system and the like – and the marketable home-grown innovation it is spurring.
Openness. For a large emerging market, India has traditionally been far less open. The key measure is trade as a share of GDP, which was extraordinarily low in the 1960-2000 period. More recently, the number has doubled, great progress indeed, but the overall number remains low. Even so, India is a part of 14 FTAs, and pursuing 14 more. There’s a longer list of double taxation treaties, and a dated list of investment protection agreements, mostly inked in the 1990s. On balance, India is steadily embracing greater openness – and reaping its benefits.
Future engines. This is why openness is critical. In a world facing shrinking populations, India has a large, available and growing labour force. In the coming years, the rest of the world will increasingly be making its way to India in search of spare labour. China is already active on this front. A second wave of growth comes from the increased wealth of these newly-employed masses. As this tide rises in the economy, their increased consumption activity will fuel growth in domestic Indian business and also direct investment from foreign businesses wanting to access the market. In many ways, this dynamic is key to the view that India is the China of the next growth cycle.
The bottom line?
Is this all the stuff of dreams, or is it in the works? With growth consistently above 7 per cent annually, India is already on the march. EDC is seeing large gains in Canadian business there as we speak. But the best is yet to come. And much depends on how these six key factors are harnessed.