I am often called upon to provide potential investors a snapshot of India. There is genuine interest, but set alongside all the other subjects that are weighing on their minds (geopolitics, supply chain, chips, carbon, AI), the call is more often than not caveated with the request that my remarks be brief, punchy and forward-looking. It is not easy to cover the canvass of our subcontinent in five to 10 minutes without relapsing into cliched generalisations. My approach has been to provide one high-level message with explanatory footnotes on the economy, society, politics, foreign policy and business. In this article, I share these messages.
Economy: India’s GDP will more than double over the next five-seven years. Currently, it is around $3.4 trillion; it will be about $8 trillion by 2030. The drivers of this growth will be: One, state-led investment in infrastructure, utilities and construction; two, the consequential crowding in of private investment in predominantly consumer lifestyles, e-commerce, green energy and financial services; three, increasing consumption as consumer income reconfigures from the shape of a pyramid to a diamond; and four, deepening connectivity — a contemporary reality with 900 million mobile phone subscriptions and approximately 400 million phone banking transactions every day.
Eighty per cent of adults have bank accounts. The lubricant of this growth will be “factor market” reforms. Labour laws have already been simplified, the acquisition of land has been made easier and financial credit is increasingly accessible to small and middle-scale enterprises. The recently-enunciated production-linked incentives for domestic investment into, inter alia, green energy and semiconductors will also be a stimulus. As will the availability of possibly the largest and most youthful workforce in the world with an average age currently of 29 years.
The Indian educational system has been frequently critiqued and with good reason. But what should not be forgotten is that this system churns out 6,00,000 engineering graduates annually on the back of which a thousand plus MNCs have successfully established global centres, ranging from back offices to primary research laboratories.
Social: India’s economic growth is somewhat skewed. States in the southern and western parts of the country are growing at a faster clip than those in the north, northeast, and eastern regions. Excluding the smaller states with a population of less than 25 million (Goa, Sikkim and Delhi for example) one north Indian state has a place in the top five rank ordering by GDP per capita of Indian states. There is a four-fold difference between the richest state, Karnataka, and the poorest, Bihar. This skew will challenge social harmony.
The consequential differentials in economic opportunities and the availability of jobs will accelerate internal migration and deepen the “remittance economy”. Indian society is currently divided along the axis of caste, class, religion, gender and language. Migration might kindle regional nativism. There is also concern regarding the ramifications of the attitudinal difference between an aspirational public and a cautious, precedent-bound, bureaucracy.
Politics: Economic skew and social differentiation complicate governance. India is a federal polity, but in recent years, the pendulum of governance has moved towards centralisation. This is the result of, inter alia, a fractured Opposition and the fact the levers of fiscal allocation are controlled by the central government.
Looking ahead, the pendulum should reverse direction because of two factors — one, the emergence of strong state leaders whose interest is to consolidate their regional power base rather than play a role on the national stage and two, the dynamics of competitive federalism. One can expect states to compete aggressively for the capital rendered footloose by our “archipelagic” international order and “friend shoring”.
Foreign Policy: India does not see the world through a binary, zero-sum lens. Its foreign policy is grounded on the catchwords, “multi-alignment” and “frenemies”, a variant of the 19th century UK foreign minister, Lord Palmerston’s definition of the UK’s foreign policy: “Britain has no eternal allies .. no perpetual enemies; (only) eternal and perpetual interests”.
So while US-India relations have never been as close — the scale and scope of the agreements signed during the PM’s state visit are unprecedented and extraordinary — India will not lock itself into a formal alliance with the US. It will also not accept any fetters that limit its flexibility to define policies on the basis of strategic necessity and/or economic interests.
It will remain “neutral” on Ukraine, it will continue to shop for discounted oil from Russia, it will prioritise relations with oil exporting countries — particularly Saudi Arabia — given the likelihood of continued dependence on imported oil and gas for the foreseeable future, and in a more nuanced way, it will look to de-risk rather than decouple economic links with China.
The competitiveness of its clean energy transition depends on access to relatively low-cost minerals (lithium for example) and components (solar panels, silicon wafers, cells, batteries) from China.
Business: India offers significant opportunities to do business. There is cross-party support for private investment. The anti-capitalist ideologues are now an insignificant minority. Potential investors must, however, keep in mind the quip by the Cambridge economist, Joan Robinson: “Whatever you can rightly say about India, the opposite is also true”. There are many Indias and contradictions abound.
The key factors for business success rest on: One, identifying the India in which one wishes to operate — the particular geography, the segment of the value chain, and the target consumer. Two, in reading the nuanced tea leaves of decision-making — who actually wields power — it might not be the one who sits in the chair. Three, selecting the right partner. Four, accepting that, whilst the past can offer valuable insights, it is an imperfect guidepost.
India is today at an inflection point. Investors should come to the country with a clean playbook. They must not presume that business models that have worked well for them elsewhere will be comparably successful in India. They should first see the sights and sense the smells and only then write about the country.
The writer is chairman and distinguished fellow, Center for Social and Economic Progress (CSEP)
