India has been one of the fastest-growing economies in the world in the recent years, with the latest projections estimating it to be at 6.1%, away and ahead of all emerging markets. Over the past two decades, the country has consistently achieved a commendable GDP growth rate, outpacing many developed nations. With a growing middle class, the country offers a vast consumer market and a skilled labor force. Young, skilled labor and engineers are available aplenty, and with China slowly shifting to a consumption-based economy, labor costs there have become comparatively more expensive than in India. These factors along with increasing urbanization have propelled economic expansion and development.
India’s Long-Term Growth Story Intact
The growth story of the Indian economy has been remarkable over the years. The structural transition in the Indian economy has started taking off since 1991, the year when India introduced the LPG (Liberalisation, Privatisation, and Globalisation) policy. Since then:
- GDP has grown by 12x from USD 0.3 trillion to now USD 3.7 trillion;
- Per capita income has grown by 9x;
- Exports have grown by 43x;
- Imports have grown by 47x;
- Forex reserves have expanded by 496x;
- Stock market (Sensex) has surged by 31x.
Amidst the many challenges faced by the world economy over these past few years, India has remained a safe harbor in the storm. With the pandemic shutting the world down in 2020, we have seen great changes in how we live and what we seek from life. With a greater focus on the integration of technology and AI into business, and with sentiments turning against Chinese manufacturing, India finds itself in a position to leapfrog to the front of the pack.
Where We Are Headed at Current Juncture
India’s emergence as the world’s fifth-largest economy by overtaking the United Kingdom in 2022 marks the beginning of the “India era” in the global growth story. It is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 as per World Bank report.
The Trillion-Dollar Acceleration Journey
| GDP Milestone | Time Taken |
|---|---|
| 1st USD Trillion | 58 Years (Post-Independence to 2007) |
| 2nd USD Trillion | 7 Years (2007 to 2014) |
| 3rd USD Trillion | 6 Years (2014 to 2020) |
| 4th USD Trillion (Projected) | 4 Years (2020 to 2024E/2026E) |
Source: MOSL, Bloomberg
“India has been one of the fastest-growing economies in the world in the recent years, with the latest projections estimating it to be at 6.1%, away and ahead of all emerging markets. Over the past two decades, the country has consistently achieved a commendable GDP growth rate, outpacing many developed nations.”
Domestic Engine & Financial Sector Resilience
The key contribution to the growth of the economy is that India is a domestic-driven economy, less dependent on global growth. And this is the new normal now:
- Favourable Demographics: More than 65% of the population is below 35 years of age. A high savings rate and rise in per capita income bode well for consumption growth.
- Political & Policy Stability: Political stability in India is at its highest in many decades. A pragmatic government focused on policy reforms positions India favourably for global investors.
- Macroeconomic Stability: Strong forex reserves, stable INR currency, inflation in control, and the Reserve Bank of India’s clarity on interest rate management.
- Financial Sector Strength: India remained resilient through global contagion like the US regional banking crisis in April 2023. Backed by solid fundamentals and a robust loan book, the financial sector accounts for over 25% of the MSCI India Index and nearly 30% of the Nifty50.
Manufacturing Decoupling: China+1 & Cost Advantages
While the financial sector remains a large part of India’s appeal, there is an accelerating case in manufacturing capabilities. In May, exports from China dipped by over 7%, highlighting the world’s new direction of decoupling manufacturing dependence from the Asian giant. This trend was visible as far back as 2019, when India outpaced China’s growth in manufactured exports.
Manufacturing Goods Exports Growth (% CAGR)
| Time Period | India (% CAGR) | China (% CAGR) |
|---|---|---|
| 1990–1995 | 13% | 23% |
| 1995–2000 | 7% | 12% |
| 2000–2005 | 17% | 26% |
| 2005–2010 | 14% | 16% |
| 2010–2015 | 6% | 8% |
| 2015–2019 | 6% | 2% (India Outpaces China) |
Manufacturing Hourly Labour Cost Comparison (2020 in USD/hr)
| Country | Labour Cost ($/hr) |
|---|---|
| India | $2 / hr |
| China | $7 / hr |
| Japan | $27 / hr |
| Singapore | $28 / hr |
| Germany | $44 / hr |
| United States | $49 / hr |
“With India’s steady growth and firm democracy, along with the sustained low cost of manufacturing, many companies look to shift base to a far more palatable market.”
Through initiatives like ‘Atmanirbhar Bharat’, Make in India, and the Production Linked Incentive (PLI) scheme, the government aims to boost manufacturing contribution from below 16% to over 25% of GDP by 2025. Global manufacturing leaders are shifting operations to India:
- Smartphones: Apple and Samsung have scaled massive assembly and ecosystem plants in India.
- Wind Energy: Vestas, the world’s leading wind turbine maker, established two new factories in Sriperumbudur in 2021.
- Semiconductors: Foxconn partnered with a domestic conglomerate to set up semiconductor fab capacity.
Industrial Scale & Capacity: India vs. China
| Commodity / Sector | India Position & Capacity | China Position & Capacity |
|---|---|---|
| Coal Production | 780 Mn MT (2nd Largest) | 4,560 Mn MT |
| Iron Ore Production | 254 Mn Tonnes (4th Largest) | 380 Mn Tonnes (3rd Largest) |
| Crude Steel Production | 125 Mn Tonnes (2nd Largest) | 1,018 Mn Tonnes (Largest) |
| Cement Capacity | 545 Mn Tonnes (2nd Largest) | 2,130 Mn Tonnes (Largest) |
| Cotton Production | 34.2 Mn Tonnes (Largest Globally) | 5.9 Mn Tonnes |
| Wireless Phone Subscribers | 1,200 Million (2nd Largest) | 1,575 Million (Largest) |
| Electricity Production | 1.6 PWh (3rd Largest) | 8.5 PWh (Largest) |
| Textile Production | 71.05 Bn Sq. Mtr. (2nd Largest) | Leading Global Player |
Digital Transformation, Startups & Clean Energy
- Internet Userbase Overtaking China: In 2022, India had 932 million internet users compared to China’s 1,040 million. By 2026, India is projected to reach 1,186 million users, overtaking China’s 1,180 million.
- Fintech & High-Value IT Services: Propelled by UPI, Indian tech firms now deliver high-value financial risk modeling, insurance underwriting, and disaster modeling for a global clientele.
- Startup Unicorn Capital: Over 100 unicorns have emerged with an aggregate valuation exceeding $350 billion. Over 70 unicorns were minted in the last 3 years alone. In 2022, startups raised $25 billion across 1,000+ funding rounds and 200+ M&As, cementing India as the 3rd largest startup ecosystem globally.
- Renewable & Solar Boom: In 2022, India added nearly 10% to its renewable capacity, with solar energy capacity multiplying by 25 times over the past 9 years.
Conclusion
India’s remarkable economic growth, expanding manufacturing capabilities, strategic demographic dividend, and increased ease of doing business paint a promising picture for the nation’s future. As India strengthens its position on the global stage, it is poised to become a central pillar of the world economy, embracing sustainable development, inclusive growth, and technological innovation.
Disclaimer:
The document is neither a general offer nor solicitation to avail the service of investment from the SEBI Registered Intermediary, and the views expressed in this document are author’s personal views and are not under the services offered by Abakkus, nor is it an offer to sell, or a generally solicit an offer to become an investor in the services offered by the Abakkus. Each reader of this document agrees to the foregoing.
Author may be reached at: eboard@icai.in