Indian Economy: The Elephant Is Dancing

The Indian economy ranks as the seventh largest economy globally and is forging ahead with projected annual GDP growth of over 7% to 2021.

Indian economy is growing

India is revealing its economic muscle

India is the world’s largest democracy and one of its most linguistically and culturally diverse nations. Its survival as a great nation state is a tribute to the pragmatism, initiative and ingenuity of its leaders and its people.  These qualities have in recent years been translated into economic success. In contrast to China, India was slow to start liberalising its economy. As a result China’s economy has regularly outperformed India’s since the 1970s. But this is changing, with Indian GDP growth of over 7% in 2015 and 2016 exceeding that of China’s.

What lies behind India’s exceptional economic progress?

India’s economic performance since the 1990s has been impressive. It is now the world’s seventh largest economy (in nominal GDP), and third largest in purchasing power parity (PPP) terms. Its agricultural and manufacturing outputs rank globally second and sixth respectively and its service sector is one of the fastest expanding in the world. Textiles, petro-chemicals, pharmaceuticals and engineering are all growing apace while trade, inward and outward investment are flourishing.

indian-economy

The key factors in India’s growing economic success include:

  • A youthful population providing a steady supply of new labour into the economy.
  • A  low demographic dependency ratio ( working /retired population).
  • Government reforms.
  • Positive savings and investment rates.
  • Falls in commodity prices, which are benefiting India with its limited self-sufficiency in raw materials (e.g it imports 80% of its oil needs).
  • Growing integration within the world economy.

 

Could the Indian economy spearhead emerging market performance?

The IMF recently described India as the bright spot in the global economy, and the prospects for sustaining recent success are generally positive.  India has a reforming Prime Minister. Predictions suggest in excess of 7% annual growth to 2021. Further India’s population is predicted to out-strip China’s by 2022, while its middle class will be larger than that in Europe by 2030.

Several recent major international developments will enhance the prospects of the Indian economy leading emerging markets. In February India officially adopted the WTO’s Trade Facilitation Agreement (agreed at the 2013 Bali conference). This could potentially increase global trade by up to $3.6 trillion yearly. But it is also a key step in progressing efforts to make it easier to do business in India.

Moreover an EU-India Summit in late March delivered on a series of major commitments in several key areas, including energy and climate change, trade and investment. This has effectively got the relationship between India and the EU (India’s largest trading partner) back on track. Finally, the recent Indian Government budget announced the intention to introduce further economic and business reforms, especially in the banking sector and financial markets.

What are the emerging business opportunities?

india opportunities

Renewable energy is a key sector contributing to a trillion dollar low carbon economy

Key sectors for business include:

  • Energy/power: including potential low carbon –related business, a sector which could contribute to a wider trillion dollar low carbon economy.
  • Pharmaceuticals.
  • Banking and finance: reforms in this area will help create new opportunities.
  • Infrastructure: resulting from the Government’s increased spending on roads, ports and airports, and potential reforms of PPI contract renegotiations and dispute resolution. India’s water supply problems could also generate consultancy and related opportunities. International funding from sources such as the World Bank, EU, and JICA is already generating international business.
  • Consultancy sector: drawing on opportunities above.

Post Script

While the current Government is pushing its business reform programme, it will be a long process. Doing business in India can be challenging (India is currently ranked 130th out of 189 countries for ease of doing business). That said India offers great business opportunities for those prepared to make the effort.

Former British diplomat with 36 years’ experience of bilateral relations, commercial promotion and policy advising in Latin America, Europe, Africa and Australasia. Head of British High Commission, Papua New Guinea and Head of the British Embassy in Liberia. David is an experienced networker with a strong track record of promoting UK business in less developed markets.

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