I got the chance to visit Mumbai for the second time last November with Oxford University as part of the University’s EMBA Global Rules of the Game module. This brief brings to light some of the facts, recent news and research covering India’s economy, culture, and politics from various sources.
The India growth story is of particular interest to business students, investors, and entrepreneurs alike. Here are some noteworthy facts and insights I learned as 2019 came to a close:
- India is a service-focused economy (below 15% of GDP) compared to its rival China which focuses on the manufacturing sector (30% of GDP).
- Data from Goldman Sachs shows that BRIC’s will experience exponential growth in GDP over the next few decades. For India, the country is poised to achieve 79.1% of US GDP by 2050. China in comparison will achieve more than 120% of US GDP by 2050 to become the world’s largest economy.
- The population figures are staggering. India will overtake China in terms of population by 2050 and command more than 1.6 billion residents. China will experience a slow decline during the same period hovering just above 1.2 billion. Why is this important? India’s average population age is 27 versus China’s 37; and India’s middle class will grow to over 500 million people by 2025 (Mari Sako, Oxford University) which trumps the size of the US middle class – making India an exceptionally lucrative market for players like Walmart, Amazon and other businesses given the projected rise in lifestyle and income. Just to put things in perspective, that middle class population figure was 60 million in 2010.
- Walmart paid a substantial sum of 16 billion USD to acquire local e-commerce giant, Flipkart, in 2018 (the biggest M&A deal in India at the time); yielding a pulse on how big businesses are viewing India’s growth story.
- Most of the large companies in India are state-owned, however Modi’s government propelled FDI with more than $200 billion USD in foreign investments recorded prior to his last election. However, there are still restrictions on FDI and India maintained a protectionist agenda and an insulated economy well into the 90’s and 2000’s for several reasons that included anti-colonial feelings and ideologies related to self-sufficiency. However, this changed in the last decade with a drastic reduction in customs duty collections as a percentage of imports and entry of major western companies including SoftBank with its investment in the hotel chain unicorn: Oyo.
- In 2014, the country instituted a law to require large companies to allocate 2% of their Net Profits towards CSR to alleviate poverty, and enhance education and health standards in the country. This is a positive policy move whose results are yet to be measured in detail.
- In 2020 the Asia region will be the youngest in the world. Countries like India with a mammoth population and increasing percentage of middle class will benefit from an insulation from global shocks given the sizable appetite in aggregate demand from the domestic market.
The challenges I noticed in light of the growth story:
There is a substantial gap between the rich and the poor with a missing middle which is visibly large. Taking rides in a Tuk Tuk or a taxi will expose the reality on the ground as you pass by slums right beside established neighborhoods. Western companies like Amazon and Walmart have faced backlash for predatory pricing strategies and monopolizing the local market. In addition, Modi’s populist agenda has been controversial and blamed for causing divisions in the country. There is also the concern of the “informal economy” in India which constitutes 45% of GDP and thus puts some of the growth story figures into question. The most glaring concern however is the inequality in the country whereby a million young Indians enter the workforce every month, but less than half are either employed or employable. With a rising population and a lax policy on education, it is imperative for the government to focus on public-private partnerships to address the gaps in the education system and ensure the young Indian population does not miss the chance to become skilled workers.
With all the facts, figures, and challenges highlighted, India is poised to become the third largest economy in the world by 2030. On a personal note, I found my interactions with the locals quite pleasant. The staff at our hotel (Taj Palace Lands End) was warm, hardworking, and thoughtful. The business leaders we met emulated an aura of humbleness and thoughtful leadership for the future. Given the glorious history of the country and growth trajectory, it begs the question: will India become the next superpower?
References: Mari Sako (Oxford University), Goldman Sachs, World Bank, Financial Times, IMF, Yahoo Finance, HSBC Holdings, Nikkei Asia Review, TechCrunch, and Financial Times. Please note that this briefing contains paraphrased summaries and attributes the original content to the news sources. We encourage readers to visit the links to access the full article in its original form for a thorough and complete view. You may need to subscribe to the news agency and source for access.