Can India become an economic superpower? This is what the data says

Can India become an economic superpower? This is what the data says

In just a few days, India will begin the largest democratic elections in the world.

An estimated 960 million people in the country of 1.4 billion are eligible to vote in the poll, which began on Friday and will take more than a month to complete. Narendra Modi is widely expected to clinch a rare third consecutive five-year term as prime minister.

Under his leadership, India is poised to become a 21st century economic powerhouse, offering a real alternative to China for investors and consumer brands looking for growth and manufacturers looking to reduce risk in their supply chains.

While relations between Beijing and the West are strained, India enjoys healthy relations with most major economies and is aggressively persuading large companies to set up factories in the country.

So, is the hype around Modi’s India, which remains a largely poor country, justified?

The quality of economic data in India can be unreliable, which makes it difficult to assess the reality on the ground in the world’s most populous country.

But using data from official or authoritative sources, CNN has created five charts to show how the country has performed since Modi came to power in 2014, and to look ahead to the challenges the next leader will face in managing the world’s fastest-growing major. economy.

Still very poor
India’s economy will be worth $3.7 trillion in 2023, making it the fifth largest in the world, having jumped four places in the rankings during Modi’s decade in office.

The South Asian giant’s economy is comfortably placed to grow at an annual rate of at least 6% over the next few years, but analysts say it should aim for growth of 8% or more if it wants to become an economic powerhouse.

Continued expansion will push India higher in the ranking of the world’s largest economies, with some observers predicting the country will be number three behind only the US and China by 2027.

However, India can do more to increase its gross domestic product (GDP) per person, a measure of living standards that it ranks at a lowly 147 in 2022, according to the World Bank.

According to Guido Cozzi, professor of macroeconomics at the University of St Gallen in Switzerland, there will be a “downward effect on GDP per capita” as the economy expands. But he warned that “a declining economy is not guaranteed to reduce income inequality, and policies that promote inclusive growth may be needed.”

Building a modern India
Just as China did more than three decades ago, India embarked on a massive infrastructure transformation by spending billions to build roads, ports, airports and railways. Meanwhile, private investors are building the world’s largest green energy plant.

In this year’s federal budget alone, $134 billion was released for capital spending to boost economic expansion. In recent years, the country has also built various technology platforms — known as digital public infrastructure — that have transformed lives and businesses.

For example, the Aadhaar program, launched in 2009, has provided millions of Indians with proof of identity for the first time. The world’s largest biometric database has also helped governments save millions by reducing corruption in welfare initiatives.

Another platform, Unified Payments Interface (UPI), allows users to make payments instantly by scanning a QR code. It has been embraced by Indians from all walks of life, from coffee shop owners to beggars, and has allowed millions of dollars to flow into the formal economy.
In September 2023, citing a World Bank report, Modi said thanks to its digital public infrastructure “India has achieved the target of financial inclusion in just six years which otherwise would have taken at least 47 long years.”
The results can be seen on the ground with great construction underway across the country. India is adding nearly 55,000 kilometers (around 35,000 miles) to its national highway network, a 60% increase in overall length, between 2014 and 2023. Infrastructure development has many benefits for the economy, including creating jobs and improving the ease of doing business.

the powerhouse of the stock market
The excitement around India’s growth potential is reflected in its stock market, which has hit record highs. The value of companies listed on Indian exchanges crossed $4 trillion at the end of last year.

India has two main exchanges: the National Stock Exchange of India (NSE) and the BSE, the oldest exchange in Asia formerly known as the Bombay Stock Exchange.

Thanks to the sizzling rally, the NSE has overtaken both the Shenzhen Stock Exchange and the Hong Kong Stock Exchange to become the world’s sixth largest exchange, data from the World Federation of Exchanges showed in January.

Domestic investors, both retail and institutional, have driven the Indian stock market to unprecedented highs.

According to Macquarie Capital, retail investors alone own 9% of India’s equity market value, while foreign investors account for slightly less than 20%. Analysts, however, expect foreign investment to pick up in the second half of 2024, once the elections are over.

Factories hum
The Modi government is aggressively trying to capitalize on the massive rethinking underway among companies in the supply chain. International firms want to diversify their operations away from China, where they face obstacles during the pandemic and are threatened by rising tensions between Beijing and Washington.

Asia’s third-largest economy has launched a $26 billion production-related incentive program to attract companies to set up manufacturing in 14 sectors, from electronics and automobiles to pharmaceuticals and medical devices.

As a result, some of the world’s largest firms, including Apple ( AAPL ) supplier Foxconn, are expanding their operations significantly in India.

Billionaire Elon Musk said last week at X that he “can’t wait” to meet Modi in India, without giving a date. Tesla’s ( TSLA ) boss is expected to announce a major investment in India soon, with the automaker reportedly scouring the country for a suitable location for its first Asian factory outside of China.

Until two years ago, Apple would usually start assembling models in the country just seven to eight months after launch. That changed in September 2022, when Apple began making new iPhone 14 devices in India a few weeks after they went on sale.

Analysts have described the change in strategy as a major win for Modi, as growing manufacturing ties with US giants like Apple will further attract other global players in the electronics manufacturing ecosystem to India.
According to market research firm Canalys, up to 23% of iPhones will be made in India by the end of 2025, up from 6% in 2022.

Where is the job?
However, India’s economy, like its democracy, is far from perfect. If re-elected, Modi will have to tackle the huge challenge of creating hundreds of millions of jobs for a population that remains largely poor. With an average age of 29, India has one of the youngest populations in the world, but the country has yet to reap the potential economic benefits of its large and young population. According to a report last month by the International Labor Organization, educated Indians between the ages of 15 and 29 are more likely to be unemployed than those with no schooling, which reflects a “mismatch with aspirations and available jobs.”

The youth unemployment rate in India is now higher than the global level, he added.

The unemployment rate for young Indians with a master’s degree is over 29%, nearly nine times that of those who cannot read or write, the report said.

“The Indian economy has not been able to create sufficient remunerative jobs in the non-farm sector for the influx of new educated youth labor force, which is reflected in the high and rising unemployment rate,” he added.