An Economic Powerhouse on the Rise
After dethroning China as the world’s most populous country, India is also one of its fastest-growing major economies. With a young and growing population, a rapidly expanding middle class, and a growing skilled workforce, India is poised for a period of sustained economic growth. This article aims to analyse the strengths, opportunities and weaknesses of the Indian economy and provide a way to gain exposure into the Indian market. We’ll start with India’s strengths.
Demographics Advantage
India’s demographics are a significant advantage, if not the biggest one. The median age in India is just under 29 years, and the country has a large and growing middle class. This young and aspirational population drives demand for goods and services, fuelling economic growth.
India also has a rapidly expanding skilled workforce. The country is graduating millions of engineers and scientists each year. This skilled workforce is essential for India’s development in critical manufacturing, IT, and healthcare sectors.
Strengthening Global Ties
India is strengthening its global ties, particularly with the West. This is evident in the country’s growing membership in multilateral organizations such as the Quad (a four-country alliance of Japan, India, the U.S., and Australia) and the BRICS (Brazil, Russia, India, China, and South Africa).
India’s growing global ties are evident in its increasing trade and investment flows with other countries. In 2022/23, India’s merchandise exports reached $422 billion, an increase of 40% from the previous year. India’s foreign direct investment (FDI) inflows reached a record high of $83.6 billion in 2022/23.
Infrastructure Growth
India is investing heavily in infrastructure. The government has launched several initiatives to improve the country’s roads, railways, airports, and ports. These infrastructure investments are essential for India’s economic growth.
For example, the government’s National Infrastructure Pipeline (NIP) initiative targets investments of $1.9 trillion in infrastructure projects over the next five years. The NIP is expected to create millions of jobs and boost India’s economic growth.
Push Toward Manufacturing
India’s manufacturing sector is one of the fastest-growing sectors in the world. It is expected to grow at a CAGR of 8.36% between 2023 and 2028 as the Indian government is committed to developing the manufacturing sector. It has set a target of increasing the share of manufacturing in the country’s GDP to 25% by 2025.
The government has taken a lot of initiatives to promote the growth of the manufacturing sector:
The production Linked Incentive (PLI) scheme aims to boost domestic manufacturing in critical electronics, pharmaceuticals, and automobile sectors.
National Manufacturing Policy (NMP) 2022 aims to make India a global manufacturing hub.
Steps to improve the ease of doing business in India.
Digitalization
The country has made significant investments in its digital infrastructure and has launched several digital initiatives, such as the Unified Payments Interface (UPI) and the Aadhaar biometric identity program.
These digital initiatives have had a significant impact on the Indian economy. For example, UPI has made it possible for people to make digital payments quickly and securely. Aadhaar has helped to reduce corruption and improve financial inclusion.
Telecommunications and E-Commerce
The country has over 1.1 billion mobile phone subscribers and over 600 million internet users, and the numbers are rising.
India’s e-commerce sector is also growing rapidly. In 2022, India’s e-commerce market was valued at $63 billion. The market is expected to grow to $163 billion by 2026.
Pharmacy of the World
India is a global leader in the pharmaceutical industry. The country is the third-largest pharmaceutical producer in the world and exports pharmaceuticals to over 100 countries.
India’s pharmaceutical industry was vital in the global fight against the COVID-19 pandemic. India is one of the largest producers of vaccines and has exported millions of doses to other countries.
Opportunities:
A growing export market: India exports an ever-increasing range of goods and services, including pharmaceuticals, engineering goods, IT services, and agricultural products. This is helping to boost India’s economic growth and create jobs.
A favorable business environment: The Indian government has taken several steps to improve the country’s business environment. These steps include reducing regulations, streamlining bureaucracy, and improving infrastructure. This has made it easier for businesses to operate and grow in India.
A growing consumer market: India has a large and growing consumer market. This is driven by the country’s young and growing population, rising incomes, and increasing urbanization. This growing consumer market is creating opportunities for businesses in a wide range of sectors.
Challenges:
Despite its strong economic growth, India faces several challenges. These include:
Poverty and inequality: India is still a developing country, and a large proportion of the population lives in poverty. There is also a significant level of inequality in India.
Unemployment: India has a high unemployment rate, particularly among young people. This is a significant challenge that the government needs to address.
Inflation: India has been experiencing high inflation in recent months. This is a significant concern for the government, as it can erode the purchasing power of households and businesses.
Infrastructure deficit: India has a significant infrastructure deficit. This is a major constraint on economic growth.
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