India’s growth story is very impressive. It has the fastest-growing major economy in the world—GDP grew 8.4% in the final quarter of 2023. Some analysts expect it to pass Germany and Japan to become the world’s third-largest economy within a few years.
Source: News of Universe
Much of India’s growth stems from favourable demographics. Last year, India surpassed China to become the largest nation by population. It’s also the only top-five economy that’s young—40% of people there are under age 25. And India will stay relatively young because it’s the only top-five economy where births exceed the replacement rate.
India’s Prime Minister, Narendra Modi, wants to turn India into a developed country “within the next 25 years.” That is ambitious, but not implausible. Modi is up for re-election this year and has been opening the economy to foreign investment since he came to power in 2014. Foreign direct investment reached $71 billion for the 2022–23 financial year, and India is targeting $100 billion in annual FDI “in the next few years.”
Source: Mauldin Economics
Modi is turning India into a manufacturing hub through programs like Make in India, capturing business from Western companies seeking a cheaper and friendlier alternative to China. Manufacturing accounts for 17% of India’s GDP, but projections show that figure reaching 25% as early as next year. Electronics manufacturing is growing particularly fast, almost doubling between 2017 and 2022. It’s expected to reach a compound annual growth rate of 24% from now to 2027.
Apple, for example, plans to make roughly a quarter of all iPhones in India within 2–3 years. This will help the company reduce its dependence on China. Foxconn, a Taiwanese electronics manufacturer and major Apple supplier, is spending $1.5 billion to set up shop in India as well.
Of course, India is coming off a very low base and has a lot of catching up to do. Today, only 78% of Indians over the age of 15 have a bank account. But that’s a massive leap from 2011 when only 44% of Indians over 15 had one.
In today’s India (and other emerging markets), your smartphone is a gateway to e-commerce, insurance, banking…everything. What sets India apart is its digital payment system, combined with broad access to the internet. A smartphone can be had for $12 from Reliance Jio. Mobile data is cheap and readily accessible.
India comes with its fair share of risks. The unemployment rate for new graduates under age 25 tops 40%. And the political environment is tense—a problem India’s high unemployment and stark class divides exacerbate. For Australia, with its past heavy reliance on China as its number 1 trading partner, India represents an opportunity to diversify and grow together in the years ahead.
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