Between geopolitical shifts and post-pandemic trends, the international landscape has changed significantly. China is dealing with their own set of problems with perhaps its housing crisis being most significant. Russia remains entangled in its own web created by its invasion of Ukraine. The Israeli-Palestinian conflict has resulted in increased tensions in the Middle East. But amidst these changes, India has not-so-quietly made tremendous gains in a number of areas. It remains to be seen whether or not India could take that next major step into the developed world, and thus far, signals are mixed in this regard in terms of India’s future economic growth. This is causing foreign investments in India to be a bit on hold.
In the last few years, India has certainly gained in its level of global prestige. Led by its current prime minister of 9 years, India has enjoyed a significant degree of stability lately. At the same time, improvements in its business capacities have occurred as a result of business-friendly policies. These shifts are what’s allowing it to compete with China and fuel India’s future economic growth. The current problem, however, involves the source of ongoing economic investments. While public dollars are significant, foreign investments in India are not. And it’s these types of investments that will ultimately determine the country’s global success.
India’s Current Economic Position
India has recently enjoyed a significant period of economic growth. Current GDP predictions suggest a 6% growth this next year, which exceeds even that of the U.S. and China. Fueling these predictions are the impressive numbers involving India’s stock markets. These stock markets current approach a value of $4 trillion. Only a year ago, this figure was set at $3 trillion. These are the statistics that have many expecting India’s future economic growth to be substantial. In fact, continued growth at this pace could allow India to surpass China at some point. If foreign investments in India over the long-term persist, then this could be a reality by mid-century.
The problem is that these long-term foreign investments in India are not too impressive at the moment. This past year, foreign direct investments totaled about $13 billion. By comparison, however, FDI was around $40 billion a few years prior. Certainly inflation and global economic trends haven’t helped. But many are concerned that this could hurt India’s future economic growth. Public investments in major infrastructure projects have set the stage for foreign capital. These include improvements in airports, bridges, roads and even advances in clean energy projects. But unless private dollars and foreign startups take advantage of these improvements, all bets are off. In other words, public funding alone will not allow India to excel economically on a global scale.
Political Factors in the Mix
In examining India’s future economic growth potential, political environments matter. The current prime minister of India, Narendra Modi, has held a stronghold on its leadership for 9 years. And with an election forthcoming, it appears his leadership will last some years longer. From one point of view, Modi is pro-business. He has allocated large amounts of funds to improve business capabilities and infrastructures in past years. His philosophy is a “build it and they will come” one. In other words, using public dollars to create a better business environment will attract private capital thereafter. But thus far, the foreign investments in India have not proved his views to be accurate. This could be a reflection of Modi’s other actions as it relates to India’s governmental oversight.
One of the possible reasons foreign investments in India have been lacking might related to excessive government oversight. Prime Minister Modi is known for having tight control over the economic and business activities in the country. For example, he implemented sudden taxation policies against gambling industries that was retroactive. In the process, the industry was effectively shut down from that point onwards. Modi has also pursued import restrictions on laptops in past months, which handcuffed many businesses. This has since been removed as a restriction, but the heavy-handed tactics undermine investor confidence. These issues along with excessive bureaucracies and slow judicial actions hinder private investor funding. And these issues make India’s future economic growth less robust than it otherwise might be.
Seizing Opportunities Where Possible
While everything regarding India’s future economic growth isn’t pointing positive, many factors do. In addition to policy and infrastructure choices, regional settings also offer favorable opportunities. Currently, China’s economic growth has slowed significantly in light of its ongoing real estate crisis. At the same time, China’s geopolitical tensions with the U.S. and with Europe creates an open door for India. Both of these factors along with pandemic effects have encouraged many companies to consider supply chain alternatives. Some foreign investments in India in this regard have already occurred. Thus, if India could fill the void in supply chain needs left by Chinese developments, notable growth could occur.
As an example of this, Apple has already decided to partially rely on India in its production of iPhones (read all about it in this Bold story). Though Apple’s foreign investments in India only account for 7% of its iPhone production, more may follow. Certainly, India has over 1.4 billion people who could meet labor demands involving industry supply chains. Combined with a better infrastructure, this could be highly attractive to foreign companies. This is precisely what Prime Minister Modi hopes will occur in coming years. If a few major companies like Apple follow in Apple’s footsteps, India’s future economic growth starts to look much better.
Achieving Global Economic Success
India has set clear goals for its future in terms of global economic positioning. Specifically, it hopes to become equal to China’s GDP by 2047 and be recognized as a developed nation. In order to achieve this, India’s future economic growth will need to be around 8-9% annually instead of 6%. Without foreign investments in India coming from private funding, many doubt this can be attained. But Modi continues to make progress in the digitization of the country and in improving social conditions. It may be a few more years before India’s economic path is clear for the future. But no one can doubt that the potential to become the next China does indeed exist.