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Today, we'll discuss how India has become one of the fastest-growing economies 🇮🇳

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THE INDIAN ECONOMY

The next powerhouse

India is one of the world's fastest-growing economies. Its progress marks a significant shift in the global order, outpacing China in various aspects.

The country is on track to become the most populous globally, with an estimated population of 1.42 billion in 2023. It has also achieved remarkable GDP growth of 7%, surpassing China (5.5%).

Although poverty is still pervasive and agriculture remains the primary occupation for over half of the population, India’s productive and skilled workforce has made it a formidable economic force.

India has experienced remarkable growth in the past two decades, lifting hundreds of millions of its citizens out of poverty.

Unlike other countries struggling with demographic challenges such as aging populations, India benefits from a robust and productive young workforce.

Countries like Japan and China could face existential questions over balancing their economies with vast elderly and rapidly aging populations that drain more resources than they produce.

In fact, Goldman Sachs estimates that India will be the world’s second-largest economy by 2075.

Overview

Before 1991, the country blended a Soviet-style centrally planned economy with the remains of a free market system inherited from British colonial rule.

Considerable government intervention in business activity resulted in highly regulated private industries. This made it challenging for private companies to compete with dominant state-owned enterprises with a stronghold in many industries.

Following the collapse of the Soviet Union, India faced significant challenges, including the loss of its largest trading partner. This accelerated a severe debt crisis, pushing the country to bankruptcy. Fortunately, a last-minute loan from the International Monetary Fund prevented worst-case scenarios.

Since then, the country has eased regulations and experienced a robust growth trajectory, doubling its economy every five years.

One of the reasons for its development success is its workforce. India stands as the second-largest English-speaking nation in the world, with roughly 125 million speakers, making it a competitive choice for international companies outsourcing jobs.

While known for its English-speaking call centers, India now offers opportunities for skilled professionals in science and engineering.

India is the world’s fifth-largest economy, following the U.S., China, Japan, and Germany. Unlike other major economies grappling with an aging population, India enjoys a “demographic dividend” with a young and productive workforce, positioning it well for continued growth.

Across industries

Technology

India has become the leading offshoring destination for global information technology (IT) companies. With a proven track record in delivering both onshore and offshore services, the emergence of new technologies has opened up a wide range of opportunities for top Indian IT firms, including some of the major ones like TCS, Wipro, and Infosys.

Spending on IT in India is expected to reach $144 billion by 2023. The widespread adoption of cloud technology could generate new jobs for 14 million individuals and contribute $380 billion to India's GDP by 2026, according to India’s Ministry of Commerce and Industry.

A survey conducted by Amazon Web Services (AWS) in 2021 projects India to have nine times more digitally skilled workers by 2025, including cloud architecture, cloud computing, and digital content creation, further reinforcing its position as a talent hub.

India wields a vibrant venture capital scene with over 100 unicorns (companies with at least a $1 billion valuation) worth over $332.7 billion, making it the third-largest unicorn base in the world.

Services & Outsourcing

India's services sector continues to be the driving force behind its economic growth.

With a remarkable 9.2% growth rate, it’s the fastest-growing service sector globally. Contributing to 66% of India's GDP and around 28% of total employment, the services sector plays a crucial role in India's economy.

Although it’s common to assume that the services sector relates primarily to call centers, it’s no longer the case.

India is now a leader in accounting, engineering, and legal services.

Manufacturing

For decades, China has been the world's factory — but that could be changing soon, as companies are seeking to move supply chains out of the country due to a combination of geopolitical risks — such as tensions between the Western world and China and rising costs of production.

As companies seek alternatives to China, India emerges as a key beneficiary of this shift.

With its low production costs and a relatively low-key geopolitical environment, India offers an attractive option for companies looking to mitigate risks and explore new markets. Additionally, thanks to its vast land and young population, India presents an appealing opportunity for manufacturing facilities, making it an attractive destination for Chinese companies seeking to expand their operations too.

Notably, its manufacturing sector achieved a substantial milestone with over $412 billion in manufacturing output in 2018, making up 3.1% of global manufacturing output, and competing with manufacturing leaders worldwide, including China, the U.S., and Germany.

Finances

Undoubtedly, Indian companies have limitless possibilities to conquer the business world too.

A notable example of the recent mega-merger of the banking giant HDFC Bank and Housing Development Finance Corporation showcases India reaching another milestone by joining the world’s most powerful financial institutions trailing only JPMorgan Chase, Industrial and Commercial Bank of China, and Bank of America.

Bright future

India's economy holds immense potential for productivity enhancement and sustained growth.

A key challenge for India in bypassing the stagnation that’s hindered countries like China, which went through their own rapid industrialization, lies in the government’s ability to instill confidence in businesses and investors.

It must present India as a secure and profitable investment destination in an increasingly contentious global geopolitical environment while ensuring its citizens reap the rewards of prosperity and grow their wealth.

Otherwise, the country could continue to be plagued by vast, potentially destabilizing inequality.

Dive deeper

To learn more about India’s economic potential and challenges, watch this.

See you next time!

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