India’s economic transformation is kicking into high gear. Know more:
Global manufacturers are looking beyond China, with Prime Minister Narendra Modi stepping up to seize the moment. The government is spending nearly 20 percent of its budget this fiscal year on capital investments, the most in at least a decade.
As powerhouses from China to Germany contend with slowing growth, the stakes are rising to find another nation equipped to propel the global economy. Morgan Stanley predicts that India will drive a fifth of world expansion this decade, positioning the nation as one of only three that can generate more than $400 billion in annual output growth.
Boosting manufacturing to 25 percent of GDP, a key metric for the program, has proven elusive. The ratio rose to 17.4 percent in 2020 compared with 15.3 percent in 2000, according to data from McKinsey. Vietnam’s factory sector more than doubled its share of GDP during the same period. In an August speech commemorating 75 years since India’s independence, Modi urged the nation to settle for nothing less than to “dominate the world.”
The reforms were a hard sell. But by the end of the decade, changes to India’s economic landscape were undeniable. GDP close to doubled. International brands from McDonald’s to Microsoft offered new choices. In the 2000s, India notched several years of growth near 8 percent. Among Modi and his Bharatiya Janata Party’s most heralded achievements has been forging a single economic zone from India’s overlapping federal and state taxes, perhaps the most consequential measure since 1991. Tax revenue collection hit a high last year, jumping 34 percent from the previous year. The government will lay out its budget for the next fiscal year on February 1.
“In India, nobody has sold the reforms, so people believe they’ll make the rich richer and the poor poorer,” Das said. Among other notable differences: India’s middle class remains significantly smaller. Fully capturing the nation’s demographic dividend—perhaps its biggest advantage compared to bigger economies—will require broader wealth creation that resolves high unemployment among women, minorities and young people.
India’s large Muslim minority is also underrepresented. Despite forming 14 percent of the population, they’re estimated to hold about 7 percent of public sector jobs. Government critics fear that India’s secular foundation, and the economic potential of some 300 million people among its religious minorities, are being undermined by hardline officials who’ve pushed for India to formally recast itself as a Hindu nation.
Some younger Indians, aspiring to white collar work, are deferring employment rather than laboring in a factory. About half of potential workers under the age of 30 aren’t even looking for jobs.
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