- This article evaluates India’s strengths and weaknesses competing with China and Southeast Asia to attract global supply chain shifts and become a strategic investment hub.
- Read further to understand the opportunities and reforms vital for India to realize its vision as an alternative globalization champion.
Table of Contents
- Recommendation
- Take-Aways
- Summary
- India’s population expansion and a forecasted middle-class boom fuel its economic growth.
- US companies are entering India to seize market growth opportunities and mitigate supply chain risk.
- Despite India’s economic potential, headwinds could threaten long-term growth.
- About the Author
- Genres
- Review
Recommendation
Experts forecast that, by 2030, India’s GDP will reach $7 trillion, overtaking Japan as the globe’s third largest economic engine. Multinationals currently view India though two distinct lenses: The first as a growth portal for commerce with a surging middle class, and the second as a strategic supply chain conduit. Journalist Luke Patey explores the nation’s ascent as a power player in the global economy in this informative overview. Investors, executives and entrepreneurs will find this a useful analysis of India’s current economic status and likely future trajectory.
Take-Aways
- India’s population expansion and a forecasted middle-class boom fuel its economic growth.
- US companies are entering India to seize market growth opportunities and mitigate supply chain risk.
- Despite India’s economic potential, headwinds could threaten long-term growth.
Summary
India’s population expansion and a forecasted middle-class boom fuel its economic growth.
By mid-2023, India bypassed China to claim the title of the globe’s largest population, at 1.4 billion people. The population story, however, is only one aspect of India’s larger economic narrative. Experts predict that by 2047, India’s middle class, currently estimated at 400 million people, will explode to more than one billion. In addition, forecasters project that, by 2030, India could surpass Japan as the world’s third-largest economy, with a GDP of $7 trillion.
“India has been the economy of tomorrow for the past 30 years. If it can ever just get its policy environment right, India could become the economy of today.”
Multinational executives are excited at the prospect of expanding their company footprints in India for two primary reasons: The first is the opportunity to sell into the burgeoning Indian market. For example, Hyundai Motors generates roughly 20% of its worldwide revenues from the nation. And for Hyundai and other auto manufacturers, India has eclipsed Japan as the world’s third-largest car market.
“Business executives need to change their mindsets. It should not be about running away from a changing China but about exploring new markets and new opportunities.”
While executives see greater sales as a major growth driver, the second reason lies in the complexity of de-risking supply chains from a China-centric posture. Originated by Japan, the “China plus one” solution involves adding one or more production centers in nations besides China. For corporate leaders, India is rapidly becoming the plus-one to house manufacturing capacity. For example, Hyundai now produces 18% of its vehicles in the country.
US companies are entering India to seize market growth opportunities and mitigate supply chain risk.
As expected, American corporations are charging into India to capture the value of growth and supply chain risk mitigation. Google, Apple and Amazon have committed substantial capital to India, with Apple positioned to deploy $26 billion by 2029. Total US foreign direct investment into India since 2000 has exceeded $50 billion.
“Altogether, the US Bureau of Economic Analysis tallied American investment in India at over $6.7 billion last year — one of the highest levels ever recorded by US companies.”
American efforts in the private sector and through government policy to decouple from China have been underway for the last decade, and they grew more intense during the COVID-19 pandemic. The task is proving quite difficult. Although India is full of promise, investors must cope with its unique requirements for various locales; entrenched, recalcitrant bureaucracies; and unreliable infrastructure.
Despite India’s economic potential, headwinds could threaten long-term growth.
The Indian market rates 63rd of 190 nations in the World Bank’s “Doing Business” analysis, and it has to address literacy and workforce development challenges. Enticements for investors include a robust IT and engineering workforce. Those help explain Apple’s growth in manufacturing iPhones in India, which could reach 50% of global production by 2027.
“The investments of European and American wind manufacturers in India present another case in point for the potential to develop new supply ecosystems outside of China.”
Another growth driver for India is in clean energy technologies, particularly wind power. Currently, China dominates worldwide manufacturing in wind, solar and battery technologies, but India is moving up in the field. Companies in India produce some 7% to 12% of wind machinery worldwide.
India faces an extended runway for sustainable and long-term economic expansion as multinationals seek to tap growth and supply chain channels. But the question remains: How will the China-plus-one movement benefit India in the long run?
About the Author
Luke Patey is a senior researcher at the Danish Institute for International Studies and lead senior research fellow at Oxford University’s Institute for Energy Studies.
Genres
Business, Economics, Policy, International relations, Technology, Manufacturing, Investment, Education, Development
Review
In this article, global risk expert Luke Patey analyzes India’s potential to emerge as an alternative globalization hub as multinationals diversify supply chains from China. He weighs India’s strengths around market access, investment climate reforms, human capital, and geographic position against limitations like infrastructure gaps and bureaucratic hurdles.
Patey cites promising shifts, including India surpassing China in new FDI attracting megadeals during the pandemic. Expanding sectors like renewable energy, electronics manufacturing, and telecom equipment present opportunities. India’s engineering talent pool and English proficiency offer advantages for R&D centers over Southeast Asian nations.
However, significant challenges remain compared to China and Asian peers. Weak infrastructure, land acquisition complexities, restrictive labor laws, and corporate tax rates higher than Vietnam and Thailand stall investors. State-level inconsistencies and workforce formal skilling gaps require action.
While depicting an optimistic big picture, Patey stresses targeted Indian reforms still needed for its true globalization potential. Success hinges on further improving ease of doing business at national and sub-national levels in parallel with human capital development. If progress continues apace, he sees India prospective emergence as an innovator for developing nations.