After several decades of sluggish growth, the Indian economy is now amongst the fastest growing economy in the world. Economic growth is currently 8-9%, second only to China.
Despite several problems facing the Indian economy, many economists point to potential strengths of the Indian economy which could enable it to continue to benefit from high levels of economic growth in the future.
- Demographics of India are favourable. India still has a positive birth rate meaning that the size of the workforce will continue to grow for the foreseeable future. (unlike China) A rising workforce helps to increase saving and investment. It also enables increased productivity.
- There is much scope for increases in efficiency. The infrastructure of India is so bad in places that even moderate improvements could lead to significant improvements in the productive capacity of the economy.
- India is well placed to benefit from globalisation and outsourcing. A legacy of the British Empire is that India has one of the largest English speaking populations in the world. For labour-intensive industries like call centres, India is an obvious target for outsourcing. This is an economic development likely to continue in the future.
- Education. India has a relatively high level of literacy for average GDP per capita levels. The right to elementary education (from 2002 act) has helped literacy rise from 52.2% in 1991 to 74.04% in 2011
- Positive Growth forecasts A recent study from Goldman Sachs, forecast that India could growth at a sustainable rate of 8% growth until 2020. However, it is worth noting that this assumed Indian would make several supply-side policies such as labour market deregulation and improvements in education and training.
- Comparative advantage in labour-intensive industries. India will also benefit from the liberalisation of free trade in recent years.
- Largest Car producer. India is one of the world’s leading producers of small cars/mopeds. In 2013/14, India produced 21.48 million vehicles (mostly two and three-wheelers) making it one of the biggest car producers in the world – focusing on a successful niche of cheap motorbikes for the Asian market.
- Growth in new companies. India has become a hub for IT start-ups, with the third highest level of business start-ups in 2014–15
- Attracting more FDI. Despite rigid regulations in planning and start-ups, India has attracted $36.5 billion of FDI in 2011, a significant increase on previous years and a sign multinational companies are increasingly valuing India’s growing economy and consumer class. This FDI is important for financing India’s current account deficit.
- Remittances. India has an important segment of its workforce working overseas (e.g. Middle-East). Foreign remittances to India amounted to US$68.91 billion in 2015 – 3.5% of India’s GDP.
- Growth in trade Indian exports have grown from
Foreign trade accounted for 48.8% of India’s GDP in 2015.
- Tourism. Tourism is a growth market for India, attracting foreign currency and creating employment. The tourism sector is forecast to grow by annual rate of 7.5% by 2025 (accounting for 7.2% of GDP)
- Diversification of Indian economy
Less dependent on agriculture. Service sector offers a chance for higher economic growth.
7. Healthy savings
India vs China
- Indian on Fire at Economist