India’s Rockefellers and tech stars are hoping that the country’s economic modernisation and unification will survive Narendra Modi’s divisive politics
Save time by listening to our audio articles as you multitaskIn 2014, when Narendra Modi began his first term as prime minister, India was the world’s tenth-largest economy. In the following seven years it grew by 40% ; of big economies only China did better, with 53% over the same period. Growth this year of 8% will be the highest among big countries, according to theof roughly $5trn at market prices.
The first and most important pillar of India’s new growth pattern is the emergence of a single national market in which more firms and consumers use the modern financial system. This is fast superseding regional markets and informal businesses using mainly cash, which accounted for two-fifths of output and 87% of jobs five years ago. Much of the reform and investment underpinning this change predate Mr Modi, but he has expedited them.
The second pillar of India’s new growth concerns industry. India has long dreamed of becoming a factory for the world. But manufacturing’s share of output has remained stuck at 17-18% over the past decade as corporate investment by all firms has idled at the equivalent of 9-12% ofBigger and bigger business
Hoping to benefit from multinationals’ efforts to diversify away from China, Mr Modi’s lieutenants are also handing out $26bn in subsidies over the next five years for investment in 14 industries. These “production-linked incentives” pay out as firms’ revenues expand in such fields as solar panels, batteries and pharmaceuticals. Samsung from South Korea and Foxconn from Taiwan are usings to make more mobile phones in India.
The single market, industrial policy and technology seem likely to bring about a pick-up in growth from the 5.4% year-on-year rate reported in the final quarter of 2021. A mortgage banker says, “I have never seen this kind of demand for loan applications in 40 years.” Demand for electric vehicles is booming, a manufacturer exults.
That said, the financial system is more resilient than it was. Banks’ bad debts have at last been cleaned up. A growing pool of domestic investors offer resilience should foreigners feel forced to flee. And formalisation of the economy gives the government more tax-raising clout.
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