Exploring the Lesser-Known Drivers of India’s Economic Potential
By Editorial Office
This article is based on “Five undervalued qualities of the Indian economy” by Tej Parikh, originally published in the Financial Times.
As India continues to assert its position on the global economic stage, it’s crucial to look beyond the well-known narratives of rapid growth and large population.
This analysis explores five often-overlooked aspects of India’s economy that could significantly shape its future trajectory. These underappreciated factors reveal a more nuanced picture of India’s economic potential and its unique position in the global marketplace.
- Emerging Services Power
India is rapidly evolving beyond its reputation as the “world’s back office.” Multinational corporations are increasingly tapping into the nation’s tech-savvy talent to develop “global capability centres” (GCCs). These hubs conduct high-value activities such as design, research and development, and data analysis.
According to Ernst & Young, India accounted for more than 45% of the GCCs in the world outside of the home country in early 2023. Major companies like IBM, Google, Goldman Sachs, and Novartis have established GCCs in India. This trend suggests that India could become the world’s research hub, complementing China’s role as the global manufacturing center.
- Talented Workforce
India’s emerging comparative advantage in services stems from its young and large workforce. Approximately one million workers enter the Indian labor market every month. While this presents challenges, it also creates enormous opportunities.
Over one-third of Indian students choose STEM degrees, giving the country one of the largest pools of graduates in digital services, engineering, computing, and data sciences globally. According to LinkedIn data, India has the highest AI skill penetration rate in the world. This abundance of talent in high-demand fields positions India well for the future of work.
- Entrepreneurial Spirit
India’s culture of “Jugaad” (frugal innovation) is a significant, yet often underappreciated asset. This “can-do” attitude is evident across various sectors, from the efficient dabbawala lunch delivery system in Mumbai to the country’s low-cost space program.
The country boasts the third-largest startup ecosystem globally and is home to 271 billionaires, ranking third worldwide. Innovative companies like Zomato, Flipkart, and Ola Electric have emerged in recent years, showcasing India’s entrepreneurial prowess. This spirit of innovation and resourcefulness could be a key driver of future economic growth.
- Maturing Capital Markets
India’s capital markets have seen significant growth in recent years. The National Stock Exchange of India’s market capitalization has more than doubled since 2020, now ranking fourth globally. The country has also experienced a boom in IPO activity.
India is currently the second-largest destination for venture capital and growth funding in Asia-Pacific. The expected increase in India’s weight in MSCI benchmark indices should support further capital flows. This maturing financial ecosystem is crucial for channeling investment into innovative businesses and supporting economic growth.
- Economic Resilience
India’s economic model appears to offer greater resilience compared to other emerging markets. The country’s strength in services exports makes its growth more robust and less vulnerable to global demand fluctuations. Services exports accounted for about 44% of India’s overall exports in the last financial year.
Moreover, India’s democratic foundation, which preceded its economic takeoff, has provided a stable base for growth. The country has consistently grown its GDP per capita at 4.5% or higher for four decades, a feat achieved by only nine countries since 1950. India stands out among these for being consistently democratic throughout this period.
Lastly, India is well-positioned to benefit from digital and green growth trends. Its world-leading digital infrastructure system, covering universal identity cards, rapid financial transactions, and data sharing, has cut red tape, boosted digital enterprises, and improved economic inclusion.
While challenges remain, including the need for continued investment in education and infrastructure, these five factors highlight India’s unique position in the global economy. They suggest that India’s potential for sustainable growth may be even greater than commonly recognized, positioning the country as a key player in the global economic landscape of the coming decades.
(Source: Financial Times, “Five undervalued qualities of the Indian economy” by Tej Parikh)
