Standard Chartered Bank's Zarin Daruwala on India's big growth trajectory

India took 60 years to become a $1-trillion economy in 2007, reaching $2.7 trillion by 2018. In the decade spanning 2018 to 2028 it is poised to witness a remarkable transformation, with a projected doubling of its nominal GDP to $5.94 trillion by 2028, becoming the third-largest economy in the world. This translates to creating and adding one “new” India to the current one, presenting an unparalleled opportunity for investors and businesses to join this burgeoning economic miracle.

Intrinsic to this is the pace of growth. By compounding at a high rate on a large base means that India is one of only three economies in the world that can generate more than $400 billion in annual economic output, which will rise to more than $500 billion from 2028. India’s rise today resembles China’s path over 2007-2011 when its nominal GDP grew from $3.55 trillion to $7.55 trillion, although at a slower pace.

Government Infrastructure Spending

Central to this growth story lies the government’s strategic infrastructure spending, where central government capex has been increasing at a CAGR of 27% over the past five years. This strategic investment is a catalyst, effectively “crowding in” private capital expenditure. As infrastructure improves, businesses gain greater confidence in expanding their operations, leading to a virtuous cycle of investment and growth. Historical analysis shows that the railways have a multiplier effect of five times, with the road sector offering a similar opportunity in terms of growth gains.

Leapfrogging Technologies

India’s infrastructure development is not merely focussed on expansion but also on embracing cutting-edge technologies. The country is adopting new technologies in several sectors, with priority accorded to “green” ones, as part of climate change and sustainability targets.

India’s per-capita electricity consumption was around one-third of the global average in FY22 and is likely to rise significantly going forward. To this end, renewable capacity is projected to increase from 76 GW in 2018 to 500 GW by 2028. The significant increase ensures that two-thirds of the incremental supply is expected to come from renewable sources. India is already the world’s third-largest producer of solar energy and fourth-largest producer of wind energy—further growth here will not only reduce import dependence but will also reduce inflation volatility and create new demand for solutions such as electric vehicles, cold-storage chains, and green hydrogen-powered trucks and buses.

Corporate Profits

Corporate profits are soaring, contributing significantly to GDP growth. India Inc.’s net profit as a percentage of gross domestic product (GDP) was close to 5% in Q2FY24, and more than double of the 2% recorded in Q2FY21. This surge in profitability is a powerful indicator of the vibrant and expanding Indian business landscape.

Today both Indian and multinational corporates are focussed on the India market. India remains a favoured destination for global investors, and, as per the United Nations Conference on Trade and Development (UNCTAD), India secured the third-highest foreign direct investment (FDI) for new greenfield projects in 2022.

Increased Tax Buoyancy

This economic dynamism is accompanied by a remarkable increase in tax buoyancy at the corporate and individual levels. Tax collections have grown at an average annual rate of 15% over the past five years, creating a broader and deeper tax base. The GST system has rapidly expanded the tax net, increased collections, and formalised the economy. This robust tax revenue gives the government the resources to invest in critical infrastructure projects, creating a virtuous growth cycle.

Rising Per Capita Wealth

As per capita wealth increases, consumption rises, further fuelling the engine of economic growth. This cycle of wealth creation is crucial for sustained economic development. IMF data shows India’s per capita GDP is expected to increase from $1,974 in 2018 to $3,985 in 2028, translating into significant improvements in living standards for millions of Indians.

Opportunity for the Banking Sector

As per capita GDP ratchets up to the $4,000 inflection point, financialisation of assets is also expected to double, moving away from the traditional saving routes of land and gold.

The publicly-owned India Stack is interoperable, democratises data, is decentralised and will continue to drive financial inclusion—be it with Aadhaar for 1.3 billion Indians or UPI, the world’s largest payment network.

Further, strong regulators for banking, capital markets, and insurance have had a deep impact on borrower behaviour. The Insolvency and Bankruptcy Code significantly changed borrower behaviour with errant promoters losing control of their enterprises in the event of a default.

Unlocking Human Potential

India has a young population of 1 billion under 35. So it will clearly continue to enjoy this demographic dividend even as population growth is set to witness a slowdown with Total Fertility rates (TFR) slipping below replacement levels. More importantly, globally there is an inverse correlation between female literacy and TFR, which has been relevant for India. Hence going forward, greater female labour force participation would also be a key growth driver.

The Decade of Indian Dominance

In conclusion, the next decade presents an unparalleled opportunity for investors and businesses to be part of this remarkable story.

The government has touched the right chord via policy efforts across key reform areas. Going forward we expect the private sector to supplement the compelling consumption and investment story. This decade belongs to India. By capitalising on its inherent strengths, India is poised to become a global economic powerhouse and a leader in sustainable development and human empowerment. The world is watching with anticipation as India embarks on its next chapter of growth and prosperity. 

 

The author is Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka) of Standard Chartered Bank. Views are personal