Tuesday's Talking Points
The Language of Growth!
India writes in many languages and speaks in even more dialects. By most accounts, there are more than 100 languages and around 20,000 dialects in India. There is another language which India speaks and writes in. One which has usage across length and breadth of our country - the language of economic growth. As India takes rapid strides in Amrit Kaal, expectation of India becoming a $ 10 Trillion economy by 2035 (As per CBER) has been grabbing the attention of one and all. We take a closer look at some of the factors aiding India in this pursuit.
Demographics
- Context - India recently overtook China as the most populous country in the world. For any economy though, the demographic mix is much more important than the total population. With a median age of 28 years and 67% of population in 15-64 years bracket, India has an edge on the demographic front.
- Why it matters - A larger and younger population creates a large domestic market and reduces dependency on global consumption. A larger working-age population creates economic tailwinds too.
Manufacturing
- Context - Manufacturing, Agriculture and Services happen to be the three levers of economic growth for India. Over the past few decades, Manufacturing’s contribution to India’s GDP has trended downwards, while China rose from an agrarian economy to an industrial powerhouse.
- What’s changed - Government initiated the ‘Make in India’ initiative in 2014 to promote manufacturing and attract foreign investment. India’s competitiveness has improved too due to lower wages, PLI scheme, tax incentives, etc., along with other favourable government policies.
- Why it matters - India, with a large young population, has huge untapped potential on the manufacturing front. Pandemic, geo-political tensions, supply-chain bottlenecks have driven home the importance of self-reliance in manufacturing viz. Semiconductors, Electronics, Defence equipment, Pharmaceuticals etc. Global economies are looking for an alternative to China and India has emerged as that alternative.
Infrastructure
- Context - Historically, India’s infrastructure has fallen short of meeting the demands of large population and a growing economy.
- What has changed - Projects like Bharatmala (Roadways), Sagarmala (Waterways), UDAN (Aviation), National Logistics Policy etc. are paving the way for Infrastructure development.
- Why it matters - Infrastructure spending has a multiplier effect on economy i.e. every Rupee spent on infrastructure has a more than proportionate positive effect on economic output. State of Infrastructure plays a key role in attracting foreign businesses to invest here.
| Sector | Units | 2018 | 2022 | Target | Target Year |
|---|---|---|---|---|---|
| National Highways | Kms | 1,26,000 | 1,46,000 | 2,00,000 | 2027 |
| Dedicated Freight Corridor | Kms | 0 | 1,100 | 8,657 | 2051 |
| Major Port capacity | MMTPA | 1451 | 1494 | 1759 | 2025 |
| Airports | Numbers | 100 | 141 | 200 | 2026 |
| Renewable energy | Capacity in GW | 69 | 111 | 500 | 2030 |
Sector Units 2018 2022 Target Target Year National Highways Kms 1,26,000 1,46,000 2,00,000 2027 Dedicated Freight Corridor Kms 0 1,100 8,657 2051 Major Port capacity MMTPA 1451 1494 1759 2025 Airports Numbers 100 141 200 2026 Renewable energy Capacity in GW 69 111 500 2030
Financialization
- Context - Traditionally, a significant section of Indian population has not had access to formal finance. Further, even those with access to formal finance, have been saving largely in unproductive avenues.
- What has changed - JAM (Jan Dhan, Aadhar, Mobile) and Direct Benefit Transfers (DBTs) of welfare subsidies into bank accounts have encouraged wider usage of bank accounts. Shift from physical assets to financial assets has also been witnessed recently. Increasing SIP flows and Demat account openings are a case in point. In spite of the recent increase, overall equity penetration in India is barely 5%, indicating a long runway ahead.
- Why it matters - A deep financial system, with a wider access, is necessary for inclusive economic growth. Further, financialization of savings and increase in depth of capital markets is critical to meet India’s ambitious infrastructure development and growth objectives.
Conclusion
Apart from the tailwinds mentioned above, focus on ease of doing business, digitalization, upskilling of labour force etc could also propel the economy in the right direction. All said and done, if India continues to speak the language of growth across length and breadth of the country, then it could truly ascend to new heights of prosperity in the Amrit Kaal. Wish you all a very Happy Independence Day!
Sources: CMIE, Bloomberg, IMF and other publicly available information
About Tuesday’s Talking Points (TTP): TTP is an effort by HDFC AMC to guide key conversations in the Indian financial markets and investing ecosystem. We aspire to do this by providing relevant facts, along with our perspective on the issue at hand. If you have a topic that you would like to be featured here, or in our Monthly Musings newsletter, please write to us at [email protected]
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