Ira Singh
Khabar Khabaron Ki,04 Jan’24
As India strides forward in its ambitious pursuit to close the economic gap with China, the road to parity is fraught with challenges, hindering its progress despite the opportune moment presented by China’s economic slowdown, primarily fueled by an unfolding property crisis.
India’s economy is booming. Stock prices are through the roof, among the best performing in the world. The government’s investment in airports, bridges and roads, and clean-energy infrastructure is visible almost everywhere. India’s total output, or gross domestic product, is reportedly expected to increase 6% this year—faster than the United States or China.But there’s a hitch: Investment by Indian companies is not keeping pace. The money that companies put into the future of their businesses, for things like new machines and factories, is stagnant. As a fraction of India’s economy, it is shrinking. And while money is flying into India’s stock markets, long-term investment from overseas has been declining, which seems to be a growing economic concern.
Green and red lights are flashing at the same time. At some point soon, the government will need to reduce its extraordinary spending, which could weigh on the economy if private sector money doesn’t pick up, believe experts.No one expects India to stop growing, but a rise of 6% is not enough to meet India’s ambitions. Its population, now the world’s biggest, is growing. Its government has set a national goal of catching up to China and becoming a developed nation by 2047. That kind of leap will require sustained growth closer to 8% or 9% a year, according to economists .
The missing investment could also present a challenge for Narendra Modi, the Prime Minister since 2014, who has concentrated on making India an easier place for foreign and Indian companies to do business.
Modi is in campaign mode, facing elections in the spring and rallying the nation to cheer his successes. The sluggish investment is not something executives, bankers or foreign diplomats like to discuss, for fear of looking like naysayers. But investors are playing it safe while the economy is signaling both strengths and weaknesses.One point of widespread agreement is that India should benefit from China’s slowdown, which has been fueled by an unfolding property crisis. China’s geopolitical tensions with the West present another opening for India, by motivating foreign companies to move production in China to other countries.
Further,The World Bank has applauded India’s commitment to infrastructure spending, which ramped up during the pandemic when the private sector needed rescuing. Since then, the government has doubled down, paying for bricks- and-mortar improvement to the rickety roads, ports and power supply that once discouraged business investment.
But the World Bank, whose mission is to nudge developing economies higher, says it is critical that those billions’ worth of government spending ignite a burst of corporate spending. Its economists speak of a “crowd-in effect,” which happens when, for instance, a new port next to a shiny new industrial park lures companies into building plants and hiring workers. Last year, the bank said it anticipated an imminent crowding-in, as it has forecast for almost three years running.
“To accelerate the growth of confidence, public investment is not enough,” Auguste Tano Kouamé, the World Bank’s country director for India, said reportedly at a news conference in April. “You need deeper reforms to make the private sector invest.”
Another factor holding back longer-term investment is an underlying weakness in “the India growth story.” The most powerful source of demand, the kind that foreign investors and domestic businesses covet, is among the wealthiest consumers. In a population of 1.4 billion, about 20 million Indians are doing well enough to buy European consumer products, build luxury homes and beef up the top tier of the automotive sector, according to information.
Most of the rest of the population is struggling with inflation in food and fuel prices. Banks are extending credit to consumers of both kinds, but less so to businesses, which fear that the great majority of their customers will be tightening their belts for years to come.
“For the moment, there is no evidence that investors are feeling reassured about India,”,say economic experts.
But remains hopeful, believing,that the annual growth, even if less than 6%, is nothing to sniff at. The new and improved infrastructure should attract more private investment eventually. And the benefits of consumer wealth, unevenly distributed as they are, could over time raise up more incomes.
The biggest wild card is whether India can grab a significant share of global business from China. The highest-profile example is Apple, the $3 trillion megacompany, which is slowly moving some of its supply chain away from China. Its pricey iPhone has barely 5% of the Indian market. But currently about 7% of the world’s iPhones are made in India — and JPMorgan Chase has estimated that Apple intends to get that to 25% by 2025. At that point, all kinds of things become possible for India.
“We should keep our minds open,”say experts!