India: Unfolding a New Chapter of Phenomenal Growth and Why We’re Paying Close Attention
Hey folks,
There’s something exciting happening on the global economic landscape. Our friends in India are sprinting forward at an unprecedented speed. They’re on the brink of becoming the third largest economy globally by 2027, zooming past economic giants like Japan and Germany. And guess what? By 2030, they’re also predicted to host the third largest stock market. Now, if that doesn’t pique your interest as an investor, I’m not sure what will!
India’s economic growth is no flash in the pan. For the past decade, they’ve been the fastest-growing economy worldwide, boasting an average GDP growth rate of 5.5%. But here’s the kicker — India is just warming up! They’ve got three aces up their sleeve: the surge in global offshoring, the digitalization wave, and the big move towards energy transition. These three megatrends are set to push India’s economy into overdrive, benefitting their massive population of over a billion people.
Ridham Desai, the Head Honcho for Indian Equity Strategy at Morgan Stanley, puts it beautifully, “India is a rising power in the world order. These unique changes we’re seeing represent a generational shift and a once-in-a-lifetime opportunity for businesses and investors.”
By 2031, we might see India’s GDP more than double from its current $3.5 trillion to an unbelievable $7.5 trillion. Meanwhile, their share in global exports could also see a two-fold increase. The Indian Stock Exchange, the BSE, is looking at an annual growth rate of 11%, reaching a whopping market cap of $10 trillion within the decade.
A recent Bluepaper from Morgan Stanley Research offers us a glimpse into how this economic boom could bring in some mind-boggling changes. We’re talking about a skyrocketing share of global manufacturing, an expansion in credit availability, new business creation, an enhanced quality of life, and a consumer spending boom.
Chetan Ahya, Morgan Stanley’s Chief Economist for Asia, believes that “India’s growth opportunity should unquestionably be on every global investor’s radar.” Starting from 2023, India will be one of the only three economies in the world that can pump out more than $400 billion in annual economic output growth. And this figure is expected to rise to over $500 billion after 2028!
India’s Global Workforce on the Rise
In the early days of the internet, India became the global go-to for services like software development, customer service, and business process outsourcing. Today, the rise of distributed work models and tighter global labor markets have solidified India’s position as the world’s back office.
Post-pandemic, CEOs are getting more comfortable with work-from-home models and, yes, work-from-India models too. Desai expects that the number of people in India working for international companies will likely double, hitting over 11 million in the coming decade as global outsourcing spends rockets from $180 billion per year to around $500 billion by 2030.
We’ve seen many companies, small and large alike, preferring to hire/contract Indians to get the same job done in a cost effective way, while also increasing their overall productivity. Our friends in India have a proven track record of delivering exceptional results, regardless of the job assigned to them and the expectations that come with it . I don’t think I need to mention who the CEOs of most big tech companies are and where they come from.
Digitalization and Credit: India’s Power Play
The digital revolution is reshaping India’s economy. Thanks to a national ID program named Aadhaar and an all-encompassing digital platform known as IndiaStack, India’s looking at a massive shift in how its population spends, borrows, and accesses healthcare.
Desai believes that credit availability could be the secret sauce in India’s economic growth story. He predicts that the credit-to-GDP ratio in India could soar from 57% to 100% in the next decade.
Some of you may already know that India has developed a revolutionary payments system that is designed to streamline the process of money transfer between any two parties, negating the need for the traditional exchange of lengthy banking details, called “UPI” which stands for Unified Payments Interface.
It has allowed millions of people and merchants in India to easily transfer money within their bank accounts in an instant, without any additional charge. It has also helped a lot of small businesses and merchants, without a POS system in place, to accept payments as small as INR 1 (CAD 0.016 🤯) without restrictions, directly to their bank accounts and allow exchange of goods and services which was otherwise impossible if the customer did not have cash.
But that was just the beginning. India has its own homegrown version of Visa and MasterCard called “RuPay”. It’s a card payment network developed by the National Payments Corporation of India (NPCI). The name “RuPay” is a mix of ‘Rupee’ and ‘Payment’, showing its focus on the Indian market.
Now, you’re probably wondering, why did India need its own card network when we already have well established, international ones? Well, there are a few reasons why it made sense for them.
First, since RuPay is local to India, the transaction processing happens within the country. This makes transactions faster and cheaper because they don’t need to cross international borders. It’s kind of like making a local call instead of an international one — it’s just quicker and less expensive.
Second, RuPay supports the government’s efforts to increase financial inclusion in India. It’s less expensive for banks to issue RuPay cards compared to other international cards, making it possible for more people, even in rural and remote areas, to have access to a card payment network.
Lastly, since the transaction data stays within India, it adds to the security and privacy of transactions. It helps the country monitor and track their financial ecosystem better.
So, in a nutshell, RuPay is a big part of India’s push to create a robust, inclusive, and efficient digital payments infrastructure. It’s about making payments easy, affordable, and secure for everyone.
Last year, the Reserve Bank of India (RBI) launched a few initiatives by the National Payments Corporation of India (NPCI) at the Global Fintech Fest 2022, wherein they announced the acceptance of RuPay Credit Cards on the UPI network.
What does that mean, you may ask? Well, this whole initiative will allow Indians to link their RuPay Credit Cards to their UPI applications, and use it to make payments to merchants all over the country who accept UPI.
What difference does that make? With this initiative, merchants and small businesses who do not have a POS machine, and can’t afford to bear the 2–3% gateway charges on credit card transactions, will now be able to accept payments made via RuPay Credit Cards directly into their bank account, without any issues. These initiatives are bringing in more opportunities, more potential customers, and a significant growth in the country’s GDP.
The Indian Government is also undertaking many initiatives to make it easier and quicker for business owners to get loans and credit, making the application process completely digital and allowing disbursement of loans within minutes of application, directly to their bank accounts linked with their UPI network. I’m sure we all understand the importance of availing credit in business operations, and how painstaking the application and verification process can sometimes be. I see a very bright future for India’s business sector and the entrepreneurial landscape.
Powering Up the Future: India’s Energy Transition
Energy is the backbone of economic development, and India is making great strides in ensuring universal access to electricity. Its focus on renewable energy sources like biogas, ethanol, wind, solar, and hydroelectric power is expected to address two-thirds of its new energy consumption, reducing its dependence on imported energy.
But like any great opportunity, investing in India isn’t without risks. These include the threat of a prolonged global recession, geopolitical uncertainties, domestic policy changes, a scarcity of skilled labor, energy deficits, and commodity price volatility.
Despite these challenges, I see a bright silver lining. Many of the economic expansion themes we’ve seen play out in China are now catching fire in India. As we approach the new decade, India’s economic transformation could very well become as relevant for global investors as China is today. In my opinion, India offers the most enticing growth opportunity in the coming years for businesses and investors alike in the Asian market.
Stay tuned, folks. The India decade is just beginning, and it promises to be an exciting ride!
