The nation’s economy is on an upswing, with fiscal year 2023 growth projected to be 6.4%. This upturn is not a flash in the pan but a well-charted trajectory fostered by a blend of demographic dividends, progressive financial policies, and a fertile market ecosystem receptive to foreign direct investment (FDI). In the fiscal year 2022 alone, India magnetized a record FDI inflow of approximately US$84.8 billion, despite the global tremors of uncertainty.
This article will navigate through India’s financial and market sectors, shedding light on the policies that are shaping this economic upsurge. Through this lens, we aspire to offer a vantage point that could possibly translate into understanding the financial landscape in India.
Background of India’s Economic Growth
India, a land steeped in history and diverse culture, nestled in the southern part of Asia, has been on a steady economic ascent, marking its presence as a significant player on the global financial stage. This economic growth narrative is also a reflection of India’s rich heritage blending with modern-day aspirations. The economic narrative of India is deeply rooted in its historical ethos. Once the cradle of the Indus Valley Civilisation, India has evolved through the ages, each era contributing to its economic fabric. The ancient trade routes, the age of the monarchs, the colonial period, post-independence industrialization, and the liberalization era of the 1990s—each phase has etched indelible imprints on India’s economic canvas.
The cultural diversity of India is a potent driver of its economic engine. The myriad festivals, traditions, and rich tapestry of arts and crafts not only contribute to the local economy but also attract global tourists and investors keen on exploring India’s cultural wealth.
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Economic Projections of India
A combination of sound policy frameworks, a diverse market, and a growing demographic dividend support India’s economic outlook. Let us examine each variable in greater detail in order to comprehend how each variable contributes to India’s overall economic growth.
01 Policy Frameworks
India is focusing on strengthening its micro, small, and medium-sized businesses (MSMEs) in order to build a strong economy. These businesses are seen as essential for making money, developing skills, and creating the environment needed for steady growth in consumption and investment across the board. The emphasis on MSMEs is aimed at harnessing the potential benefits of India’s demographic dividend and the expansion of the middle-income class. The Indian government has also implemented policies to shift towards renewable energy and reduce reliance on coal, addressing climate change challenges while promoting sustainable economic growth. Moreover, the Reserve Bank of India’s monetary policy and other economic measures are instrumental in maintaining economic stability and promoting growth, as seen in the Monetary Policy Statement released in February 2023.
02 Market Diversity
The IT-BPM sector is one of the many diverse market sectors in India, accounting for 7.5% of the GDP in the financial year 2023. This sector significantly contributes to India’s socio-economic growth, hinting at a future driver of the economy. The market diversity extends beyond IT-BPM, encompassing various sectors such as manufacturing, healthcare, and services, each offering a broad spectrum of investment opportunities for both domestic and foreign investors.
03 Demographic Dividend
India’s sizable labour force of 678.6 million people as of 2023 is largely responsible for its short-term economic growth. This demographic strength, coupled with necessary labour market reforms, could potentially unlock sustainable long-term growth. Approximately 67% of India’s population falls in the age group of 15 to 64 years, indicating a significant demographic dividend that could contribute to India’s GDP growth if effectively harnessed. According to a Confederation of Indian Industry (CII) report, leveraging this demographic dividend could potentially elevate India’s GDP from the current $3 trillion to $9 trillion by 2030 and further to $40 trillion by 2047.
Financial experts predict a 6.7% annual growth rate from fiscal 2024 to fiscal 2031, which is more than just a number; it tells the story of a country on the verge of economic transformation. This growth trajectory could potentially hoist India’s gross domestic product (GDP) from a substantial $3.4 trillion in fiscal 2023 to an impressive $6.7 trillion. This economic growth is expected to have a ripple effect on per capita income metrics, causing the per capita GDP to hover around $4,500, a figure that reflects the aspirations of a nation on the rise (S&P Global).
A notable cog in this economic machinery is the government’s progressive stance towards foreign investment. Initiatives like the production-linked incentive (PLI) schemes are not mere policy outlines but a statement of intent. These schemes are meticulously crafted to allure foreign investments, thus fostering an environment that is conducive to economic engagements from across the globe. The story of these initiatives goes beyond the words on policy papers. They show up in the real world as a faster and easier way for investors to get permissions and clearances through systems like the National Single-Window System.
The investment milieu of India is also echoing a favourable tune, as evidenced by the investment as a proportion of GDP, which reached a 10-year zenith of 34% in fiscal 2023. This figure isn’t just a statistical highlight but a reflection of the confidence infused in the investment landscape of India. It hints at a climate where capital finds promising ventures, and ventures find the requisite capital to flourish.
India’s Tech Sector and Space Endeavours
India’s burgeoning tech sector is a testament to the nation’s innovative prowess, while its ventures into the cosmos mark its ambitious stride on the global stage. The amalgam of technological advancement and space exploration embodies a promising frontier for investments, potential collaborations, and a beacon of growth.
Tech Sector Growth
The tech sector in India has been on a significant growth trajectory over the past few decades. Here is an analysis of the sector, focusing on its growth over time, current and recent trends, and future prospects:
01 Growth Over Time:
The contribution of the IT sector to India’s GDP increased from 1.2% in 1998 to 10% in 2019, with a significant portion of revenue coming from exports. The tech industry in India recorded its highest-ever growth rate, reaching $227 billion in revenue in 2021, up from $200 billion in 2020. The sector’s revenue was estimated to rise by 15.5% to $227 billion in 2021-22, growing at almost twice the rate of the economy.
02 Current and Recent Trends:
In FY2023, the technology industry’s revenue, including hardware, is estimated to cross $245 billion, with exports expected to grow at 9.4% and the domestic tech sector expected to reach $51 billion. Emerging tech trends include the rise of the metaverse, with the industry in India expected to grow at a CAGR of 37.1%. Emerging technologies like AI and AR are accelerating the digital transformation by building usable, interconnected platforms across enterprises. The fintech adoption rate in India is at 87%, the highest globally, with the fintech market expected to reach $1 trillion in assets under management and $200 billion in revenue by 2030.
03 Future Prospects:
A promising employability rate of 48% among Indian graduates in AI and ML roles indicates a robust talent pool ready to meet the demands in the cutting-edge technology sector. The easing of the semiconductor supply shortage is anticipated by 2023, with 65% of executives believing that supply and demand will be balanced for most products. Moreover, the Indian tech sector is forecast to be a $1 trillion opportunity in the next 5–7 years, potentially contributing 25% to the GDP. Rapid economic expansion is driven by emerging sectors like renewable energy, e-commerce, digital services, healthcare, and financial technology, which are expected to be significant drivers of employment and growth.
India’s Space Endeavours
India has been progressively advancing its space programme, taking giant strides from the moon to the sun, and planning further for manned lunar missions and an indigenous space station. Following the success of the Chandrayaan-3 mission, which marked a historic moon landing on August 23, 2023, India is steering its space ambition towards solar exploration. The Chandrayaan-3 mission, launched on July 14, 2023, carried an ISRO rocket to the moon, making India the first country to land a craft on the moon’s south pole region.
The next mission in line is the Aditya-L1, India’s maiden space observatory aimed at solar research. The mission is slated for launch from Sriharikota, utilising the ISRO-designed 320-ton PSLV XL rocket, a stalwart of the Indian space programme that powered earlier missions to the moon and Mars. The Aditya-L1 mission is dedicated to studying solar winds and understanding the sun’s impact on Earth’s climate patterns. This spacecraft is destined to travel 1.5 million km to study the sun’s atmosphere, stationed at a Lagrange Point where gravitational forces balance, thus reducing fuel consumption.
India has also been laying the groundwork for its manned space mission, Gaganyaan, which aims at developing the technology needed to launch crewed orbital spacecraft into low Earth orbit. This programme envisions three uncrewed flights preceding a crewed flight scheduled for 2025. A crucial test in this mission was successfully carried out, marking a significant step towards achieving this goal.
Moreover, Prime Minister Narendra Modi has set lofty goals for the Indian space programme, envisioning the establishment of an ‘Indian Space Station’ by 2035 and sending the first Indian to the moon by 2040. These ambitions are a testament to India’s commitment to becoming a significant player in space exploration, bolstered by collaborations with private sectors like OneWeb, which launched its satellites through ISRO in 2022.
Furthermore, ISRO’s cost competitiveness in space engineering is expected to be a driving force in advancing its space industry, which has now opened up for privatised contributions. The ambitious missions and the laid-out plan for future space exploration are examples of how the Indian space program has indeed made significant strides, signaling a promising trajectory in the international space arena.
