Everyone wants to be part of the India story. The world’s fifth-largest economy grew by more than 7 per cent in fiscal 2023, beating out many advanced and larger, developing economies. That’s an attractive investment prospect for many businesses.
For Erin Watson, Managing Director Baker & York, there are two key reasons for the demand: shifting geopolitical stands, and - most of all - that aforementioned growth.
“Everyone you talk to - in business, in the think-tank world, in government - are talking about India,” she told ANZ Group Chief Economist Richard Yetsenga on the latest Blue Lens on Mic podcast.
Those “scrambling to try and get on board the India train” are looking to take advantage of “the sheer growth of India's market in the last few decades,” Watson said.
The changing international environment, she said, had been “largely been shaped by US-China strategic competition”.
“Countries that have been historically very heavy on trade arrangements with China, are now starting to see new markets, and obviously India is an important part of this,” Watson said.
“I think that you start to see countries and potentially businesses following saying, ‘is this a different market that we could be looking at?’”
Watson - who is also Co-chair of G20 India Think20 and Adjunct Fellow at the Griffith Asia Centre - and Yetsenga were joined on the podcast by Anil Padmanabhan, a journalist based in India. You can listen to an edited version of the conversation on podcast below.
Yetsenga said the pace of progress in India was clear, and that all parties, including businesses, needed to keep abreast of this.
"We need to take the right perspective on this and keep updating your assessment about what's happening in India,” he said. “Because there is a lot of change.”
Padmanabhan said India’s impressive headline numbers may even “mask the growth beneath” the surface in some cases, given sectors and sections of the economy are “operating at multiple speeds”.
“[The] national macro numbers are pretty good, especially when you compare it to other countries,” he said. “But having said that, you need to look beneath the bonnet.”
Padmanabhan said India’s population could be viewed through three distinct economic lenses.
“There's an India one, which is the top tier, which is about 128 million people,” he said. “And they have a gross domestic product of about $US1.4 trillion and per capita income of $US12,000.
“Then you have India two, which has a population of 300 million, [with] a per-capita GDP of $US3000. Look at the steep fall [there].
“And finally, India three, which is where the bulk of India lies. Their population is 1.2 billion and they contribute about $US1.8 trillion to the GDP, and their per capita income is $US1500.”
For Padmanabhan, international investors would be wise to “look under the hood - because there will be opportunities out there”.
“Catering to this bottom of the pyramid means health, education, electricity, basic things,” he said. “There is huge consumer demand out there.”
Watson said India’s recent trade-deal activity was a sign of the country continuing to open its economy to the world – and take its place in it.
“Free-trade agreements are a key tool in a country's economic statecraft and its foreign policy,” she said. “You can see here that India is trying to assert itself internationally as it grows economically.”
Watson was eager to make the point that activity in India would never compare in scope to China in global trade, and any comparison was ultimately unhelpful for all parties.
“I think that's one of the problems… some approaches have [encountered] with India - that it's going to be the next China, is going to replace China, and I don't see that,” she said
For a country like Australia, the scale of its top exports mean India can’t compete, Watson said - but the next layer down, including in sectors like tourism and education, is where the action is.
“These are the industries where I really think you'll start to see some change,” she said. “But that doesn't change Australia's overall diversification of its export markets.
“But it [also] doesn't mean that India isn't going to play an important role in those other sectors. I think that's where we should be focusing - around skills recognition, movement of people and so on.”
Yetsenga agreed, noting the reality of the global economy meant the US and China would always stand alone.
“The US is a bit bigger than $US20 trillion, China's a bit smaller than $US20 trillion. And then number three is Japan down it down at $US5 trillion,” he said. “The scale just doesn't match.
“I think maybe a frustration for all of us, of all the other 196 economies that you can compare China to, people seem to most often choose India.”
Apples & oranges
Padmanabhan said he sympathised with the comparison, given the world had really only seen two gigantic growth stories over the past few decades.
“One is China, and the second is India,” he said. “Both are neck and neck on population at this point [and] people tend to weigh the two together.
“Having said that, I don't agree with that comparison because frankly, they're comparing apples and oranges.”
The China model of growth is very different, Padmanabhan said - and India’s growth (and economy) will always be unique.
Such growth is “not going to create a ‘West’ in India, that's very visible,” he said. “It's a cultural thing.”
“Investors have to calibrate their approach to something which is different.
“Don't try to put it in a particular silo. It won't fit, and then you will have a problem with your investments.”
International relations have shifted in recent years to the point India is now negotiating with larger economies as almost an equal, Padmanabhan said.
"India has acquired the ability to give and take in a negotiating table,” he said. “Earlier, it was all about take, because… the economy was not still strong. There were huge challenges.
“That is the big change that we are seeing today in India, at the global high table, which is probably why it is getting so much recognition, particularly in the West.”
The experts also touched on the impact of increasing digitisation in the developing economy, India’s ongoing climate transition, and 2023’s India-hosted G20. Listen to the podcast above to find out more.
This note reflects the edited version of the conversation as it appears on the podcast.
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