India is now ranked as the 5th largest economy in the world and the 3rd largest in Asia. In the last decade alone, India has risen from 11th economy ranked by size to the point where the IMF[i] has projected India to be the 4th largest by 2027.
What has stimulated India's growth?
India has experienced a tremendous growth rate since 2013 and is expected to continue its growth trajectory from 2023 as well, which can be concluded as being caused by the change in economic conditions in India since 2013. The growth can be sourced back to increased investment from both foreign and domestic sources, thus increasing productivity from India’s significant workforce, who were ranked 2nd for the largest working population in 2021 and are currently approximated to be around 540 million. Reform measures undertaken by the government have allowed India to efficiently apply this investment to maximise the level of economic growth, such as the ‘Make in India’ policy. ‘Make in India’ is a major national programme designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property[ii], and build best-in-class manufacturing infrastructure in the country, prioritising domestic growth and expansion in the country’s manufacturing industry, similar to China in the 1990s. The initiative has 3 main aims, increasing the secondary sector's growth rate to 12-14% per year, creating 100 million additional manufacturing jobs in the economy by 2022, and finally, ensuring that the manufacturing sector's contribution to GDP is increased to 25% by 2022. The initiative has led to increased investment inflows as well as economic growth for India.
Governmental policies like this allow India to maximise economic growth, as they lead to falling unemployment, easing of inflation, and lower import bills, meaning more investment is likely to come in, and more exports can go out. This has understandably led to a massive increase in net trade for India, the growth figure being 18.61%, compared to the global growth rate of 12.59%. This massive change in the inflow of money into India’s economy led to a positive multiplier effect[iii], as more products were also produced domestically, leading to increased spending from consumers, and amplifying the economic growth in India. Getting the most from both their domestic sales and their trade abroad has been improving aspects such as net trade, government revenue & material living standards for the population. This has the potential to lead to other positive impacts such as increased spending on public services like public transport, which has always needed investment, and is now possible because of economic growth.
How sustainable is India's growth?
India’s economy may be fastest growing large economy in the world, with the UN expecting India’s current population of 1.3 billion to keep growing and surpass China by 2024, but India may face some obstacles as its population chases that of China. For instance, the unemployment rate in India is at a 45-year high, despite the growth in the secondary sector, due to the process slowing and exports plateauing, however, the main reason is that the supply of jobs available cannot meet the growing population, leaving many without jobs and in poverty. This growth is also having a disproportionate effect on the people of India, as the GDP per capita still massively lags considering their economy size, only ranking 139th in the world. GDP per capita is arguably a better measure of growth in a country’s economy and allows for more factors to be considered. These factors can hinder India’s growth in the future, and without the appropriate policies put in place, India’s economy may begin to decline.
India's rapid economic growth over the past decade has brought many benefits for economic factors, but the environment and its people have massively suffered, as the industrialisation and growth of the secondary sector have exposed the population to air and water pollution. Reports find that environmental degradation costs India $80 billion per year (5.7% of its economy). Rapid economic development has placed increasing pressure on India's natural environment, leading to the population's health suffering and it has contributed to global climate change, affecting India’s future. For context, the World Health Organisation found that of the world's top 20 polluted cities, 13 are in India, with Delhi topping the list, showing if this level of growth continues, India’s natural environment won’t be able to sustain it.
What does this mean for the rest of the world?
India’s unpredictable growth follows suit from Chinas growth a few years prior, and so their impacts can be assumed to be at the very least comparable. India’s exports to the Western World have seen massive increases, as more and more countries begin to invest and import from India, especially considering the many political ties stuck with China. These products are often of a lower quality but cheaper than those manufactured in the West, attracting Western retailers as much as consumers. The IMF projects another 4% increase in the size of India’s economy, meaning the growth shows no sign of slowing down any time soon, so the impacts from rapid growth will continue to extrapolate, and in the near future, we will most likely see a world dominated by Chinese and Indian manufactured products.
Footnotes:
[i] IMF (International Monetary Fund) - a global organisation that works to achieve sustainable growth and prosperity for all of its 190 member countries.
[ii] Intellectual Property - refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.
[iii] Positive Multiplier Effect - an initial injection (government spending, investment and/or exports) into an economy’s circular flow causes a larger than proportionate final increase in national income.
Bibliography:
India is playing a key role in shaping global growth and economic policy - EY
India is one of the fastest growing economies in the world - TaxGuru
Initiatives taken by the government to boost manufacturing - pib.gov.in
