India’s Coming Economic Surge

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India’s Coming Economic Surge

India is now the fastest-growing large economy in the world.  Its GDP grew by 7.5 percent in 2015 and, according to the International Monetary Fund, it is expected to increase by 7.4 percent this year.1, 2

Among India’s advantages are:

  • Its population is the second-largest in the world, after China’s. According to the CIA’s World Factbook, India is home to 1.27 billion people, which is roughly four times greater than the population of the United States.3
  • India’s middle class will expand to 89 million households by 2025, more than three times its current size, according to the McKinsey Global Institute (MGI).4 As hundreds of millions of people move up the economic ladder over the next two decades, we expect that Indian consumer spending will soar.

One factor in India’s future economic boom is migration.  India’s population is increasingly moving to cities.  Data from McKinsey reveals that when Indian states or districts become 35 percent urbanized, GDP per capita more than doubles.  The benefits from higher productivity are unleashed as people receive more education, better healthcare, and more job opportunities.  By 2030, the entire country will achieve 35 percent urbanization, and several states will achieve urbanization rates of 50–60 percent. 

Another factor is demographic.  India’s population is younger and better educated than those of other developing nations.  McKinsey predicts that India will have 90 million college-educated workers by 2030.

India’s economy is also benefiting from a worldwide drop in energy prices.  India imports as much as 80 percent of the oil it consumes, making it one of the biggest customers for oil producers.  As the price of crude oil has plummeted, India’s companies have had more money to spend to hire more people and invest in more technology; the government has been able to cut back on fuel subsidies; and consumers have been able to spend more on goods and services.

Still another factor is political.  Prime Minister Narendra Modi met with leaders of 26 countries last year, urging them to invest in India.  So far, it’s working.  According to TradingEconomics.com, increases in Foreign Direct Investment in India averaged $1.177 billion per month from 1995 until 2016...

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