With the 2023 World Economic Forum in Davos dominated by discussions of economic growth, or lack of it in most developed countries, one nation was often cited as a strong point.
India is doing “exceedingly well,” Bank of Japan Governor Haruhiko Kuroda said at a closing panel at the event, highlighting acute challenges facing its neighbors Sri Lanka, Bangladesh and Pakistan.
The hype around the country was partly modeled, with Indian executives, officials and investment seekers heavily represented in the Swiss mountain resort (although Prime Minister Narendra Modi was not present).
But India shines among the world’s largest economies, with Europe teetering on the brink of a potential recession and growth in the United States slowing.
And while the International Monetary Fund sees China outpacing global growth again in 2023 as the country reopens, its forecast of a 4.4% increase in GDP is far lower than its estimate for India, of 6.1%. The Center for Economics and Business Research reckons that India could overtake Germany and Japan to become the world’s third largest economy over the next decade, hitting $10 trillion by 2035.
Several executives of non-Indian companies at the WEF summit, including Nokia CEO Pekka Lundmark, highlighted India as one of their fastest growing markets.
The head of Ericsson, Börje Ekholm, said that the 5G infrastructure was developing rapidly there.
“It is for all digital India, and the creation of a digital society in India,” Ekholm told CNBC. “We are on a strong path with 4G but now we are building 5G at an even faster pace.”
India, he continued, “will soon have the best digital infrastructure outside of China,” led by telecom juggernauts Bharti Airtel and Jio, he added.
“They are building fast, this will help India digitize, and if you compare this with what happens in Europe we are behind.”
India also has ambitions to become a global chip-making hub, as concerns grow over Western dependence on Taiwan; and according to India’s commerce minister, Apple wants to move 25% of its iPhone manufacturing to the country (although this has not been confirmed by Apple). It is already a world leader in digital payments; and is looking to develop into areas including solar, wind and green hydrogen production.
Strong wind from behind
“We are very optimistic and very positive about India,” Tata Consultancy Services chief executive Rajesh Gopinathan told CNBC.
He said that the combination of a stable political environment and significant government investments in infrastructure are providing a positive environment for growth; and that the country was in a good position for the planned energy transition as it was “building in a new element without legacy infrastructure from which to exit.”
“The global economy and the size of India have ensured that there is enough capital available,” Gopinathan said. “So you combine the demographics, the demand side, and the availability of capital, I think the upside is significant. Of course it needs to be carefully executed, but it is there for realization.”
Despite future commitments on growing renewables and reaching net zero emissions by 2070, India benefited from buying Russian oil at a heavily discounted rate, while Europe faced much higher prices, volatility of -market and fears of scarcity.
Inflation was also less severe in India than in many other countries, with the CPI coming in at 5.7% in December.
When asked by CNBC’s Steve Sedgwick, Dinesh Kumar Khara, president of State Bank of India, said it was “absolutely” true that India was in a sweet spot compared to its rivals.
He noted the launch of the country’s vaccines, its measures to hope the growth of consumer prices that help ensure food security, and its focus on creating infrastructure; although recognized inflation was still a “threat,” and that drag on global growth would also have an impact on the country.
As Anish Shah, chief executive of Mahindra Group, told CNBC: “India will be affected. When the world goes through a recession it is not as if India will be left out.”
However, he also said, “What we feel is that the impact on India will be much less because of the fundamentals inherent in the country at the moment, and the fact that inflation in India has not really taken off. It is well under control.”
It’s not all roses
A 2021 Deloitte report said India still has a long way to go to build infrastructure and reform systems to improve the ease of doing business and attract more foreign investment.
Some analysts also argue that its recent surge in capital inflows — with the Sensex stock index up 5% over the past year while the US’s S&P 500, the Stoxx 600 of -Europe, China’s SZSE Composite and Hong Kong’s Hang Seng Index fell — it’s largely a result. of relative stability compared to volatility elsewhere, and may decrease when external factors change.
Meanwhile the country still has one of the highest levels of income inequality in the world, which has worsened during the pandemic, and poverty persists – although by one measure the poverty rate has fallen from 55.1% to 16.4% over the last 15 years.
Suyash Rai, fellow and deputy director at the Carnegie India research center, struck a note of skepticism on much of the bullishness from Davos.
He points out that the recent GDP growth figures of 6.3% per annum in the third quarter of 2022 and 13.5% in the second quarter were not much higher than the same periods three years ago, especially when the the sectors controlled by the government; and that current growth rates are skewed due to the pandemic-related contraction of 6.6% in 2020-2021.
He also notes that comparisons between developed and developing countries can be misleading, with the former naturally seeing more moderate growth.
Rai told CNBC by email: “While it is true that the Union Government’s capital expenditure for infrastructure development has increased, it is not clear whether the total capital expenditure of the public sector has increased.”
And about claims of political stability, he replied: “We should not compare the dominance of one party with political stability.”
Modi has been Prime Minister since 2014.
India’s era of coalition politics from 1989 until then, Rai said, produced “impressive economic results,” he continued, with per capita income at constant prices tripling over 25 years, while the economic growth slowed in the years before the pandemic.
“Thus, the kind of stability that comes with a dominant party is neither necessary nor sufficient for rapid growth in India,” he said.
