With 2023’s World Economic Forum in Davos dominated by discussions of economic growth, or a lack of in most developed countries, one nation was often cited as a bright spot.
India is doing “exceedingly well,” said Bank of Japan Governor Haruhiko Kuroda in a closing panel at the event, while highlighting acute challenges facing its neighbors Sri Lanka, Bangladesh and Pakistan.
Hype around the country was partly engineered, with Indian executives, officials and investment-seekers heavily represented at the Swiss mountain resort (though Prime Minister Narendra Modi was not in attendance).
But India does shine out among the world’s biggest economies, with Europe hovering on the brink of potential recession and U.S. growth slowing.
And while the International Monetary Fund sees China outpacing global growth once more in 2023 as the country reopens, its forecast of a 4.4% rise in GDP is well below its estimate for India, of 6.1%. The Centre for Economics and Business Research thinks India could speed past 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’s CEO Pekka Lundmark, highlighted India as one of their fastest-growing markets.
Ericsson’s head, Börje Ekholm, said 5G infrastructure was rapidly developing there.
“It’s for the whole digital India, and creating a digital society in India,” Ekholm told CNBC. “They’re on a strong path with 4G but now they’re building out 5G at an even faster pace.”
India, he continued, “will very shortly have the best digital infrastructure outside of China,” driven by telecoms juggernauts Bharti Airtel and Jio, he added.
“They are building out fast, that’s going to help India digitalize, and if you compare that to what happens in Europe we are behind.”
India also has ambitions of becoming a global chipmaking hub, as concerns grow about the West’s reliance on Taiwan; and according to India’s commerce minister, Apple wants to move 25% of its iPhone manufacturing to the country (though this has not been confirmed by Apple). It is already a world leader in digital payments; and is looking to develop in areas including solar, wind and green hydrogen production.
Strong tailwinds
“We are very optimistic and very positive on India,” the chief executive of Tata Consultancy Services, Rajesh Gopinathan, told CNBC.
He said the combination of a stable political environment and significant government investments in infrastructure were providing a positive environment for growth; and that the country was well-poised for the planned energy transition as it was “building out into a new element without legacy infrastructure to get out of.”
“The global economy and India’s size has ensured there is enough capital available,” Gopinathan said. “So you combine the demographics, the demand side, and the capital availability, I think the upside is significant. Of course it needs to be executed carefully, but it is there for realization.”
Despite future commitments on renewables growth and reaching net-zero emissions by 2070, India has benefited from buying Russian oil at a heavily discounted rate, while Europe has faced sharply higher prices, market volatility and fears of shortages.
Inflation has also been less severe in India than in many other countries, with CPI coming in at 5.7% in December.
When asked by CNBC’s Steve Sedgwick, Dinesh Kumar Khara, chairman of State Bank of India, said it was “absolutely” true India was in a sweet spot compared to its rivals.
He noted the country’s vaccine rollout, its measures to tame consumer price growth helping to ensure food security, and its focus on infrastructure creation; though acknowledged inflation was still a “menace,” and that drags on global growth would also impact the country.
As Anish Shah, chief executive of Mahindra Group, told CNBC: “India will get impacted. When the world goes through a recession it’s not as if India will be left out.”
However, he also said, “What we do feel is the impact on India will be a lot less because of the inherent fundamentals in the country right now, and the fact that inflation in India really hasn’t galloped away. It’s well under control.”
Not all rosy
A 2021 Deloitte report said India still needs to go a lot further to build infrastructure and reform systems to improve the ease of doing business and attract more foreign investment.
Some analysts also argue its recent rise in capital inflows — with the Sensex stock market index up 5% over the last year while the U.S. S&P 500, Europe’s Stoxx 600, China’s SZSE Composite and Hong Kong’s Hang Seng Index have fallen — is largely a result of relative stability compared to volatility elsewhere, and could slow when external factors change.
Meanwhile the country still has one of the highest levels of income inequality in the world, which worsened during the pandemic, and poverty persists — though by one gauge the poverty rate fell from 55.1% to 16.4% over the last 15 years.
Suyash Rai, a fellow and deputy director at research center Carnegie India, struck a note of skepticism on much of the bullishness from Davos.
He points out that recent GDP growth figures of 6.3% annually 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 stripping out government-controlled sectors; and that current growth rates are skewed due to the 6.6% pandemic-related contraction in 2020-2021.
He also notes 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 public sector capital expenditure has increased.”
And on claims of political stability, he responded: “We should not equate single party dominance 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 outcomes,” he continued, with per capita income at constant prices tripling over 25 years, while economic growth slowed in the years before the pandemic.
“So, the kind of stability that comes with a dominant party is neither necessary nor sufficient for rapid growth in India,” he said.
