In this special edition newsletter, we turn our focus to India, diving deep into its economic and geopolitical landscape, as well as the nation’s aspirations for the future.
While India is on its way to become the world’s 3rd largest economy, its trajectory faces several challenges, including domestic politics and a lack of diversified growth among its major economic sectors. Recent national elections had Prime Minister Narendra Modi’s pro-business Bharatiya Janata Party (BJP) losing its majority in parliament for the first time in ten years. Growth under Modi has largely stayed on par with his predecessors, with steady annual growth routinely above 6% (excluding 2020 due to the COVID-19 pandemic). Additionally, his pro-business rhetoric and policies have opened the doors for major tech companies to invest in India and propel its services sector to its present role as the country’s economic engine. As the West looks to decouple from and compete with China, Modi’s India looks increasingly attractive as a strategic area of investment but faces competition from East Asia and the Americas. However, inequality between different castes, high levels of poverty, religious rivalries between Hindus and Muslims, as well as an expanding workforce but inadequate supply of jobs, will likely remain India’s major limiting factors over the next 10 years. With this commentary, we aim to assess India’s economic and geopolitical landscape and look ahead at the pivotal role the country will play in the Pacific region and in the global world order.
Geopolitical Landscape
India is currently the 5th largest economy in the world and home to 1.4 billion people. It also boasts the second-largest population globally of English speakers and its democratic system and values make it an attractive partner to the West as tensions with China rise. These offer the South Asian country an opportunity to increase its prosperity and influence if it can create a business climate conducive to attracting Western business away from China while maintaining its nominal non-aligned foreign policy (in reality India follows a realpolitik approach to foreign relations).
In terms of security, increasing tension with the Chinese and Pakistanis could push New Delhi closer to the West in the interest of security and expanding upon the Quadrilateral Dialogue – India, the United States, Japan, and Australia. Of issue to the West, taking into account the conflict in Ukraine, India is dependent on Russian oil (accounting for 30% of oil imports in 2023 but has tried diversifying as of late).
India’s Economic Landscape
Regarding economic strengths, India can point to its large and youthful population, with a median age of only 29.8 years, which not only fuels a burgeoning domestic market but also offers a robust labor force for domestic and international companies. This demographic dividend presents an immense opportunity for sustained economic growth and innovation as long as job creation keeps pace.
India has been witnessing a steady rise in foreign direct investment (FDI) since Modi rose to power in 2014, indicating growing confidence from global investors in its economic potential. However, FDI inflows have subsided from pandemic period highs of $84.4 billion in 2022 to closer to pre-pandemic levels at $70.9 billion in 2023.
Moreover, India’s proactive government initiatives play a pivotal role in shaping its economic trajectory. With a focus on digitalization and infrastructure development, the nation is laying down the groundwork for a modernized economy capable of competing on the global stage. Initiatives such as the One Nation One Market Initiative, and the Unified Payment Interface improve commerce and facilitate seamless transactions, increasing efficiency and ease of doing business. Additionally, deregulation efforts demonstrate India’s commitment to fostering a business-friendly environment and attracting investment from multinational corporations, further solidifying its position as a services powerhouse.
India faces notable economic challenges that require strategic attention and concerted efforts to address. Firstly, the persistently high levels of poverty and income inequality pose significant obstacles to inclusive growth. Despite remarkable progress in recent years, a considerable portion of the population still grapples with poverty, limiting their access to essential resources and opportunities for upward mobility. Additionally, job creation remains insufficient to absorb the burgeoning workforce, exacerbating unemployment and underemployment issues, particularly among the youth. Roughly 83% of India’s unemployed are young (15-24 years of age), including 66% who are both young and educated with the overall unemployment rate at 6.57% of the population 15 years or older.
Furthermore, agriculture remains one of the leading economic sectors and the largest employer in the nation rendering the economy and rural Indians vulnerable to weather fluctuations, disrupting food production and livelihoods for millions. Coupled with infrastructure deficiencies that impede productivity and hinder connectivity across regions, these challenges stifle overall economic development potential and resilience. Additionally, the rising public debt, expected to rise to 82.3% of GDP in FY24, adds strain to fiscal management. Addressing these weaknesses demands comprehensive strategies aimed at fostering inclusive growth, diversifying the economy, and enhancing resilience to external shocks.
Goals and Challenges
India’s aspirations to emerge as a major power on the global stage span across economic, military, and political realms. Economically, India aims to leverage its robust growth trajectory to enhance its global influence. With a burgeoning population and a progressively skilled workforce, India seeks to capitalize on its demographic dividend to drive innovation, productivity, and competitiveness on the world stage. Furthermore, India envisions assuming a leadership role among the Global South nations, advocating for their interests and fostering solidarity within this diverse bloc. It also intends to improve national security in the face of threatening neighbors— China and Pakistan.
However, India faces a myriad of challenges on its path to realizing these goals. Internally, it must address entrenched economic disparities and social unrest, ensuring that the benefits of growth are equitably distributed across society. Job creation remains a pressing concern, requiring concerted efforts to stimulate employment generation and enhance productivity. Externally, India must navigate complex regional tensions with neighboring countries such as China and Pakistan, while also maneuvering within the evolving dynamics of global power politics dominated by the diverging blocks led by the US and China. Balancing economic growth with environmental sustainability poses another formidable challenge, necessitating sustainable development strategies. Moreover, the suboptimal progress in military modernization under Prime Minister Modi’s leadership and the constraints of a foreign policy landscape dominated by great power competition further underscore the multifaceted nature of India’s challenges. Addressing these hurdles will require strategic foresight, robust governance, and proactive diplomacy to steer India towards its envisioned role as a major global power.
Conclusion
India’s future as a major power hinges on its ability to address economic weaknesses that will become more difficult based on the results of the recent elections while managing its relationships with the US, China, and Russia in a manner that is most conducive to it continue development and does not hinder investment or incur sanctions. India must move beyond services and agriculture and expand its manufacturing sector to keep pace with its population’s need for accessible jobs or instability is likely to rise and productivity is likely to decline. Labor reforms also appear to be essential but will be more difficult politically to push through the legislature as BJP has lost seats and must widen its political alliance structure.
India’s Economic & Geopolitical Aspirations
Author : The BlackSummit Team
Date : June 18, 2024
In this special edition newsletter, we turn our focus to India, diving deep into its economic and geopolitical landscape, as well as the nation’s aspirations for the future.
While India is on its way to become the world’s 3rd largest economy, its trajectory faces several challenges, including domestic politics and a lack of diversified growth among its major economic sectors. Recent national elections had Prime Minister Narendra Modi’s pro-business Bharatiya Janata Party (BJP) losing its majority in parliament for the first time in ten years. Growth under Modi has largely stayed on par with his predecessors, with steady annual growth routinely above 6% (excluding 2020 due to the COVID-19 pandemic). Additionally, his pro-business rhetoric and policies have opened the doors for major tech companies to invest in India and propel its services sector to its present role as the country’s economic engine. As the West looks to decouple from and compete with China, Modi’s India looks increasingly attractive as a strategic area of investment but faces competition from East Asia and the Americas. However, inequality between different castes, high levels of poverty, religious rivalries between Hindus and Muslims, as well as an expanding workforce but inadequate supply of jobs, will likely remain India’s major limiting factors over the next 10 years. With this commentary, we aim to assess India’s economic and geopolitical landscape and look ahead at the pivotal role the country will play in the Pacific region and in the global world order.
Geopolitical Landscape
India is currently the 5th largest economy in the world and home to 1.4 billion people. It also boasts the second-largest population globally of English speakers and its democratic system and values make it an attractive partner to the West as tensions with China rise. These offer the South Asian country an opportunity to increase its prosperity and influence if it can create a business climate conducive to attracting Western business away from China while maintaining its nominal non-aligned foreign policy (in reality India follows a realpolitik approach to foreign relations).
In terms of security, increasing tension with the Chinese and Pakistanis could push New Delhi closer to the West in the interest of security and expanding upon the Quadrilateral Dialogue – India, the United States, Japan, and Australia. Of issue to the West, taking into account the conflict in Ukraine, India is dependent on Russian oil (accounting for 30% of oil imports in 2023 but has tried diversifying as of late).
India’s Economic Landscape
Regarding economic strengths, India can point to its large and youthful population, with a median age of only 29.8 years, which not only fuels a burgeoning domestic market but also offers a robust labor force for domestic and international companies. This demographic dividend presents an immense opportunity for sustained economic growth and innovation as long as job creation keeps pace.
India has been witnessing a steady rise in foreign direct investment (FDI) since Modi rose to power in 2014, indicating growing confidence from global investors in its economic potential. However, FDI inflows have subsided from pandemic period highs of $84.4 billion in 2022 to closer to pre-pandemic levels at $70.9 billion in 2023.
Moreover, India’s proactive government initiatives play a pivotal role in shaping its economic trajectory. With a focus on digitalization and infrastructure development, the nation is laying down the groundwork for a modernized economy capable of competing on the global stage. Initiatives such as the One Nation One Market Initiative, and the Unified Payment Interface improve commerce and facilitate seamless transactions, increasing efficiency and ease of doing business. Additionally, deregulation efforts demonstrate India’s commitment to fostering a business-friendly environment and attracting investment from multinational corporations, further solidifying its position as a services powerhouse.
India faces notable economic challenges that require strategic attention and concerted efforts to address. Firstly, the persistently high levels of poverty and income inequality pose significant obstacles to inclusive growth. Despite remarkable progress in recent years, a considerable portion of the population still grapples with poverty, limiting their access to essential resources and opportunities for upward mobility. Additionally, job creation remains insufficient to absorb the burgeoning workforce, exacerbating unemployment and underemployment issues, particularly among the youth. Roughly 83% of India’s unemployed are young (15-24 years of age), including 66% who are both young and educated with the overall unemployment rate at 6.57% of the population 15 years or older.
Furthermore, agriculture remains one of the leading economic sectors and the largest employer in the nation rendering the economy and rural Indians vulnerable to weather fluctuations, disrupting food production and livelihoods for millions. Coupled with infrastructure deficiencies that impede productivity and hinder connectivity across regions, these challenges stifle overall economic development potential and resilience. Additionally, the rising public debt, expected to rise to 82.3% of GDP in FY24, adds strain to fiscal management. Addressing these weaknesses demands comprehensive strategies aimed at fostering inclusive growth, diversifying the economy, and enhancing resilience to external shocks.
Goals and Challenges
India’s aspirations to emerge as a major power on the global stage span across economic, military, and political realms. Economically, India aims to leverage its robust growth trajectory to enhance its global influence. With a burgeoning population and a progressively skilled workforce, India seeks to capitalize on its demographic dividend to drive innovation, productivity, and competitiveness on the world stage. Furthermore, India envisions assuming a leadership role among the Global South nations, advocating for their interests and fostering solidarity within this diverse bloc. It also intends to improve national security in the face of threatening neighbors— China and Pakistan.
However, India faces a myriad of challenges on its path to realizing these goals. Internally, it must address entrenched economic disparities and social unrest, ensuring that the benefits of growth are equitably distributed across society. Job creation remains a pressing concern, requiring concerted efforts to stimulate employment generation and enhance productivity. Externally, India must navigate complex regional tensions with neighboring countries such as China and Pakistan, while also maneuvering within the evolving dynamics of global power politics dominated by the diverging blocks led by the US and China. Balancing economic growth with environmental sustainability poses another formidable challenge, necessitating sustainable development strategies. Moreover, the suboptimal progress in military modernization under Prime Minister Modi’s leadership and the constraints of a foreign policy landscape dominated by great power competition further underscore the multifaceted nature of India’s challenges. Addressing these hurdles will require strategic foresight, robust governance, and proactive diplomacy to steer India towards its envisioned role as a major global power.
Conclusion
India’s future as a major power hinges on its ability to address economic weaknesses that will become more difficult based on the results of the recent elections while managing its relationships with the US, China, and Russia in a manner that is most conducive to it continue development and does not hinder investment or incur sanctions. India must move beyond services and agriculture and expand its manufacturing sector to keep pace with its population’s need for accessible jobs or instability is likely to rise and productivity is likely to decline. Labor reforms also appear to be essential but will be more difficult politically to push through the legislature as BJP has lost seats and must widen its political alliance structure.