The Promise and Pitfalls of India’s Economic Growth

Afshin Molavi

Image courtesy of Indranil Mukherjee / AFP

To understand where an economy is headed, check in with its millionaires and billionaires. That may seem counterintuitive – what do elites on yachts know about the real economy, after all? But whether those yachts (and the money they represent) are headed for sea or anchored in port reveals something about the health of a country’s bottom line.

This is particularly true for India.

Recent high-profile boasting about India’s economic future by the country’s richest men should be taken as an important signal. Indian industrialist Gautam Adani and telecoms and refining mogul Mukesh Ambani took turns last month making bullish cases for the future of India.

The bidding began with Adani, who said that he envisions India’s economy growing nearly 10-fold from its current size to become a $30 trillion economy  by 2050. Adani envisioned the economy growing by $1 trillion every 12-18 months over the next decade, in part because the drive to find renewable energies “will be one of the most profitable businesses and the largest of job creators over the next several decades,” he said.

Not to be outdone by his fellow billionaire, Ambani went further, declaring that India is on track to become a $40 trillion economy by 2047. You could almost see the bulls charging over his head as he made the statement. Ambani pointed to the three “revolutions” of clean energy, bioenergy, and digital transformation as the drivers of India’s growth.

Critically, both men are spending and investing billions in India to grow their businesses, expanding robustly into the renewables sector. Adani says India could be a net green energy exporter by 2050. In other words, they are backing their bullish calls with cash on the ground.

Several recent investment bank reports add to the buoyant outlook. “India has the conditions in place for an economic boom fueled by offshoring, investment in manufacturing, the energy transition, and the country’s advanced digital infrastructure,” Morgan Stanley noted last month. “These drivers will make [India] the world’s third-largest economy and stock market before the end of the decade.”

India’s 8.2 percent growth in 2022 made it the fastest growing major economy in the world, according to the International Monetary Fund. While the IMF cut India’s growth projection for 2022-23 to 6.8 percent, it’s still a strong number given the numerous macro headwinds – such as rising energy and food prices, supply chain disruptions, and geopolitical fractures arising from Russia’s invasion of Ukraine.

Where, then, do things stand? In September, news that India overtook the United Kingdom to become the fifth largest economy in the world made global headlines and fed a “rising India” narrative.

Still, it’s worth remembering that the UK’s population is only about 5 percent of India’s nearly 1.4 billion people. In fact, the UK’s entire population of 67 million is smaller than six of the most populous Indian states. In terms of GDP, India’s national economy is only slightly larger than the economy of California and its GDP per capita is five-times smaller than China’s. And, while India may be rising, it’s doing so because of many years of underperformance.

To be fair, India has delivered on a key metric: poverty reduction. According to the UNDP, some 415 million people in India exited multidimensional poverty over the last 15 years. This is “a historic change,” as the UNDP notes. But it still leaves nearly 230 million people in poverty and another 300 million without electricity – not exactly supportive of bullish pronouncements.

So, will India achieve the lofty heights that Ambani and Adani suggest? Much will depend on politics. If India’s political class can create a regulatory environment more conducive to business, foreign investment, and trade, while spending on logistics infrastructure, education, and health care, the natural entrepreneurial talents and hard work of Indians can do the rest.

There are currently more than 700 million Indians under the age of 29 and some 400 million between the ages of 30 and 49. These are highly favorable demographics. With the right policies, that tsunami of young people can take India to the multi-trillion-dollar heights envisioned by Ambani and Adani.

The ultimate test of India’s economic fortunes will be actions, not words. As Ruchir Sharma, an Indian-born author, investor, and economic strategist, wrote in 2018: “When a country begins to fall into economic and political difficulty, wealthy people are often the first to ship their money to safer havens abroad.” Therefore, watching what India’s richest do with their wealth could be the best harbinger of national prosperity.

For now, the country’s millionaires and billionaires are matching words with their wallets. If that lasts, the country’s economic future is bright indeed.

Afshin Molavi is a senior fellow at the Foreign Policy Institute of the Johns Hopkins School of Advanced International Studies and editor and founder of the Emerging World newsletter. Twitter: @AfshinMolavi