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India, between economic glamor and illusion

Analysts and international organizations foresee years of growth and development in the South Asian giant. But on the ground, some voices express skepticism, warning that the reality is very different

Guillermo Abril
A group of people walk past a newly-opened Apple store in New Delhi – the second of its kind in India – in early-June of 2023
A group of people walk past a newly-opened Apple store in New Delhi – the second of its kind in India – in early-June of 2023Guillermo Abril

There are many versions of India. In one of them, you can order an autorickshaw – one of those little beat-up vehicles – through the Uber app. In New Delhi, you can ride through the eternally congested city, until you reach one of the luxurious shopping malls in the south. Next to the entrance, there are families who sleep in the street.

Inside, after leaving behind the recently-opened Apple store (as well as trendy shops that include Zara, Chanel, Dior, Decathlon and Massimo Dutti), a partner from the local branch of one of the big consulting firms waits. He’s seated at a table in a vegetarian restaurant, dressed casually – like it’s a Friday at the office. He works in mergers and acquisitions, specializes in infrastructure and has a diagnosis of the economic situation in his country: “India is doing quite well.”

The executive – who prefers to remain anonymous due to work requirements – perceives a general “positive” feeling in his nation. This idea is repeated in various conversations across the capital. One senses the frenzy typical of a country that has just surpassed China in terms of inhabitants, thus becoming the most populous on the planet. At the end of this year, India will host the G-20 Leaders’ Summit, hosting the heads of the world’s biggest economies.

Other voices, however, express skepticism – they believe that, despite the “potential” and the “favourable international situation,” the rise of India isn’t a “manifest destiny.” Rather, it will depend on the policies that are applied. Basically, the big question is whether this huge subcontinent – which has the lowest per-capita income of all the countries in the G-20, at just over $2,000 a year – is experiencing a sweet moment with prospects of real development and growth… or if, on the contrary, it’s caught up in a mirage of expectations.

In its favor is the global context that sees India as a counterweight to China. Delhi has the protection of the West – Prime Minister Narendra Modi visited the United States last week. During a toast at the state dinner held in his honor, President Joe Biden said, “Two great nations, two great friends, two great powers. Cheers.” On the guest list were top executives from Silicon Valley, including Apple CEO Tim Cook and Google CEO Sundar Pichai, who is of Indian origin. Modi returned home with lucrative deals in all sorts of sectors, from renewable energy to critical minerals and military defense. The memory chip company Micron recently announced hundreds of millions of dollars of investments to build a plant in the western state of Gujarat, where Modi was once the chief minister. The Indian PM also met Elon Musk, who declared himself to be a “fan” of the politician. They also discussed a possible investment by Tesla in the country.

Meanwhile, India continues to enjoy ties with Russia, a longstanding ally. It’s a nuclear power, a voice taken into account by the Global South and a kind of island of economic growth in a turbulent world. “The World Bank fears that the current slump in global economic growth will lead to a lost decade [globally],” Rumki Majumdar wrote, in a Deloitte study published this past April. “Despite this pessimism, many market analysts believe this could well be India’s decade… [and] there are enough reasons and data to support this claim.” But something is still missing, he cautions: “capital investment – especially in the private sector – has lagged behind so far.”

6.8% growth in 2022

Some figures are positive. India’s economy grew by 6.8% in 2022 and is expected to grow 5.9% in 2023 – ahead of much of the world, according to the International Monetary Fund (IMF). The country is “one of the bright spots in the global economy right now,” said Daniel Leigh – a member of the Washington-based agency’s research department – during the presentation of the latest global outlook report. By 2024, he added, India was still expected to be “very strong,” with a GDP increase of 6.3%. This would allow the country to continue to “[boost] living standards and create the necessary jobs.”

The labor market is one of India’s Achilles heels. Analysts from HSBC estimate that India will need to create 70 million jobs in the next 10 years if it wants to leave no one behind and generate a spiral in which demand and growth feed off of each other. The country has an active population: more than half are currently under 30-years-old. But, at the same time, this demographic situation poses a challenge. It remains to be seen if these millions of people will find a decent job and salary that will boost consumption. The unemployment figures are relatively low (7.7% in May, according to the local press), but the data hides a vast informal and predominantly agricultural economy: the countryside employs 45.5% of the labor force, despite representing only 20% of the economy. Many of the new jobs created in cities correspond to the so-called “platform economy” – people find precarious work as delivery people and drivers. “Those without education will be left behind,” the HSBC analysts warn.

Cautious Optimism

Ujjwal Kant Munjal – the CEO of Hero, one of the largest motorcycle manufacturers on the planet – is riding the wave of optimism, but with caution. He believes that India has “the right demographics” and that the correct steps are being taken to “remain a consumer-driven economy.” He envisions growth in the next 20 years, “unless something dramatically negative happens.” But he acknowledges that there are other versions of the country. “Right now, we have a kind of mixed growth going on,” he clarifies “A part of the economy is doing very, very well. But if you look at the rural part and agriculture [sector], they’re growing much more slowly.”

Kant Munjal is a member of a family that has amassed one of the great fortunes of the country. On a Tuesday in June, he was at the headquarters of Ultraconfidentiel Design – a company of French origin dedicated to creating workspaces in India. He was evaluating new offices for his company. Soon, he said, he planned to go on vacation with the family to the island of Mallorca.

Ultraconfidentiel CEO Pierre-Arnaud Cassin – who has more than a decade of experience in India – explains that his company is in an expansion phase in the country, which, because of its connection to the real economy, seems like a symptom of that effervescence. “In terms of business, India has never been so good,” he says. “I’m convinced that I;m in the right place at the right time.”

Cassin also chairs the Indian chapter of France’s foreign trade advisers and – along with other Europeans – is trying to lay the ground for the Confederation of European Business in India. He says that he doesn’t want to convey an image that doesn’t correspond to reality… but his conversation with EL PAÍS revolves around the great potential of the country. He highlights two fields in which India is attractive: as a potential market – due to its enormous population – and as a base for manufacturing and exporting.

India, far from being an exporting giant

Unlike China, India is far from being a major export economy: it generates less than 2% of global merchandise exports, according to official data. But the current situation in the world gravitates in its favor. Following Beijing’s fierce anti-pandemic policies – and given its commercial and technological war with Washington – several companies have begun to consider a “China plus one” strategy, in search of new horizons in case things go wrong.

“There are companies leaving that don’t know where to go,” says Alicia García-Herrero, chief economist for the Asia-Pacific region at Natixis, an investment bank. One of the possible destinations, she adds, is India, which has spent years trying to promote the national manufacturing sector and wants to attract big capital.

Some companies – such as Apple – have already begun to move part of their production to the country. But the figures still need to confirm the turnaround: foreign direct investment in India fell by 16% in the last fiscal year, according to data from the country’s Central Bank, cited by the national press. García-Herrero believes, in any case, that the change that is taking place in India is “real.” In sectors like digital services, she says that things are “going very well.”

Businessman Kant Munjal believes that “India’s cost structure continues to be very, very favorable” for positioning itself as an “export hub.” Meanwhile, China “has risen to such a point that, in the coming years, they will [struggle] to be competitive.” Among the great pending challenges, he points out, is infrastructure – one of the great bottlenecks for growth in India. For instance, a recent train accident left at least 275 people dead and more than a thousand injured. This was followed by the collapse – for the second time – of a bridge over the Ganges River.

Because of these issues, many remain skeptical and believe that there’s a lot of hype around expectations. “The question is to what extent a country with millions of poor people can live from these expectations,” says a European diplomat. This source sees several fractures in the country: the inequality gap, the starkly different living standards between the northern and southern states, as well as the religious divisions, which have been exacerbated by the current government. Modi’s administration has fervently promoted a Hindu nationalist program, while India’s democratic regression under his rule has been denounced by civil society actors and various international organizations.

The country’s growth, this diplomat notes, has been supported, in part, by large conglomerates that are close to the executive branch. Their actual performance raises doubts.

In India, the case of Gautam Adani – an Indian tycoon and, until recently, the third-richest man on the planet – is front of mind. His conglomerate deflated in early-2023, following the publication of a report that accused him of committing accounting fraud and manipulating the prices of his firm’s subsidiaries. Shares of Adani’s top seven listed firms quickly fell by half – his fortune was a mirage. The question is whether or not India’s expected economic development is on the same path of illusion.

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