8 Ways India Can Become an Economic Superpower

Posted on 20/11/2014 by | 0 comments

It’s home to the world’s largest democracy, proud citizens, and a reputation as a high-tech powerhouse, but from an economic perspective, India is still trying to climb the ladder. In recent years, experts have debated India’s role as an economic superpower, but they agree that the country is not quite there yet.

India - An Economic Superpower of the World

Before we start talking about what India can do to get there, we have to start with a fundamental question — what exactly is an economic superpower?

The term is used to describe a country that has achieved unmatched dominance. For example, Britain’s march forward during the Industrial Revolution established it as an economic superpower between the mid 1700’s and the mid 1800’s. To get there, Britain completely overhauled its economy from one that was agriculture-based to one that was industrial-based. The combination of new technology, new factories, and better transportation enabled Britain’s economy not just to thrive, but to skyrocket.

So, how can India achieve the same results today?

1. Grow the manufacturing sector

China is currently one of the world’s economic superpowers, and it’s no coincidence that manufacturing makes up a whopping 34% of China’s gross domestic product (GDP). In fact, China is responsible for nearly 14% of the entire world’s manufacturing.

India, on the other hand, doesn’t play a big role in global manufacturing. Even though manufacturing accounts for 16% of India’s GDP, the Indian manufacturing sector is only responsible for a tiny 1.8% of the world’s manufacturing output.

The manufacturing sector has been plagued by an all-or-nothing philosophy for years. India is home to a variety of giant manufacturing enterprises, but there are very few smaller enterprises. If more small enterprises popped up, it would create more manufacturing jobs and turn India into a legitimate manufacturing option for other countries around the world — both of which would boost the overall economy.

2. Rein in inflation

Inflation — or, the increase in price for goods and services — is very damaging to an economy. After all, the more people have to pay for things, the fewer things they’re able to buy. From a business perspective, the more business owners have to spend on other things, the less money they have to hire employees. Not only does this prevent the job market from expanding, it actually leads to higher unemployment.

Inflation causes yet another big problem — uncertainty. Specifically, when prices are constantly on the rise, investors and consumers aren’t as confident about spending their money. Instead of going out and buying things, they hang onto as much money as they can, because they don’t know how high prices are going to climb in the near future.

According to a recent report from the World Economic Forum (WEF), India is one of the worst countries in the world when it comes to inflation. The WEF studied the economy in 144 different countries, and India was ranked 133rd in terms of inflation.

Inflation is such a problem in India that Moody’s — an independent research firm that assigns ratings based on the risk that investors face — isn’t going to improve the country’s rating, despite a slight uptick in its GDP. Moody’s went as far as to say that the Indian government needed to “implement policies that ease inflationary pressures and increase infrastructure investment.”

Narendra Modi actually used inflation as a major talking point during the 2014 election, saying, “Congress had promised to curb inflation in 100 days, but did they live up to their promises? Don’t trust those who betray public trust.” He also suggested creating a “Price Stabilization Fund” that would help neutralize rising prices. And, he promised to go after black marketeers in special courts so that they wouldn’t be able to drive up prices behind the scenes.

Bottom line — until the government can do something to slow down inflation, India will never be considered an economic superpower.

3. Turn Brand India into a reality

Brand India is the campaign the government has created to boost the economy. According to a speech that President Pranab Mukherjee gave in June 2014, Brand India now focuses on strengthening five T’s — tradition, talent, tourism, trade, and technology. If these five T’s can thrive, the Indian economy should experience faster, more dramatic growth. As Mukherjee put it, “The people of India have given a clear mandate. They want to see a vibrant, dynamic and prosperous India.”

Brand India is also aimed at turning the country into a marketable brand that other countries will want to work with. After all, India has one of the largest pools of scientists and engineers in the world, in addition to its reputation as an IT leader. By establishing better relationships with other countries and big foreign corporations, India’s economy can see a major uptick. The talent pool alone — which some experts are calling “intellectual capital” — could help turn India into a bonafide superpower!

Brand India has been around for several years, but it hasn’t accomplished much. When Narendra Modi was elected Prime Minister in May 2014, one of the first things he did was promise to revive Brand India. The government has a five year plan for turning Brand India into reality, and if they can achieve those long-term goals, it will make a major mark on the Indian economy.

4. Take full advantage of the middle class

We touched on this point briefly when we talked about intellectual capital. After all, India’s middle class now has access to great education opportunities, so there is no shortage of intellectual capital in this group. However, the middle class is such a major part of India’s economy in other ways that it merits its own independent discussion.

Back in 2007, McKinsey & Company estimated that 250 million people made up India’s middle class. At last count, the entire United States was only made up of 319 million people, so we’re talking about a huge group of people! The numbers are expected to get even more impressive, though. According to McKinsey & Company’s research, the Indian middle class could grow as high as 600 million by 2030.

The middle class makes up a huge chunk of India’s consumers. That’s good news, because consumption actually accounts for a bigger portion of India’s GDP than investing does. In fact, back in 2010, the Central Statistical Organization (CSO) said that 60% of India’s GDP came from consumption, which is much higher than the consumption rate in China — one of the world’s current economic superpowers.

Because of this huge educated group, Indian politicians have had to change the way they’ve campaigned. During the 2014 election, political experts said that the middle class would play a major role in who was elected.

The only problem?

A recent survey says that the Indian middle class is not as well-off as it should be. Yes, the middle class is going out and buying luxurious items like cars, laptops, and smartphones. However, their average income is still relatively low. Until a group as large as the middle class can be more prosperous, Indian cannot truly be considered an economic superpower.

5. Minimize the underdeveloped countryside

A large portion of India is made up of rural poverty. Only the six most urban states benefit from foreign investment, while the 22 other states are ignored and largely undeveloped. In fact, it’s estimated that a whopping 300 million Indians are living in poverty — even more than the all-important middle class that we just talked about.

There is a silver lining to this cloud, though. Back in 1973, people living in poverty made up more than half of India’s population. By 2004, that percentage had shrunk to about 27%. It’s still a huge chunk of people, but at least things are moving in the right direction.

Of course, a country can never completely eliminate poverty — not even a country that’s an economic superpower. The difference between the superpowers and other countries, though, is how they work to tackle poverty. For example, China spent years improving its educational and healthcare resources to try and dig more people out from under the poverty line. The result? Gallup reports that China’s poverty rate plummeted from 26% in 2007 to only 7% in 2012.

Somehow, India is going to have to bridge the gap between the fancy skyscrapers in the urban areas and the other areas, where it’s estimated that the majority of the population lives on less than $2 per day. Once that happens, India won’t be working feverishly to keep pace with China and the U.S. Instead, it will be talked about in the same context as those two superpowers.

6. Fix the electricity crisis

Factories cannot produce and trains cannot run without electricity. India’s output comes to a screeching halt every time the power goes out, and the electricity crisis isn’t in the rear-view mirror. In fact, it’s expected to get even worse in the not-too-distant future!

Thanks to the combination of a coal shortage and tariff disputes with power companies, five states — Maharashtra, Haryana, Rajasthan, Punjab and Gujarat — face blackouts. Even while the power is still running, these states are in a critical position. As of early September 2014, half of India’s power supply stations only had about a week’s supply of coal left.

Officials are working on the power crisis, but until they can come up with a definitive solution, India cannot reach its full industrial potential — meaning it can’t reach superpower status.

7. Increase FDI

Foreign Direct Investment (FDI) is a direct measure of the confidence that foreign investors have in India’s economy. After all, if they didn’t believe the country was performing well, they wouldn’t invest their money here!

As you might expect, a big chunk of India’s FDI comes from the established economic superpowers. Unfortunately, though, America’s contribution to India’s FDI shrunk from 4753 USD Million to 2390 USD Million in June 2014. Luckily, other countries picked up the slack — and overall, India’s FDI grew 34% between June 2013 and June 2014.

Will this trend continue?

That will depend on how the world views the new Modi government. If investors believe the Indian government is on the right track, they won’t hesitate to keep investing here.

For their part, the government has already raised the foreign investment limit in the defense manufacturing industry, eased restrictions in the construction industry, and raised the FDI cap on insurance in an effort to make investing here more appealing.

8. Strengthen the military

Look no further than the 9/11 attacks to see how enemies can create massive economic problems for even the strongest of superpowers. Without a strong military presence, terrorists and other enemies could take out the Indian economy anytime they wanted to. That’s certainly not the sign of an economic superpower!

Prime Minister Narendra Modi has talked extensively about building up the India military. His goal is to make sure no one “dare cast an evil eye” on India. Yes, that means increasing the military’s budget, but it also means giving ALL of India more protection — from the economy as a whole, to individual citizens. Without that added stability, India will never be able to grow into a legitimate economic superpower.

(Article by Manish Pandey; Editing by Nicole Beckett.)

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