Full Speed Ahead for India

Henry Whipple

As turmoil continues in China’s economic markets, their position in the center of the global economy is fading, and producers in China’s once booming manufacturing industry are seeking other countries in which to operate - namely India due to its surging economic growth.

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In fact, much of India’s recent success is due to China’s shortcomings across a variety of sectors. While China’s foreign direct investment has decreased by 1.3% from 2014 through 2015, India’s soared upwards by 46% over that same period. Additionally, wages for blue-collar workers in China have skyrocketed over the past decade, and the government’s military displays of force throughout the fall of 2015 have led to concerns that it is too risky a location for business. In contrast, India currently offers both significantly lower wages (a much more attractive prospect for manufacturing companies) as well as a seemingly stable democracy.

Citing the Reserve Bank of India’s policy rate cut last year, PricewaterhouseCooper (PwC) is already forecasting India’s growth for 2016 at 7.7% for the second consecutive year. Increased household consumption and recovering investment across many South Asian nations has helped spur similar progress, as well as falling levels of inflation due to the drop in gasoline prices. Such forecasts along with the competitiveness of these emerging markets have prompted many analysts to consider the possibility of India becoming the world’s next economic power of the 21st century. 

Despite the optimism surrounding India’s robust economic growth in the manufacturing sector, some components of its economy give cause for hesitation. In late 2014 current Prime Minister Narendra Modi launched his “Make in India” campaign, an initiative that focused on almost exclusively on improving infrastructure and creating attractive opportunities for foreign investors and manufacturers. Yet, since that time, little progress has been made outside of major corporations, leaving many inadequate roads, rail lines, and ports unfixed. The country is also dealing with levels of urban air pollution that surpass even those of China, and they will only increase with the continued increase in manufacturing growth.

There are still positive signs for investors and manufacturers looking to operate in India. With Indian officials’ emphasis on the importance of manufacturing in their country, as of late 2015 there are around ten million young workers joining the labor force each year, and the median worker’s age is nearly ten years below that in the United States or China. Both figures suggest that even if India’s soaring economic growth is unsustainable, the nation’s working population will help to put it in a better position. Ultimately, India’s fate might solely depend upon China’s ability to recover from its economic downward spiral. Analysts don’t expect China to relinquish its market share easily, but without a sooner-than-expected recovery, China will have difficulty putting India’s success on hold.