India Primed for a Surge: Can It Capitalize On It?

How Foreign Investment Could Accelerate India’s Next Economic Surge
Manu Bhaskaran of the Centennial Group provides guidance for journalists reporting on India and international trade.
by Madeleine Sherer, National Press Foundation
India’s economic growth is a sprinter to China’s marathoner, says Manu Bhaskaran, founding CEO of Centennial Asia Advisors. It experienced short, sudden bursts of growth over the years, but it lacks the continual high growth rates of other countries.
Now, India may be poised for another boom of 7% growth over the next few years, Bhaskaran told NPF International Trade Journalism Fellows.
“India was super competitive in the old days. We lost it. No reason why you cannot regain it with the right policy,” Bhaskaran said.
What’s working for India: Demographics
India has a strong advantage over China with its growing population and the low average median age of its workforce. He said that he expects this advantage to last for about a decade, and India should work to capitalize on it quickly.
“By 2035, India will begin to age, so you have another window - a short window - to take full advantage of this demographic advantage,” Bhaskaran said.
This, coupled with a “night and day” improvement in the nation’s infrastructure, should make it attractive to investors, Bhaskaran. And it’s not just physical infrastructure, but improvements in bureaucracy and removing red tape.
“India is quite often seen as a very closed economy, but actually that is changing significantly. Just in the last few years, we’ve seen the trade-to-GDP ratio go from 40 to 49%. It is rapidly becoming actually quite an open economy unlike before.”
What’s working against India: It needs more FDI ‘shortcuts’
India’s world export rates have grown in recent years but are still only at 1.8% - low compared to the rest of Southeast Asia.
“And compared to that, its share at world imports is 2.8%,” Bhaskaran said. “You can immediately see a problem, 2.8% of world imports but only 1.8% of world exports of goods. And that means you automatically, obviously, you have a deficit in the goods balance and that puts pressure on the currency and constrains the economy.”
Bhaskaran said that India can also improve its export growth rate by engaging more with foreign investors. Foreign investment brings GVCs, or global value chains to the table, which bring in fully-formed supply chains that split up the manufacturing processes into different countries in order to maximize profits.
“The really, really important thing about foreign investment is that you get a package. You get management, you get technology, you get access to market, you get product development, you’ve got branding - everything together,” Bhaskaran said. “If a country wanted to build it on its own, it would take decades. And even then, you may not be competitive, but the foreign direct investor brings … this shortcut to growth.”
However, Bhaskaran said India is not currently doing everything it can to encourage foreign investment, especially compared to other Southeast Asian countries.
“India is not doing a good job in securing the foreign investment flows that are necessary to produce the shortcuts that help you accelerate economic growth,” Bhaskaran said.
‘Once in a generation’ opportunity
The global economic development scenario could provide a “once in a generation” opportunity for India, so action is urgent, Bhaskaran said.
“A massive amount of manufacturing production is going to be relocated from China to somewhere else. And if India misses the boat, it misses it permanently,” Bhaskaran said. “If all that stuff goes to Bangladesh, to Vietnam, to Mexico, to Morocco, Turkey, it’s India’s loss, and you’ll never get it again.”
Speaker: Manu Bhaskaran, Partner, Centennial Asia Advisors Pte Ltd
Summary, transcript and resources: nationalpress.org/topic/india...
This fellowship is part of an ongoing program of journalism training and awards for trade coverage sponsored by the Hinrich Foundation
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