India – what’s all the excitement about?

India recently surpassed China to become the world’s most populous nation. As a country of over 1.4 billion people, more than two thirds of whom are working age, it has certainly got its skates on. Aspirations are running high here to claim the title of world’s third largest economy by 2030, a feat considered achievable even by conservative forecasts.

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India’s economic history is however chequered with dramatic highs and lows. From commanding 25 per cent of global industrial output and trade in the early 18th century, it was reduced to merely 4 per cent of global gross domestic product (GDP) under colonial rule.

India today is considered one of the world’s most promising markets and investment destinations. Many of its products and services are world renown, its people in great demand, its opportunity immense.”

And then the tide turned in 1947. An ambitious quest began for a newly independent democratic country - despite stiff challenges. Poverty, low levels of industrialisation, weak human capital and virtually all areas of economic existence needed meticulous policy attention.

India will scale to #3 by 2030, with a GDP of ~$US7 trillion

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Source: IMF WEO, Macrobond, ANZ Research

By any measure, the achievement has been remarkable. India today is considered one of the world’s most promising markets and investment destinations. Many of its products and services are world renowned, its people in great demand, its opportunity immense. However, much still needs to be done

History tells us how remarkable the story is. For nearly four decades after 1947, India pursued a closed economy model focused on import substitution, industrialisation and five-year development plans until it hit an economic roadblock in the 1990s. A balance of payments crisis forced it to embrace “liberalisation, privatisation and globalisation.” It was a watershed moment in India’s economic history.

India was now open to global businesses and capital. Its own large consumer base was also becoming aspirational and global. Pick any box office success from the 1990s and you will find the lead actors surreally transporting themselves from the harsh realities of slums in Mumbai to impeccably choreographed dance sequences in the Swiss Alps! A new economic dream was taking shape. This economic dream however still contained elements of anxiety and unease.

Those who could access education (and tertiary education especially) could easily move up the value chain of employment, not only domestically but abroad as well. The great Indian diaspora is now the stuff of movies and novels.

An abundantly available workforce, cheap by global standards, competitively skilled in areas like information technology (IT) and with immaculate English, became the mainstay of an IT services boom in India. Unfortunately, those who could not skill themselves away from less productive sectors like agriculture or small-scale manufacturing, remained stuck.

Thankfully, and it brings much relief to note, tertiary school enrolment ratios have now tripled to nearly 30 per cent since the turn of the century. Education continues to be the most trusted route to prosperity and is rightly viewed as an important policy tool to create a levelled economic playing field.

Human capital development needs focus

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Source: World Bank, Macrobond, ANZ Research

Riding the wave of global economic growth in the early 2000s, India hit its first trillion dollars in GDP by 2006-07. Thereafter, despite the Global Financial Crisis, local political uncertainty, financial market mood swings, domestic banking sector woes and a falling investment ratio, the country added a trillion dollars each by 2014 and 2021. Today it is the fifth largest economy with a size of roughly $US 3.6 trillion.

Some old challenges persist. Most importantly, human capital development still needs a lot of focus and spending. Yet, with rapid economic growth, some alluring aspects have also emerged. Entrepreneurship, for example, has gathered steam. During COVID, India became home to over 100 unicorn start-ups with a cumulative valuation of about $US350 billion.

India also became the favoured destination for multi-national corporations (MNCs) to set up their global capability centres (GCCs) and back offices, a market expected to touch $US85 billion by 2026. India now supports nearly 43 per cent of the world’s financial service industry in areas like operations and research through these GCCs.

Expanding GCC presence bolstering service exports

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Source: RBI, Macrobond, ANZ Research

The rate of digital technology adoption is soaring in India as rapidly rising mobile phone and internet penetration have taken digital tools to the grassroots of the country.

India is rapidly adopting the digital

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Source: RBI, WDI, Macrobond, ANZ Research

Policymakers are also making up for some past oversight. The renewed focus on boosting manufacturing and export capacities has been lauded. India is beginning to dream of a global role, looking beyond its own vast consumer market. The news from global technology giants like Apple underscores their lofty ambitions from operations in India.

Government has taken up a complementary role to provide the infrastructure, ease of doing business and even incentives to realise these plans. Global investors are rightly taking notice and investments are flowing in. India is now one of the most preferred foreign direct investment (FDI) destinations in Asia.

FDI inflow has picked up

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Source: RBI, MOSPI, Macrobond, ANZ Research

Political or diplomatic will also appear to be aligning with economic goals. New Delhi is actively negotiating free trade deals with major economic blocs after a hiatus of nearly a decade. One with Australia, concluded in 2022, created excitement about the scope of opportunities it offers for trade, capital and human capital flows.

Several others are in the pipeline. India’s G20 presidency this year showed its commitment to global matters and how it has become indispensable in issues like action against climate change, regional economic and political stability and more.

In this sea of economic opportunities, ANZ is proud to have a growing presence. We started our India operations in 1986 through the acquisition of Grindlays Bank, a name synonymous with our identity in the country even today.

While we sold Grindlays earlier this century, we refocussed our business in 2008 and by 2011 we received a license to operate our first branch in Mumbai – which is 12 years old today. We are now present in three Indian states with over 200 Institutional clients. More than two thirds of our staff have been with us for more than half of the 12 years of ANZ’s second innings in India.

A disciplined, focussed game is our strength. And to underline the opportunities we see in this changing economic landscape, the ANZ Board will visit India next month. The trip has bolstered our inspiration and excitement, especially in operations like ANZ’s Global Service Centre in Bengaluru. It represents 20 per cent of our global workforce dedicated to service delivery to our global hubs round the clock.

It’s a great example of how our commitment to India has never been stronger. And we believe the opportunity has never been greater.

Rufus Pinto is Country Head, India at ANZ Institutional.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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