There is a vast runway for growth in India in the coming decades with several growth drivers. First, the country has an unfinished infrastructure agenda, which any economy of this size and aspiration needs to put in place. Today, every area of infrastructure in the country presents an opportunity for development, whether it is roads, ports, or airports. In the past decade alone, we have made significant progress in the telecommunications sector. However, apart from that, everything needs to be developed. This includes a substantial agenda on urban, city, village, and town rebuilding and rejuvenation, which is often not considered at all. To me, that is going to be a critical part of our growth story over the next five years and beyond.
It will take 15 -20 years to develop the infrastructure for a growing economy like ours. In the next five years, this will provide a tremendous opportunity for businesses to invest and grow. I believe that growth in the country will rest on the pillar of infrastructure. Within this, there are some areas where the government has taken the lead for a variety of reasons. One key area is the road network, which earlier used to face issues around land acquisition, cost overruns, contracts and other challenges, causing the projects to get stuck. Interestingly, the government has introduced what is called the Infrastructure Investment Trust, or InvIT. Through InvITs, road projects are now packaged in a structured way, which facilitates their funding; and the recovered funds are then reinvested in a new road project, creating an almost perpetual cycle of road development.
Most other infrastructure arenas, where the private sector plays a prominent role, have a clear path ahead. One specific area I would like to highlight is the power sector. In the past, there were concerns regarding the environment and climate. However, the private sector has once again taken the lead in mitigating them. Although a bit late to the party in the realms of solar and wind energy, the delay has turned out to be advantageous for the country. Because the cost per unit of generation for renewable energy 10 years ago used to be around Rs 12, making subsidies necessary. But today, the cost is significantly lower compared to fossil fuels.
The second driver is the aspirations of people as incomes increase with the doubling or tripling of the economy’s size. An example is the significant push for India to become a hub for global capability centres (GCCs). No other country can offer such a conducive environment for GCCs, whereas India boasts of a substantial pool of skilled, English-speaking professionals, not just at entry levels, but with individuals who command salaries ranging from $60,000-70,000 per annum, equivalent to Rs 50 lakh or more. Consequently, we’re about to see something amazing.
Recall the year 2000–2001, when ICICI Bank launched retail banking based on the premise of a new customer with aspirations. This customer base initially comprised white-collar workers, predominantly from the IT sector. But gradually, it extended to include people working for the IT professionals. At that time, a CRISIL report had indicated that for every white-collar job, an additional 4.5 jobs were created. These individuals, in turn, became consumers of motorcycles, entry-level homes, TVs, and more. Imagine the variety of employment opportunities that individuals working in these global centres will generate. We can expect the creation of four to five new jobs for each position coming out of the employees at these global centres.
Then there is the substantial aspirational force of the services sector. When all these aspirations get into motion, the economy will witness a substantial push towards the things that an economy like ours aspires to become. The impetus in retail will experience significant amplification at a higher level of growth. This is where manufacturing steps in because the aspirations of these individuals will necessitate tangible goods. Requirements such as homes, offices, and mobility will drive the demand for materials like steel, glass, cement and more. Just as observed in the early 2000s, the initial thrust will originate from the services sector, and subsequently, the engine will gather momentum through the blue-collar segment of employment.
The third driver to consider is that all these developments will be intertwined with the ongoing digital revolution. We have witnessed similar transformations in larger economies, where, at present, my estimate is that 35% of the GDP is attributed to digital activities. In our country, the digital contribution is currently around 5-8%. Even if we expect this figure to reach 25% in the coming years, we can overlay this percentage on top of the existing 7.5% growth, resulting in an additional 1.5-2% boost to GDP growth. I view the emergence of GenAI as a productivity enhancement tool capable of achieving remarkable feats in various spheres. As a result, we stand to gain advantages from these new technological advancements. In my assessment, the growth trajectory is likely to reach 9-10% in the coming years. This marks the emergence of a new economy characterised by holistic growth across services, manufacturing, digital domains and agriculture.
As the economy expands, the nature of employment will also change, and better rules of engagement will follow. Consider, for instance, how we approach the aspirations of gig workers, who are set to play a crucial role in the economic landscape. It is imperative that we celebrate this emerging form of employment, recognising its significance in the evolving economic framework.
The fourth driver is a stronger rupee going forward. Despite geopolitical challenges, both the government and the Reserve Bank of India have effectively managed inflation and interest rate dynamics. There is a new template now to handle geopolitical situations. If you examine global economies that have achieved rapid growth, such as Japan and others, historical trends indicate that currencies strengthen as economies transform. I daresay that the Indian currency will probably strengthen over the Amrit Kaal.
As told to Anand Adhikari. The author is Chairman of the National Bank for Financing Infrastructure and Development (NaBFID). Views are personal