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China +1: The Opportunity in India

•    The COVID-19 pandemic has upended global supply chains, which has led corporations around the world to diversify their global operations.

•    With the world’s largest working age population, investment friendly policy and growing trade infrastructure, India has the opportunity to rapidly grow its export economy in the coming years.

Last year, India surpassed the United Kingdom as the world’s fifth largest economy. The top four (US, China, Germany and Japan) were also the four largest exporters in dollar terms. India, however, does not rank in the top ten exporting countries. We believe that may change going forward.

When we stop to think of global trade and India, most of us think about India’s rapid growth in technology services. Indian Information Technology companies have enjoyed significant global growth in recent years, as companies around the word have outsourced certain tech services. Two of the four most valuable companies in the country, Tata Consultancy and Infosys, generate most of their revenues outside of the country. In 2021, India’s Information and Communication Technology (ICT) services exports amounted to almost $120 billion, up from just $5 billion in the year 2000. This represented over 13% of all ICT services globally, ranking India just behind Ireland.1 In our view, Technology services exports should continue to grow, which should result in continued growth in urban employment and disposable income.
20230221-chart-1On the other hand, India has not increased its share of the global goods market. That share has been consistently below 2%.2 But recent global trends and actions by the Indian government may help drive that share higher in the coming years.

Long Term Structural Advantage

India enjoys a number of long term advantages relative to other emerging market countries. India is currently projected to surpass China in total population, and on average the population is younger than other large emerging market countries with approximately 2/3 of the population of working age, between 15 and 64.3

India has also seen an increase in GDP per capita of five fold since 2000, and the Indian consumer is well positioned to increase consumer spending with relatively low consumer debt – 35% of GDP compared to over 60% in China4 and robust credit growth, which has averaged 15% per year since 2000.5 Indian consumers are connected as well – there are over 600 million smartphone users in the country.6

Government Policy

In recent years, the Indian government has introduced policy that may drive further investment in manufacturing capability. Corporate tax rates have been cut, incentives put in place to incentivize investment in key sectors and the government plans to spend over $1 trillion over the next five years on critical infrastructure.7 

Bumpy Road Ahead?

India does have its challenges as it strives to increase its global manufacturing footprint. In the IMD Competitiveness ranking, India ranks #37, behind such peer countries as China at #17.8 Continued infrastructure development will be critical, including expanding port capacity, expansion of rail freight corridors and continued improvements in road quality can help India improve the efficiency of its logistics network.

The ability to do business in India has been improving. The country’s rank in World Bank’s Ease of doing business has improved over the past ten years from 134th to 63rd in 2019.9 The government is focused on improving incentives for manufacturing, and the workforce is young and connected. While it might be bumpy, we believe India could capitalize on a more diverse global supply chain.  

Important Disclosures & Definitions
1 World Bank ICT Service exports.

2 World Bank share of goods exports.

3 United Nations Population Database.

4 Trading Economics.

5 Experian.

6 Newzoo.

7 Cushman & Wakefield India Insights.

8 IMD World Competitiveness Yearbook.

9 World Bank Survey.

Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.

One may not invest directly in an index.

AAI000223 3/31/2024

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