As India sheds the shackles, it emerges as a global economic powerhouse

NEW DELHI—For what seems like an eternity, India has been a story of untapped potential: abundant labor and entrepreneurial energy hampered by lousy infrastructure, an intrusive state, stifling regulation and deep ambivalence about engagement with the rest of the world.

It might be time to take this story down. In fact, 2023 could be the year that India finally emerges as a global economic heavyweight. For this, thanks to the cumulative effect of solid economic growth, microeconomic reform and a changed geopolitical environment that makes the West more eager than ever to pull India into its orbit. Just this week, nine Democratic senators and Treasury Secretary Janet Yellen traveled to India, the latter for a summit of the Group of 20 economies, which India is hosting this year. Commerce Secretary Gina Raimondo and Secretary of State Antony Blinken are close behind.

The bullish case on India always starts with demographics. This year, it is expected to officially overtake China as the world’s most populous country, and much younger than China and most of the West.

The economic weight that comes with population has been mitigated in the case of India because it is so poor, but it is becoming less and less poor. The International Monetary Fund says India’s annual economic growth will average 6.5% this year and next, the fastest among the 30 major economies, resuming a two-decade trend of solid growth. Last year, India overtook the UK as the world’s fifth-largest economy in current dollars and could tie with Germany for fourth place by 2025.

The macroeconomic picture is therefore impressive. However, maintaining it requires microeconomic reforms that strengthen the supply side of the economy. “This is when infrastructure starts to become a constraint,” Ashwini Vaishnaw, India’s minister for railways, communications, electronics and information technology, said in an interview. “If you solve the infrastructure problems at this point, the country can grow at this rate for many more years.”

This is where India has made impressive progress. In recent years, many new highways have been built or are under construction. From 2014 to 2019, the kilometers of national roads increased by 45%. Since Prime Minister Narendra Modi took office in 2014, the number of airports has doubled and the total number of rural roads has increased by 85%. The capacity of power plants has increased by 66% and power cuts have become much less frequent.

I caught a glimpse of this transformation from the cab of a locomotive on a railway track north of Ahmedabad, the main commercial center of Gujarat state. Rail’s share of Indian freight has declined as track capacity is limited and has to be shared with passenger trains. Freight trains thus run at an average speed of 25 to 30 kilometers per hour without a fixed timetable. But the locomotive I was driving was pulling 45 cars at 80 kilometers per hour on a “dedicated freight corridor” with no other traffic in sight. When completed, this high-capacity electrified railway will transport double-stacked containers on trains up to 1.5 kilometers in length from North New Delhi to Mumbai in half the time of regular lines, while connecting to container ports. A separate eastern corridor will extend to Kolkata.

Infrastructure, both physical and digital, has also improved the lives of ordinary Indians. Over the past three years, according to the government, the number of homes with running water has roughly tripled to 108 million. One of my Indian-born colleagues returned to his ancestral village in Bihar, India’s poorest state, in 2021 for the first time in eight or nine years, and was flabbergasted to see how many houses now had tap water, electricity and appliances such as color televisions. and washing machines, and with tarmacked surroundings and small restaurants accepting digital payments.

All this is not thanks to Mr. Modi. Some of the construction, like the freight corridors, started under previous governments. India’s vibrant startup scene, now home to more than 100 unicorns – new ventures valued at over $1 billion – also took root before him.

But Mr Modi has prioritized improving India’s notoriously cumbersome and inefficient business environment with a new bankruptcy law to speed up the resolution of insolvent companies and an increased goods and services tax. the number of taxpayers and simplified collections. And the “Indian stack”, as the government calls the digitization of public services, has made it possible to carry out countless tasks online, such as tax calls and appointments for the Covid vaccine. Thousands of minor technical and procedural flaws have been or are being decriminalized, a longstanding request from businesses. One area where India has slipped is trade: tariffs have risen under Mr Modi’s ‘Make in India’ plan. But India has pursued free trade agreements – pacts with the United Arab Emirates and Australia are now in place and talks with the UK are well advanced.

Given all these structural improvements, it is surprising that growth is not even stronger. Anantha Nageswaran, chief economic adviser to Mr Modi, says while other countries’ growth has been helped by taking more leverage over the past decade, India was dealing with bad debts from its banks . This process of deleveraging, followed by the pandemic and the commodity price shock “has delayed the full impact of structural reforms,” Nageswaran said. Once geopolitical and economic stability returns, “you can see the lagged effects of these reforms,” ​​he said.

But the absence of a stronger response to reform could also indicate how much work India still needs to do. The pandemic has delayed children’s education, many young Indians cannot find jobs, and inflation and budget deficits are still high. It remains a tough place to do business; infrastructure is still taking too long to build, hampered by factors such as land acquisition. The controversy that overwhelms the Adani group, accused of fraud by an American investor, which the company denies, highlights the extent to which Indian affairs are controlled by family conglomerates close to politicians in power.

Then there is Mr. Modi himself. Its ability to enact several consecutive reforms reflects the political stability that comes from controlling majorities in parliament, unlike the coalitions that prevailed in previous decades. But his critics fear those same majorities have exposed autocratic tendencies in Mr Modi and his Hindu nationalist Bharatiya Janata party. They say his government is using allegations of financial misconduct to target critics, including nonprofits, journalists and politicians. Tax authorities last week raided the BBC offices in India after a documentary aired criticizing the way Muslims were treated during his tenure as prime minister and chief minister of Gujarat. (A BJP spokesperson said of the BBC: “If they haven’t done anything wrong, then why are they afraid?”)


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Business leaders who otherwise applaud Mr. Modi’s policies fear similar reprisals if they say anything critical. “When you set up a coercive, fear-based ecosystem where everyone and their grandmothers are attacked by government law enforcement, people generally don’t want to work and invest in that environment,” he said. said Manish Tewari, a member of the opposition Indian National Congress party.

Mr Blinken has in the past raised concerns about India’s human rights record under Mr Modi. Yet the Biden administration has clearly concluded that while India might be a flawed democracy, these flaws do not lessen the allure of having such a large and influential economic powerhouse in its corner as the geopolitical contest with two true autocracies. , China and Russia, heats up.

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