India better put on some shades or risk being blinded by the spotlight. It’s due to surpass China as the most populous country on the planet this year, according to a UN report released this week. And word on the pundit street is that it’s poised to get bigger in another way—by rivaling China and the US as a major economic superpower.
India has already eclipsed its former colonizer, the United Kingdom, as the world’s fifth-largest economy, and it’s projected to nick Germany’s No. 4 spot by 2025, according to the Wall Street Journal.
The International Monetary Fund (IMF) expects India’s GDP to grow by 5.9% this year, more than any of the other 30 largest economies.
India’s domination of the global economy is far from guaranteed. Let’s explore why India’s future looks bright, and some of the obstacles on its path to international economic stardom.
The India “buy” case
India has a lot going for it, including a massive labor force. There are 900 million(!) working-age people in India. And that number is increasing—unlike in most major economies, where an aging population is sapping economic growth.
At the same time, India’s government has shoveled cash into infrastructure improvements and nixed some burdensome regulations to lure foreign investment. It’s paying off: Companies looking to diversify their supply chains away from China have embraced India as an alternative manufacturing hub. Apple recently began assembling its new iPhone in the country, and Volvo signaled it might start building EVs there.
But India also has plenty of homegrown success stories.
Over 100 unicorn startups call India home, and its $24 billion in venture capital investments last year put it in fourth place globally, ahead of Germany and Israel.
A long list of Indian-born business talents has achieved great heights internationally, including Google CEO Sundar Pichai and Microsoft CEO Satya Nadella.
Meanwhile, its growing middle class is a gold mine for multinationals searching for the next big untapped consumer market. The first Apple Stores opened in the country this week, and in March, Dior went all out with a Bollywood-star-studded fashion show in Mumbai.
What’s holding India back?
Simply having a lot of people doesn’t mean that the workforce will be vibrant: India’s education system struggles to prepare job candidates for successful careers and strains the country’s social fabric. According to NPR, the unemployment rate in India for college grads is 20%.
A big rift between the rich and poor, still-deficient infrastructure, corruption, and waste management woes could give companies second thoughts about doing business in India.
Tough tariffs and messy politics might also act like a foreign investment repellant. Critics are sounding the alarm about the authoritarian tendencies of Prime Minister Narendra Modi’s government and warn that his heavy-handed tactics in dealing with political opponents are a red flag for businesses.
Nobel Prize-winning economist Abhijit Banerjee thinks India should look inward before it projects its economic ambitions abroad. He says tackling runaway inflation and focusing on societal health will go a long way in wooing international investors.
Zoom out: The UN says that India’s population could start declining in 2047. Its current window to become a world economic power is wide open, but won’t be for long.