Over the past three years, India has endured bad news and suffering. The epidemic killed 2.2 to 9.7 million people. The locks temporarily shrunk the economy by a quarter and triggered the largest internal displacement since the secession in 1947, with urban workers fleeing to their villages. Religious tensions fueled by anti-Muslim sentiment have erupted since the leadership of the ruling People’s Party of India (BJP) and Prime Minister Narendra Modi since 2014. Currently, a heat wave is blowing in the north of the country and a global crisis in oil and food prices is hitting the poor.
Now, with a slight retreat, the confluence of new powers will transform India’s economy over the next decade, improve the lives of 1.4 billion people and change the balance of power in Asia. Technological leaps, energy transitions and geopolitical changes create new opportunities and new tools to solve difficult problems. The biggest threat to all of this is burning national politics.
Technological leaps, energy change and geopolitical changes create new opportunities
Since the country opened in 1991, its economy has shown signs of joy and despair. At one point, it is considered the next China: a growing superpower full of entrepreneurial geniuses. And, next, it was a population-time bomb that failed to build confidence in its youth; Or the Wild West where Vodafone and other innocent multinationals commit fraud. Over the past decade, India has surpassed most major countries, but that performance has been overshadowed by a sense of frustration. It did not achieve the boom in production that made East Asia prosperous or create large enough companies to raise capital for growth. Its fragmented markets and informal companies produce some quality work.
However, as the country emerges from the epidemic, a new form of development is emerging. Sounds like never seen before. Important is the domestic technology initiative. As technology becomes less expensive, India has deployed a national technological infrastructure: a set of government-provided digital services that connect ordinary Indians with electronic identification, tax and payment methods, and bank accounts. The rapid adoption of these digital platforms is forcing a large and inefficient cash-based informal economy into the 21st century. It has promoted third world start-ups next to the US and China.
At the same time, global trends are creating big business centers. The IT services sector has more than doubled in a decade due to a global shortage of cloud and software personnel. Where else can Western companies find half a million new engineers a year? There is a wave of investment in renewable energy: India ranks third in solar power installations and is a pioneer in the use of green hydrogen. India’s appeal as a manufacturing site thanks to a $ 26 billion subsidy program as companies around the world restructure supply chains to reduce their reliance on China. Western governments are ready to make contacts in security and technology. India has also found a solution to further redistribution that benefits ordinary people who vote, but rarely see the immediate benefits of economic reforms: the direct, real-time, digital aid system has transferred $ 200,000 million to about 950 million people in 36 months.
Global trends are creating big business centers
Those changes will not lead to a large production boom like in South Korea or China, which has created enough jobs to clear farmers’ fields. They do not solve deep problems like extreme weather or backward courtrooms. However, they help to explain why India is projected to be the fastest growing major economy in the world by 2022, and why it is likely to stay there for many years. Growth creates more wealth to invest in the country’s human capital; Especially in hospitals and schools.
Who gets the loan? Opportunity plays a role: India did not create the cloud or the Sino-US divide, but produced benefits from both. Partial reforms continue to accumulate across many governments. The digital identity system and the new national tax system evolved over a decade or so.
The Modi government has done many things right. It supports technical architecture and direct social assistance; It is also diligent in the painful task of reducing the informal economy. It has found practical solutions. The federal government’s purchase of solar power has boosted renewable energy. Financial reforms led to the creation of young companies and the bankruptcy of dysfunctional companies. Modi’s electoral prowess provides economic continuity. Opposition parties have stated they will not run in the by-elections until after the 2024 election.
That regime is in danger of becoming authoritarian in the next decade. One of the dangers is the BJP’s vicious hostility to Muslims, which is used to consolidate the political base. Companies that believe Modi can control tensions and limit capital travel tend to reduce it. However, violence and human rights abuses could lead to a stigma detrimental to India’s access to Western markets. The BJP’s desire for religious and linguistic harmony in a large and diverse country may prove unstable. If the party imposes Hindi as the national language, separatist tensions will grow in some of the richest tax-paying states.
Decision-making quality can also deteriorate. The government is fasting and seeking revenge, collaborating with the bureaucracy to intimidate the press and the courts. The decision to abolish banknotes taken in 2016 showed the outrageous side of Modi. A strong man without checks and balances can endanger not only democracy but also the economy: Think of Turkish President Recep Tayyip Erdogan Bizarre views on inflation have caused a currency crisis. Moreover, given the BJP’s antagonism to foreign capital, the campaign for national renewal runs the risk of slipping back into protectionism. The party wants blank checks on Silicon Valley, but is wary of foreign companies competing in India. Current subsidies are deteriorating into arbitrariness and patronage, which could turn into a trend that will push India backwards for a long time.
The most important thing is that India will grow at a rate of 7-8% in the next few years. It will lift large numbers of people out of poverty. This will create a larger new manufacturing base and market for global businesses, and will change the global power balance by creating more weight against China in Asia. Rule, tradition and practical decisions have created a new opportunity for the next decade. India and Modi should take advantage of it.
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Translation: Juan Gabriel López Guix
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