India primed for growth as Australia links deepen

26 Mar 2021

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  • Ashley Brosnan

No longer just ‘rising’, India is now a significant and influential global player. India has recorded strong economic growth over the past 4 decades to become world’s third largest economy in terms of purchasing power parity (PPP).

Following the pandemic, rapid growth is set to resume. The Indian economy is projected to expand by an average annual real rate of 5.8% from 2021–2040, which is faster than the global average and the average for the Asia-Pacific region.

Real gross domestic product by economy, 1990 to 2025

Rapid recovery in 2021

The OECD projects that India’s economy will grow 12.6% in 2021. This will make India the only major country to achieve double digit growth in 2021.

It should be acknowledged that the Indian economy is among the worst affected by the pandemic, which has resulted in strict, multi-month lockdown restrictions. GDP fell 10.3% in 2020 damaging household income and business confidence.

But rapid economic growth in 2021 will be driven by an expansive vaccine rollout, falling COVID-19 caseloads, and extensive economic stimulus.

FDI fuels double-digit growth

Despite the COVID-19 crisis, foreign direct investment (FDI) inflows into India grew 13% in 2020. This is an extraordinary achievement – and a landmark development in a country that has historically proved challenging to foreign investors.

The rapid inflow of investment makes India one of the few countries to experience double digit growth in FDI during 2020. It means India is now a top 10 destination for FDI, and it heralds a sea change in global investment sentiment.

Multinationals are seeking to move their supply chains into the subcontinent. The push factor is a desire to diversify from an over-dependence on China. The principal pull factor is a young, competitive workforce, particularly in the information technology and construction sectors.

FDI flows into India contrast sharply with the global picture. For example, FDI flows into China grew by 4% last year, while FDI flows globally fell 42%. FDI flows into developed economies fell 69%.

Investment in India is likely to grow significantly over the next decade.

Consumer demand skyrockets

The biggest revolution taking place is the rapid rise of a huge, diverse and wealthy consumer market. Despite the impacts of the pandemic, domestic demand is likely to be a major driver of recovery and growth over the next decade, making up 60% of the overall economy.

E-commerce is taking off as smartphone usage multiplies. India already has over 1 billion internet users and the digital economy’s contribution to GDP is projected to grow 15–20% by 2024.

Incomes are also rising strongly. India’s median income per household is expected to reach A$13,867 by 2025. The World Economic Forum considers that consumer expenditure in India will grow by a factor of four up to 2030.

This means over 80% of Indian households will be middle-income in 2030 – an increase of 140 million. Another 20 million will be considered high income.

India’s emerging and aspirational middle class is seeking premium food and beverage, healthy lifestyle products, technical infrastructure, quality healthcare and education, entertainment and consumer goods.

Trends in consumer demand are encouraged by a substantial, highly-skilled Indian diaspora in Australia, which is set to number 1.4 million in 2031.

Number of households with disposable income of more than US$10,000 per annum

Growing opportunities for Australian exporters and investors

Australian businesses continue to see opportunities across a range of sectors including education, mining and resources, infrastructure, agri-food, and digital services. Thanks to the steady success of some great Australian brands, Australia is already a trusted supplier and investor.

However, India remains a challenging place do business. Expansion requires a high degree of market literacy and on-the-ground experience. Local partners help exporters and investors to navigate markets and regulation – and these partners can prove invaluable.

Despite this, the Government of India has signalled that India is ‘open for business’. It is emphasising investment and competitiveness as factors that will support the economy and encourage a return to growth.

The effects can be observed already in global rankings. India has moved up 63 places in the World Bank ‘ease of doing business’ rankings in recent years.

Austrade is helping Australian companies to explore India

The Australian Government is investing heavily in developing commercial links between Australia and India. The Australia-India Comprehensive Strategic Partnership agreed by Prime Ministers in June 2020 creates further opportunities for Australian business.

The Partnership seeks to build supply chain resilience between the two countries. It strengthens and diversifies trade and investment links with a focus on education, critical minerals and technology cooperation.

Today, Austrade posts across India are working intensively with Australian businesses to understand market, identify opportunities, make connections and help companies negotiate contracts.