Legendary hedge fund investor Ray Dalio said in a recent interview that India should have the highest growth rate of any country over the next decade. Among the key factors he cites are low levels of debt, the country’s opening to global capital markets, and the quality and cost of education. Mr. Dalio is certainly not alone in his assessment of the economic potential of India. The consensus opinion is that the 2020s represent “India’s decade.”
Last month, the World Bank revised its growth forecast for India upward from 6.5% to 6.9% citing stronger consumption and more robust overall domestic activity. The World Bank argues that India has a large domestic market and is relatively less exposed to international trade flows, making India’s economy more insulated from global spillovers. As the World Bank’s India Country Director stated: “India’s economy has been remarkably resilient to the deteriorating external environment, and strong macroeconomic fundamentals have placed it in good stead compared to other emerging markets.”
Another key factor in India’s potential is demographics. Almost half of the country’s 1.4 billion population is under 28 years old and both highly computer literate and entrepreneurial. Well educated Indians are also English speakers. A young population and investments in advanced digital infrastructure have created strong competitive advantages, and the digital revolution has the potential to fundamentally transform all aspects of Indian commerce.
A recent research report from Morgan Stanley explains India’s digital transformation at population scale. “IndiaStack” is a public infrastructure project to bring India’s population further into the digital age; an Indian version of web3. This is a transaction-led model that provides interoperability, democratizes data, and is decentralized. IndiaStack has changed the way India processes documents, invests, and makes payments, and in the future, additional layers will alter the way India spends, lends, and insures. Further, the consumer sector will be disrupted by onboarding merchants across the country matching buyers and sellers. As another consequence of this revolution, the country will create a digital health ID operable across health care providers, which would allow for better health care access and streamlining of insurance options.
India is well known for its offshoring capabilities, which has accelerated over the past couple of years partly due to the pandemic. Morgan Stanley estimates that the number of people employed in service offshoring will double to 11 million in the coming decade. What is not so well understood is how India is becoming a global manufacturing center as well. Diversification away from supply chain reliance on China is benefiting India, evidenced by Apple’s relocation of a large portion of iPhone 14 assembly to Chennai.
In this context India stands out as an opportunity that investors around the world should re-examine on a standalone basis. India is the stand-out performer among emerging equity markets and is expected to outpace all major economies in terms of growth.