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Understanding India
By: Alison Adams, Meketa Investment Group
India has continued to rapidly grow, overcoming challenges such as income inequality, unemployment, and infrastructure gaps. This article provides background information on the emerging area of investment opportunity within India.
This is an excerpt from NCPERS Summer 2024 issue of PERSist.India has continued to rapidly grow, overcoming challenges such as income inequality, unemployment, and infrastructure gaps. This article provides background information on the emerging area of investment opportunity within India.
India, the world's most populous democracy, has emerged as one of the fastest-growing major economies. Its economic journey has been characterized by significant reforms and growth spurts, particularly since the liberalization of the 1990s. This essay explores the key facets of India's economic evolution, challenges, and potential.
India's economic liberalization in 1991 marked a turning point. The reforms introduced included reducing import tariffs, deregulating markets, and opening up to foreign investment. These changes led to an increase in GDP growth, transforming India into a global economic player. From 1991 to 2022, India's GDP grew at an average annual rate of 6-7%, positioning it as a major driver of global economic growth. The services sector has been a significant contributor, accounting for over 50% of GDP during that period, followed by industry and agriculture. Liberalization attracted substantial foreign direct investment (FDI), with sectors like telecommunications, IT, and automotive seeing robust growth. FDI inflows have helped modernize India's infrastructure and boost employment.
India's economic model is heavily consumption-driven. Private consumption accounts for nearly 60% of GDP currently, supported by a growing middle class and rising incomes. Investment rates, although fluctuating, have generally remained robust, driving infrastructure development and industrial growth. Despite a focus on consumption, India has also strengthened its export base. Key exports include software services, pharmaceuticals, textiles, and machinery. However, the trade deficit remains a concern, driven by high imports of oil and gold.
India's economic journey is not without challenges. Structural issues like poverty, income inequality, and unemployment persist. The informal service sector, which employs a significant portion of the workforce, lacks social security and stability. Infrastructure gaps, particularly in rural areas, and bureaucratic hurdles also impede growth. Despite economic growth, a substantial part of the population remains below the poverty line. Efforts to alleviate poverty include social welfare programs and financial inclusion initiatives. Reducing income inequality is crucial for sustainable development. The job market faces the dual challenge of creating sufficient employment opportunities and enhancing job quality. Skill development programs and labor market reforms are essential to address these issues.
Agriculture remains a cornerstone of India's economy, employing about half of the workforce but contributing less than 20% to GDP. Modernizing agriculture through technology, better irrigation, and supply chain improvements is vital for enhancing productivity and farmer incomes. The 'Make in India' initiative aims to boost manufacturing, increase exports, and create jobs. However, the sector needs better infrastructure, streamlined regulations, and access to finance to thrive. The services sector, particularly IT and business process management, has been a global success story. Continued investment in education and digital infrastructure is necessary to maintain this momentum.
India's future economic prospects hinge on continued reforms, infrastructure development, and inclusive growth strategies. Leveraging digital technologies will likely drive efficiency, transparency, and financial inclusion. Expanding internet access and digital literacy are critical for a thriving digital economy. Addressing environmental challenges through sustainable practices is essential. Investments in renewable energy, waste management, and green technologies may promote eco-friendly growth. Strengthening trade relations and participating in global value chains should enhance India's economic resilience. Policies that support innovation, entrepreneurship, and competitiveness are vital.
India stands at a crossroads, with immense potential for growth and development. Balancing economic progress with social equity, environmental sustainability, and good governance will be key to realizing this potential. Continued reforms, targeted investments, and inclusive policies can help India achieve its goal of becoming a leading global economy.
Bio: Alison Adams joined Meketa in 2021 and has been in the financial services industry for 19 years. She serves as a research consultant where her responsibilities include global macroeconomic research and writing thought leadership materials. She is also a member of Meketa's Global Macroeconomic Investment, Investment Policy, and Strategic Asset Allocation/Risk Management Committees, and the Defined Contribution Practice Group.
Ms. Adams earned her Ph.D. from Harvard University Faculty of Arts and Sciences in history. Prior to joining the firm, she was an Associate Consultant at RVK, Inc. Previously, Ms. Adams was employed as an analyst at Fidelity Management & Research and as a case researcher at Harvard Business School.
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