Asia insights

India’s rapid growth rate, outstripping the emerging market average and recently surpassing China’s, underscores its economic ascent while also bringing to light challenges ahead. We believe structural shifts underway in India map neatly onto the five mega forces we see shaping the world now and in the future – and provide a glimpse into sectoral and geographical opportunities. 

India's emergence as a fast-growing global economy stands out in an otherwise lacklustre global growth backdrop. From 1990-2019, India's 6.5% GDP growth rate outstripped other emerging markets, though lagged China's 9.3%, according to IMF data. But India’s growth surged to around 8% from 2021-22, overtaking China. We expect this trend to continue in the near term. See chart. India's global GDP share doubled over two decades to 3.4% in 2022, according to IMF estimates.

The dynamics at play in India are an example, in our view, of the impact of the mega forces we see as drivers of the new regime. Supercharged digitization that has revolutionized financial transactions, favorable demographics and India’s relative success in navigating a geopolitically fragmented world brighten the long-term outlook, we think.

Digitalization of the economy has been a success story, enabling giant strides toward financial inclusion. India’s revolution in payments – that has overhauled how people and business transact – shows how digital disruption is upending traditional finance.

India, now one of the world's fastest-growing economies, surpassed China as the most populous nation in 2023. India’s relative demographic advantage – a young and growing working age population (number of adults aged 25-64) – stands in stark contrast to aging populations in several major economies. About 65% of India’s population is below the age of thirty-five, and half is below the age of twenty-five, according to data from the United Nations as of April 2023. One challenge: India still faces high youth unemployment and poverty levels remain elevated in absolute terms even after the progress of recent decades.

Lastly, India is one among a handful of multi-aligned nations that are pursuing selective alignments with competing economic blocs that have emerged following the Ukraine war and strategic competition between the U.S. and China. We think these multi-aligned nations – that also include the Gulf states, Brazil, Vietnam and Mexico – are likely to put national interest ahead of traditional alliances. We think this will further rewire supply chains and industrial policy.

India’s pursuit of selective alignments is closely tied, in our view, to securing affordable energy for its masses to fuel future growth. India is the world’s third-largest consumer of energy, according to the EIA. It has stepped up investments in renewables, yet burgeoning demand coupled with the necessity to keep energy costs low mean traditional fossil fuels will still play a vital role, we think.

India is not immune to a tough global macro backdrop. Domestically, relatively muted private sector investments and low women’s labor force participation are potential bottlenecks to growth. 

Yet the country’s promising underlying dynamics exemplify, in our view, how mega forces redefine long-term growth and inflation projections, heralding significant profitability shifts across economies and sectors and potentially creating granular investment opportunities across sectors and geographies.