As he meets with Modi to cement America’s relations with India, all eyes will be on the world’s largest democracy’s potential and what it could mean for investors worldwide. Most signs point to a bright future and to the possibility that India could well become a superpower.There are challenges, of course.
Modi’s initiatives aimed at revamping India’s restrictive business regulations and creating a real free market seem to be working. Even though GDP growth in the third quarter of 2014 slowed slightly from the summerto5.3%,it was still much higher than that of the last several years. India’s $1.9 trillion economy is projected to expand by6.4%this year, according to the International Monetary Fund, and the country has already outpaced Japan as the world’sthird largest economyin terms of purchasing price parity, a measure that adjusts for price differences between economies, according to the World Bank.
In addition, falling oil prices have reduced the risk of inflation and will enable the country to cut its costly fuel subsidies. Every a $10-a-barrel decline could increase GDP by 0.1%, lower inflation by 0.5%, and narrow the current account deficit,Nomura economists led bySonal Varmawrote in an October report.Further bolstering the economy is thebillions of dollars in increased foreign investments, including$33 billionfrom private and public sources in Japan, aided by the raising of investment caps by the government and a stable interest rate environment.The second part of Modi’s plan is to improve India’s national infrastructure.
This includes a proposed increase in infrastructure spending of$800 billionto reach targeted economic growth of 7% as well asenabling banks to buy infrastructure bondsto spur trading activity in the debt markets. Late last year, Modi also secured a$20 billioninfrastructure investmentfrom China. Collectively, these initiatives could enable India to upgrade its overtaxed transportsystem, bring stable water supply and electricity to more areas, and expand the use of technology throughout the country.But the most important aspect of India’s infrastructure is its human capital.
What makes India’s population so valuable is its large pool of young workers — 65% of India’s population is35 or under,giving the countrya strong competitive edge in the coming decades.To realize the potential of this human capital, the government has launched several initiatives aimed at improving education, retraining rural workers for skilled jobs in othersectors, providing bank accounts to all Indians to teach personal financial planning, offering free life insurance, encouraging the wider use of computers and the Internet, and generally modernizing the workforce for the bigjobs boomcoming up in the fast-growing healthcare, information technology, telecom, and retail sectors.The final factor that could position India as a superpower is its geopolitical advantage. Since his election, Modi has made a concerted effort to strengthen ties with Russia, Japan, and the U.S. For each of them, India is a valuable trading partner with a vast consumer base and labor pool waiting to be tapped. But even more significant is the strategic importance of its alliancewithall those nations.
Reeling from Western economic sanctions andlow oil prices, Russia needs India’s partnershipmore than ever to bolster its economic foothold in Asia and counter U.S. influence. Similarly, the U.S. would like to expand bilateraltrade with India, which reached$95 billionin 2013, while also using the democratic nation tobalance the power of Chinain the region. By extending the hand of friendship to all of them,Modi is being diplomatic; but he is also keeping his options open to forge partnershipsthat will maximize the benefit to India, both financially and politically.India may not reach its desired destination in astraight line or in the timeframe that Modi has set for it, but odds are pretty good that it will become a leading player in the economic and geopolitical spheres fairly soon.