India’s ascent: Five opportunities for growth and transformation
The
country could create sustainable economic conditions in five ways, such as
promoting acceptable living standards, improving the urban infrastructure, and
unlocking the potential of women.
Twenty-five years ago, India embarked on a journey
of economic liberalization, opening its doors to globalization and market
forces. We, and the rest of the world, have watched as the investment and trade
regime introduced in 1991 raised economic growth, increased consumer choice,
and reduced poverty significantly.
Now, as uncertainties
cloud the global economic picture, the International Monetary Fund has
projected that India’s GDP will grow by 7.4 percent for 2016–17, making it the
world’s fastest-growing large economy. India also compares favorably with other
emerging markets in growth potential. The country offers an attractive
long-term future powered largely by a consuming class that’s expected to more
than triple, to 89 million households, by 2025.
Liberalization has
created new opportunities. The challenge for policy makers is to manage growth
so that it creates the basis for sustainable economic performance. Although
much work has been done, India’s transformation into a global economic force
has yet to fully benefit all its citizens. There’s a massive unmet need for
basic services, such as water and sanitation, energy, and health care, for
example, while red tape makes it hard to do business. The government has begun
to address many of these challenges, and the pace of change could accelerate in
coming years as some initiatives gain scale.
From our vantage point,
India has an exciting future. In the new McKinsey Global Institute report India’s
ascent: Five opportunities for growth and transformation, we look at
game-changing opportunities for the country’s economy and the implications for
domestic businesses, multinational companies, and the government. The five
areas we focus on by no means provide a comprehensive assessment of India’s
prospects, but we believe they are among the most significant trends. Foreign
and Indian businesses would do well to recognize these opportunities and
reflect on how to exploit them.
1. From poverty to empowerment: Acceptable living
standards for all
The trickle-down effect
of economic liberalization has lifted millions of Indians from indigence in the
past two decades. The official poverty rate declined from 45 percent of the
population in 1994 to 22 percent in 2012, but this statistic defines only the
most dismal situations. By our broader measure of minimum acceptable living
standards—spanning nutrition, water, sanitation, energy, housing, education,
and healthcare—we find that 56 percent of Indians lacked the basics in 2012.
The country will need
to address these gaps to achieve its potential. The task is certainly within
India’s capacity, but policy makers will have to promote an agenda emphasizing
job creation, growth-oriented investment, farm-sector productivity, and
innovative social programs that help the people who actually need them. The
private sector has a substantial role to play both in creating and providing
effective basic services.
2. Sustainable urbanization: Building India’s growth
engines
By 2025, MGI estimates,
India will have 69 cities with a population of more than one million each.
Economic growth will center on them, and the biggest infrastructure building
will take place there. The output of Indian cities will come to resemble that
of cities in middle-income nations. In 2030, for example, Mumbai’s economy, a
mammoth market of $245 billion in consumption, will be bigger than Malaysia’s
today. The next four cities by market size will each have annual consumption of
$80 billion to $175 billion by 2030.
To achieve sustainable
growth, these cities will have to become more livable places, offering clean
air and water, reliable utilities, and extensive green spaces. India’s urban
transformation represents a huge opportunity for domestic and international
businesses that can provide capital, technology, and planning know-how, as well
as the goods and services urban consumers demand.
3. Manufacturing for India, in India
Although India’s
manufacturing sector has lagged behind China’s, there will be substantial
opportunities to invest in value-creating businesses and to create jobs.
India’s appeal to potential investors will be more than just its low-cost
labor: manufacturers there are building competitive businesses to tap into the
large and growing local market. Further reforms and public infrastructure
investments could make it easier for all types of manufacturing
businesses—foreign and Indian alike—to achieve scale and efficiency.
4. Riding the digital wave: Harnessing technology for
India’s growth
Twelve powerful
technologies will benefit India, helping to raise productivity, improving
efficiency across major sectors of the economy, and radically altering the
provision of services such as education and healthcare. These technologies
could add $550 billion to $1 trillion a year of economic value in 2025,
according to our analysis, potentially creating millions of well-paying,
productive jobs (including positions for people with moderate levels of formal
education) and helping millions of Indians to enjoy a decent standard of
living.
5. Unlocking the potential of Indian women: If not now,
when?
Our research suggests
that women now contribute only 17 percent of India’s GDP and make up just 24
percent of the workforce, compared with 40 percent globally. In the coming
decade, they will represent one of the largest potential economic forces in the
country. If it matched the progress toward gender parity of the region’s
fastest-improving country, we estimate that it could add $700 billion to its
GDP in 2025. Movement toward closing the gender gap in education and in
financial and digital inclusion has begun, but there is scope for further
progress.
Public-sector efforts
to address the five areas are under way. The government is attempting to
improve the investment climate and accelerate job creation—India’s ranking on
the World Economic Forum’s Global Competitiveness Report climbed to 55 in
2015–16, from 71 a year earlier. Officials are moving to make the government
more efficient, using technology that can leapfrog traditional bottlenecks of a
weak infrastructure. One billion Indian citizens, for example, are now
registered under Aadhaar, the world’s largest digital-identity program and a
potent platform for delivering benefits directly to the poor.
Realizing India’s
promise will require national, state, and local leaders to adopt new approaches
to governance and the provision of services. To meet the people’s aspirations,
these officials will also need new capabilities. The requirements include
private sector–style procurement and supply-chain expertise, deep technical
skills for planning portfolios of infrastructure investments, and strong
project-management capabilities to ensure that large capital projects finish on
time and on budget. Training will be needed to help staff members use digital
technologies to automate and reengineer processes, manage big data and advanced
analytics, and improve interactions among citizens through digitized
touchpoints, online-access platforms, portals, and messaging and payment
platforms. The government could acquire these capabilities by adopting
quality-oriented procurement policies and taking advantage of secondments from
the private sector. For businesses, India represents a sizable market but will
require a granular strategy and a locally focused operating model.
No single report can
capture all the changes taking place in the country, but we have tried here to
identify the most significant trends. Foreign and Indian businesses should
consider how their strategies will be influenced by them. Policy makers should
focus on helping all stakeholders to capitalize on them. By any measure, the
challenge is daunting, but success could give a historic boost to India’s
economy.
By Noshir Kaka and Anu Madgavkar
Download the full report on which
this article is based, India’s ascent: Five opportunities for growth and transformation (PDF–4.0MB).FROM http://www.mckinsey.com/global-themes/employment-and-growth/indias-ascent-five-opportunities-for-growth-and-transformation
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