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
http://www.mckinsey.com/global-themes/employment-and-growth/indias-ascent-five-opportunities-for-growth-and-transformation
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