Is India the next big thing to dazzle the world the way China has done for decades?
 In an age of decoupling, McKinsey & Company, the American multinational strategy and management consulting firm, is having fresh look at India, for which it predicts great things in many areas, including transportation.
As India anticipates a century of independence through 2047, it is committing to sustainable and inclusive growth in its goal of becoming a developed economy. To understand how Indian enterprises can achieve the growth necessary to help propel it towards its centennial aspirations.
McKinsey analysed publicly traded companies over a 10-year period. While most companies performed in line with national economic growth, one in five achieved a rate that was more than two and half times the GDP growth rate during the same period.
This green emphasis is more than a public relations veneer these days, and may well contribute as much to profitability as to costs. This is because much of the investment is expected from deep-pocket - and socially conscious - labour union and teachers’ pension funds. Such investments, handled by asset management funds, rate social justice score as high or higher than shareholder value. So do not be surprised if questions of DEI (diversity, equity, inclusion) and ESG (environmental, social, governance) rank high or higher than return on investment. Thus, the role India plays in achieving net zero becomes a recurring theme in investor calculations.
Nonetheless, India expects to see 600 million jobs created, with incomes rising six fold to over US$12,000 per capita and GDP growing to $19 trillion. In realising this, the transport sector becomes an indispensable partner.
Specifically, McKinsey analysed the performance of 837 Indian publicly traded companies between 2012 and 2022. The results of the research were clear. Most companies performed in line with national economic growth, over the period. However, what’s impressive is that one in every five companies were able to double their revenue every five years and quadruple it in 10, achieving revenue growth of 15 per cent or more, compounded annually. This extraordinary growth rate is more than two and a half times the GDP growth rate during the same period, and it has the potential to act as a catalyst.
In 2024, India also held the world’s largest democratic elections, in which 642 million people cast their ballots. Now that a new national government has been sworn in for a five-year term, its leaders have renewed their commitment to specific plans.
Job One will be to achieve eight per cent GDP growth each year in the next decade and grow India’s GDP to $19 trillion by 2047 creating 90 million jobs by 2030 and 600 million jobs by 2047 investing about $600 billion annually to transition to a net-zero world by 2050 raising income six fold to over $12,000 per capita. Achieving these goals will require consistent, concerted effort and focus from a wide variety of stakeholders.
But first the bad news. Seventy-seven per cent of India’s population - over a billion people - live below the economic empowerment line, that threshold at which people can afford essential goods and services and build savings. That’s the largest empowerment gap of any G-20 nation, says the McKinsey study.
"These people may be subsistence farmers who live far from the nearest medical clinic, without access to digital networks or even clean drinking water. Low-income urban residents may live in slums or tenements. Those who are better off financially may still lack the means to meet their basic needs. For example, these people may live in rural areas with entrenched poverty and few job opportunities, or they may be forced to live in small, crowded apartment buildings in unsafe urban neighbourhoods, with little privacy and few quiet spots for children to study."
As with other G-20 economies, economic growth and business innovations will be critical to future economic inclusion; in fact, these levers could erase more than 90 per cent of the empowerment gap. "To put that in human terms, accelerated economic growth and business-led innovation alone could lift about 700 million people above the threshold by 2030," the McKinsey study said.
Needless to say, the private sector will be a crucial in helping India achieve the growth needed to bolster economic inclusion. And there is much good news to go with the bad.
India is depending on the growth, perhaps international dominance, of its strong suit - information technology. India has been a global IT centre for decades. Nandan Nilekani cofounder of the Indian IT giant Infosys says it’s a particularly exciting time for the industry: “It took 30 years for it to become a $100 billion industry in revenue. The next $100 billion came in 10 years. The third $100 billion will come in three to four years.”
This acceleration, he says, is due in part to the pandemic, which caused an increase in tech spending all over the world. In India, it will propel economic growth and job creation.
One big area of potential is software-as-a-service (SaaS). As of 2021, over a thousand Indian SaaS companies were bringing in $2.6 billion in revenue. That’s expected to increase to as much as $70 billion by 2030. Bangalore and Chennai are already SaaS hubs, but increasingly SaaS companies are scaling in smaller cities as well.
This growth is caused by a few major factors: for one thing, India is unique in the global market in that companies can complete an entire initial go-to-market move there. This is a major advantage in a sector wherein the biggest constraining factor is how rapidly one can induce growth.
Another major factor is India’s massive talent pool. As of 2021, there were over three million developers in India alone. This talent pool is itself a big market for infrastructure tools, which represent about 40 per cent of the overall SaaS market.
Freshworks, the India-born SaaS firm that now trades on the Nasdaq, is an example of what Indian enterprises can accomplish. In about 10 years, Freshworks reached $300 million in revenue, working from a model of selling and going to market primarily from India.
Great opportunities lie in clinical development. India is home to a large population of patients who have not previously received any treatments and are therefore eligible for clinical-trial procedures. There’s also a robust hospital network and clear regulatory pathways for clinical development.
India’s competitive landscape gives pharmaceutical companies looking to graduate to the international sphere something of a baptism by fire. “The economics of competing in India,” says GV Prasad, managing director of India-based pharma multinational Dr Reddy’s Laboratories, “builds a lot of muscle in an organisation, which makes it very competitive in the global arena. To that extent, I think Indian companies have demonstrated that they can be as competitive as anybody in the world.”
And if all stays on course and the world develops in peace, one can hardly doubt that McKinsey's view of India becoming a global economic powerhouse will come to pass in years to come. |
