India’s Economy – The Locomotive of World Growth
By David Keynan, Vice Chairman
For thousands of years, pretty much from the dawn of history to colonial conquest, India was among the five largest economies in the world, alongside those of China, the Middle East, The Roman Empire and the Greek world. Colonial invasions, which turned into British occupation, caused the collapse of the Indian economy, which was entirely subjugated to the benefit of the conquerors, leaving India upon regaining its independence with a remarkably precarious administration and economy.
Until 1991, the Indian economy was isolated from the world behind walls of tariffs and foreign exchange regulations, which nearly prohibited all trade.
As a result, the economy was stagnant, suffering from lack of investment and exceedingly corrupt administration. The changes in policy that followed the food crisis of 1991 (13 years after the beginning of reforms in China, which explains the gap between the two countries), combined with the dawn of the internet age in the mid-90s, brought India’s economy out of its shell and oriented it towards a global economy with an emphasis on international trade, upgraded infrastructures and the use of cutting-edge technologies in the private and public sectors.
The Indian GDP currently stands at approximately 2.55 trillion dollars, making it the world’s seventh largest economy, as well as its fastest growing one, at over 7% annually over the past several years. However, the GDP per capita is significantly lower (App. $2,200 per capita as opposed to around $8,000 in China and much more in the West.)
Today India’s economy consists of several main sectors. The farming sector, for instance, employs some 300 million workers (about half of all workers in the country), but only 14% of the national product. Due to the small size of plots (the average plot is among the smallest in the world), Indian economy lags far behind in terms of the use of advanced soil use and obviously in produce per acreage. In recent years there has been government investment in disseminating advanced machinery, in mutually beneficial cooperation with the Israeli Ministry of Foreign Affairs and several leading Israeli companies, most notably Netafim, which operates a vast manufacturing plant in India, Naan which has been acquired by the Jain Irrigation corporation, and Metzer Group, which is constructing a plant in partnership with an Indian conglomerate named Skipper
Hi-tech is the locomotive of India’s economy. An annual product of over $150B, 6 million employees and wages ten times higher than the rest of the market turn every hi-tech worker in India into a center of wealth supporting several families. Today all international hi-tech companies operate large development and support centers in India.
While in the past Indian centers dealt mostly in customer service, tests, maintenance and other simple tasks, in the past five years there has been a sharp rise in the sophistication level of Indian hi-tech, which now runs the gamut of technological work. Indian hi-tech companies such as TCS (a Tata subsidiary) and Infosys now compete head-to-head against Western companies, many of whom have development centers in Israel.
Until a decade ago, Manufacturing in India was mostly low-quality for the local market (except for auto parts). The great leap forward in manufacturing took place over the past decade, with India becoming an important market for the airline, electronics and arms industries, and strict reciprocal purchase rules imposed by Indian governments, which forced foreign manufacturers to move production lines to India. Within a decade large electronics manufacturing sprung up in India, with Samsung, Apple,and others making smartphones and more here.
The final major sector is the services industry, public and private alike. The public sector in India is the largest in the world and has undergone severe upheavals since the rise of Prime Minister Modi to power about three years ago, with the emphasis today on providing better services to the people, rather than merely a tool for graft. The Modi administration’s efforts in the field of infrastructure, especially water, sewage, and digital governance are already producing the result and will continue to be featured front and center in the coming few years.
In private services one must take particular note of the civilian airlines which have turned India within a decade into the largest market for passenger aircraft in the world, alongside a series of investments by Persian Gulf companies, such as that by the Abu Dhabi-based Etihad airline in Jet Airways, India’s largest private airline, and telecom companies serving the world’s largest consumer base, spreading their wings to Africa as well as other parts of Asia, such as Airtel, the world’s third-largest telecom company, with nearly half a billion subscribers in dozens of countries.