Daily Management Review

By 2047, India Hopes To Have Reached Developed Status. These Are The Top 4 Issues Modi Must Address


By 2047, India Hopes To Have Reached Developed Status. These Are The Top 4 Issues Modi Must Address
Indian Prime Minister Narendra Modi has been talking boldly about turning India into a developed nation by 2047 for the past two years.
Now, all eyes will be on Modi and his coalition with the Bharatiya Janata Party to see if they can maintain the economic momentum and continue to enhance millions of people's lives during their third straight term in government.
Trust in the BJP has completely collapsed. For the first time since 2014, Modi's ruling party was unable to secure an absolute majority in the lower chamber of Parliament and is now dependent on its coalition partners.
“The government will have to find common ground and build consensus on multiple fronts, not just with alliance partners but also with other stakeholder groups, to push through key legislation in parliament and quell the rising anti-incumbency sentiment nationwide,” said Reema Bhattacharya, head of Asia research at risk intelligence firm Verisk Maplecroft.
“A failure to do so could also result in further political setbacks for the ruling party in the next round of state elections scheduled for later in the year,” she warned.
Analysts predict that a coalition led by Modi won't likely sabotage India's economic growth. They do, however, note that the incoming administration will now need to uphold the people's confidence and guarantee India's continued status in the Global South.
The main goals of the incoming government are still to be announced. However, analysts believe that these four topics will take front stage in the agenda.
Push for infrastructure
A massive infrastructure initiative has resulted in India connecting and modernising its roadways, railways, and airports with great success.
India's GDP is expected to reach $26 trillion by 2047, according to a forecast made last year by consultancy firm EY. To this end, the nation's infrastructure has to be strengthened.
“Since Modi’s been in office, he’s done his utmost to build ports, railways, and all kinds of hardline infrastructure to make business fluid. He’s going to double down on that,” said Samir Kapadia, CEO of India Index and managing principal at Vogel Group.
India still lags behind China in this area, and more has to be done if it is to keep up its rapid expansion and attract foreign investment.
At the interim budget in February, Finance Minister Nirmala Sitharaman predicted that capital expenditures will rise by 11.1% to 11.11 trillion Indian rupees ($133.9 billion) in the fiscal year 2025. The majority of these costs will go towards developing railroads and airports.
But Santanu Sengupta, an Indian-focused economist at Goldman Sachs, noted that improving connectivity between cities shouldn't be the main objective.
"India has to keep pushing for fundamental reforms in addition to developing its physical infrastructure. Sengupta told CNBC that the nation has to think about and release land in order to establish more industrial facilities and generate jobs.
Analysts noted that this would not go over well with the administration, as Modi's weak hand might make it harder to get land for projects.
Richard Rossow, senior advisor and chair in U.S.-India policy studies at the Centre for Strategic and International Studies, stated that "such targets may be more difficult if state-level parties have a quasi-veto due to the coalition structure."
Enhance manufacturing
Modi has vigorously pushed for India to become self-sufficient and surpass China to become Asia's leading manufacturing powerhouse during the last ten years, especially in the semiconductor industry.
Tech companies in the US are moving more and more of their supply networks to India. In December, the Financial Times revealed that Apple had informed component suppliers that it will be sourcing the next iPhone 16's batteries from Indian manufacturing. According to reports, Google plans to start producing Pixel phones in India this quarter.
Foxconn, an Apple supplier, has said that it would increase its investments in India, while Micron Technology plans to produce the nation's first semiconductor chip by the early part of 2025.
Based on projections from Counterpoint Research and the India Electronics and Semiconductor Association, the semiconductor sector in India is expected to rise from $23 billion in 2019 to $64 billion by 2026, a threefold increase.
According to Kapadia, "this will likely be India's largest source of income for the next five to ten years." "Modi is adamant that India can become an untouchable economy if it can successfully enter the semiconductor manufacturing industry and if he gets it right."
Fight high unemployment
The world's most populous country is now grappling with one of its worst unemployment rates, and Sumedha Gupta, senior analyst at The Economist Intelligence Unit, warned that a mismatch in skills is making matters worse.
The country's workforce's skill level and businesses' need for high levels of innovation are already out of sync. This will undoubtedly continue throughout this decade and maybe into the 2030s, the source said CNBC.
India’s unemployment rate increased from 7.4% in March to 8.1% in April, as reported by the Centre for Monitoring Indian Economy.
Prior to the election, in April, the Centre for the Study of Developing Societies polled 10,000 people, and the results revealed that 27% of them were most concerned about unemployment.
During Modi's second term, over half of those questioned (62%) claimed it had been harder to get work during the previous five years.
Analysts pointed out that in order to guarantee that people are gainfully engaged in the appropriate industries, it is now the responsibility of the new coalition government to enhance local education standards and skills-based training.
According to PwC India's markets head Vivek Prasad, "those with advanced education and practical experience are poised to secure jobs in this sector, but creating widespread, equitable employment opportunities requires a more inclusive approach."
In an interview with CNBC, Prasad stated that increasing the employment of women is crucial to propelling India's economy and that new educational programmes and vocational training will "engage individuals at all levels of the manufacturing value chain, ensuring that the benefits of economic progress are shared across society."
Increase foreign investments
Market analysts, like global strategist David Roche and seasoned emerging markets investor Mark Mobius, are still optimistic about India.
Based on data from the World Federation of Exchanges, the National Stock Exchange of India is the third biggest in Asia-Pacific with a total market value of $4.9 trillion. In the next 20 years, it is anticipated that India's market capitalization would reach $40 trillion.
LSEG data shows that the benchmark indices Nifty 50 and the Sensex have performed very well this year, increasing by 8% and 7%, respectively, year-to-date.
However, experts told CNBC that in order to further propel economic growth and development, foreign direct investments into the nation must quicken.
According to Sengupta of Goldman Sachs, foreign direct investments into India were quite weak last year because of a challenging climate for private equity finance brought on by high U.S. interest rates.
"Once interest rates decline and the financing environment gets easier, India will probably draw more FDI inflows from the U.S.," Sengupta stated to CNBC.
In order to draw in foreign capital, ease of investing in India "has some ways to go," according to Prabhat Ojha, partner and head of Cambridge Associates' Asia client business.
He advised investors to focus more on India's banking industry, which now has excellent capital allocation and growth strategies.
“From 2017 to 2019, there was really a cleanup of Indian banks and they are in a very healthy state today,” Ojha told CNBC.