This year will be one of the most important for the South Asian subcontinent. According to World Population Review (WPR) estimates, as India overtook China to become the most populous country in the world in mid-January (India’s 1.417 billion versus China’s 1.412), the international spotlight is now on New Delhi’s ability to harness its human resources for a robust domestic economy as well as becoming the rising tiger on the global platform.
The World Bank has raised its growth forecast for India in fiscal year 2023-24 from 6.5% to 6.9%, attributing the country’s ability to withstand global shocks as the reason for the upgrade. This is despite concerns over a declining global political and financial environment, worries about inflation and a dip in the foreign-exchange market, and a slowdown in demand.
Moreover, the 2023 federal budget’s target to bring down fiscal deficit to below 6% of GDP, for the first time since FY 2020, will strengthen the country’s macroeconomic stability through revenue mobilization and expenditure rationalization measures.
The Covid-19 pandemic had three crucial lessons for the world economy. First, given the inextricable interlinkages with the Chinese economy across global value chains (GVCs), the dependence on Beijing must be reduced.
Indeed, the pandemic-induced supply-chain disruptions emanating from China have put many smaller economies into troubling situations and provided an impetus for regional economies to become more attractive to investors, domestically self-sufficient and resilient to macroeconomic shocks.
The ongoing Russia-Ukraine conflict has led to massive inflationary pressures in the global energy and food markets, causing developing South Asian countries like Pakistan and Sri Lanka to face an economic crisis.
To diversify against unforeseen global macroeconomic risks in the future, India is capitalizing on the global “China plus one” (C+1) business strategy that originated in 2013 and gained momentum in the post-pandemic scenario. This involves positioning itself as an alternative to China by entering different parts of the GVCs, including domestic manufacturing and price-competitive exports.
The approach has allowed India to ride the wave of shifting global dynamics and emerge as a promising destination for businesses looking to diversify their operations away from China.
India received its highest annual foreign direct investment (FDI) in FY 2021-22, amounting to US$83.57 billion. The country has strategically increased its growth to compete with China by implementing policies to attract more investments.
One of the key priorities outlined by Finance Minister Nirmala Sitharaman for the Indian economy is “infrastructure and investment.” The federal budget for 2023 has prioritized infrastructure development for the third year by increasing capital expenditure by 33z% to 10 trillion rupees, equivalent to 3.3% of GDP.
Second, economic partnerships have evolved, with countries now seeking to strike a balance between globalization and localization (glocalization) through bilateral and multilateral platforms.
Governments can leverage their strengths and resources by working together to create a more interconnected and resilient global economic system. India is actively countering Beijing’s political and economic dominance in the Indo-Pacific region and beyond, which is one of the major drivers behind the emerging glocalized models.
For example, India’s decision not to join the world’s largest trading bloc, the Regional Comprehensive Economic Partnership (RCEP), in 2020 to protect the domestic market and curb trade deficits sent strong signals of New Delhi’s dissociation from Beijing in the domain of trade partnerships.
Third, the Covid-19 pandemic accelerated the adoption and use of technology across various sectors. Technology played an increasingly significant role in enabling remote work and digital connectivity, ranging from providing social-security payments at the grassroots level to government-level conferences and policy discussions.
Within the Fourth Industrial Revolution (4IR), advancements in artificial intelligence (AI), data processing and transfer, data security, and DNA editing are transforming domestic and international policies of nations.
India is well positioned to provide digital skilling to its young human-capital base, with about 52% of its population under 30 and high Internet penetration of 43%. This presents an opportunity for India to leverage contemporary forms of the first Industrial Revolution, which it missed out on during the colonial era in previous centuries.
Both neoclassical and endogenous growth theories point to variations in technology levels as the cause of poverty in developing countries. As technology progresses in the world’s largest democracy, India has a significant role in reducing economic inequalities by bridging the gap between the rich and the poor.
The focus on human-capital advancement through fast-track skilling initiatives will be seminal in finding demand-supply equilibrium in the domestic labor markets, creating more livelihood opportunities, and making the Indian youth suitable for the global job markets.
The 2023 budget has also introduced Pradhan Mantri Kaushal Vikas Yojana (PMKVY) 4.0, which aims to skill Indian youth in new-age Industry 4.0 domains, including robotics, AI, 3D printing, and mechatronics, among others.
This program is expected to address the current job crisis in India, where the unemployment rate reached a 16-month high of 8.3% in December 2022. Additionally, the program is expected to increase youth income, leading to higher levels of consumption, savings, and investments in line with India’s goal of becoming a $5 trillion or $10 trillion economy.
Finally, the ripple effects of the pandemic have led to fears of a looming global recession and economic-crisis-stricken South Asian neighborhood, in addition to the flux that the fuel and food markets have been thrown into by the Ukraine-Russia conflict.
Hence, as Indonesia passes on the mantle of the G20 presidency to India, New Delhi will have to take charge of bringing the world back to order in the face of such multidimensional global crises.
Leading the Group of Twenty, which consists of about 90% of the global GDP, is undoubtedly a challenging position for any country to hold. However, India has emerged as one of the most vital voices for the Global South, advocating for the developing world’s concerns on the global stage.