18 The Economist May 14th 2022
BriefingIndia’s economy
T
he trialsand transformation of In-
dia’s economy have an epic quality,
reminiscent of 19th-century America. A
vast national market is being created, al-
lowing firms to grow from economies of
scale. Internal migration is shifting tens of
millions of desperately poor people; a
brash new consumer class is proliferating
and empires are being built on new tech-
nologies. Tycoons unleashing vast invest-
ments are happy to debate if they are In-
dia’s Rockefeller or its Carnegie.
In 2014, when Narendra Modi began his
first term as prime minister, India was the
world’s tenth-largest economy. In the fol-
lowing seven years it grew by 40% (see
chart 1 on next page); of big economies only
China did better, with 53% over the same
period. Growth this year of 8% will be the
highest among big countries, according to
the imf. It predicts that by 2027 India will
be the world’s fifth-largest economy, with a
gdpof roughly $5trn at market prices. In
terms of the size of its stockmarket it has
already reached the number-four spot, be-
hind only America, China and Japan (see
chart 2 on next page). And with a herd ofabout 100 unicorns (unlisted startups
worth over $1bn), India is third only to
America and China.
Behind those figures lie ups and downs
and bitter controversy. Mr Modi’s decision
to void high-denomination banknotes in
2016 saw growth drop from 10% to 5% over
the following nine months. A crisis at
shadow banks led to a financial scare in
2018, slowing growth again. The lock-
downs in the first half of 2020 saw gdp
temporarily drop by a quarter.
Yet, as the pandemic recedes, four pil-
lars are clearly visible that will support
growth in the next decade: the forging of a
single national market; an expansion of in-
dustry owing to the renewable-energy shift
and a move in supply chains away from
China; continued pre-eminence in it; and
a high-tech welfare safety-net for the hun-
dreds of millions left behind by all this.
Mr Modi was elected on a platform of
“minimum government, maximum gover-
nance”. That is not really what he has
served up. There is still a lot of government
in India, and the threat that Mr Modi poses
to its democratic nature worries observersinside and outside the country (see Asia
section). Indeed, one of the reasons India’s
performance is less admired than it might
be is that people are reluctant to highlight
it lest they be seen as endorsing Mr Modi.
But a realistic approach to things which
government can and cannot do has paid
dividends—despite being based on truths
which Mr Modi would never publicly af-
firm. His government sees that second-
best policies forcefully implemented are
better than immaculate plans that never
happen. It acts on the basis that the coun-
try can industrialise, but not as fast as East
Asia did. Though it sees the potential in the
rise of tech platforms, the shift to clean en-
ergy and the redesign of the world’s supply
chains, it appreciates that the age of open
globalisation that China exploited in the
1990s and 2000s is over. And it knows that
if it is to win a continual cycle of elections
(the next national poll is in 2024), econom-
ic disruption must be combined with in-
stant gratification for the mass of voters.
The first and most important pillar of
India’s new growth pattern is the emer-
gence of a single national market in which
more firms and consumers use the modern
financial system. This is fast superseding
regional markets and informal businesses
using mainly cash, which accounted for
two-fifths of output and 87% of jobs five
years ago. Much of the reform and invest-
ment underpinning this change predate
Mr Modi, but he has expedited them.
Infrastructure is crucial. The national
highway network is over 50% longer thanB ANGALORE, DELHI AND MUMBAI
India is likely to be the world’s fastest-growing big economy this year.
Can the expansion continue?A new formula