India - where the world is looking to boost growth?

Indian Prime Minister Narendra Modi has said that he wants the South Asian country to become a $5 trillion economy by 2025. Now, financial experts around the world are paying attention to the country's development.

Người đi bộ đi ngang qua tòa nhà Sở giao dịch chứng khoán Bombay (BSE) ở Mumbai. (Nguồn: Getty Images)

Pedestrians walk past the Bombay Stock Exchange building in Mumbai, India. (Source: Getty Images)

The optimism in the world's most populous country is in stark contrast to China, which faces myriad economic challenges.

The stock market in the world's second-largest economy has suffered a prolonged decline since its recent peak in 2021. About $5 trillion in market value has been wiped off the Shanghai, Shenzhen and Hong Kong exchanges. Foreign direct investment (FDI) also recorded a sharp decline last year.

Confidence in the stock market

Meanwhile, in India, the stock market is hitting record highs. The value of companies listed on the South Asian country's exchanges surpassed $4 trillion at the end of last year.

The future looks even brighter.

India's market value is expected to more than double to $10 trillion by 2030, making it hard for major global investors to ignore, according to a report by investment bank Jefferies.

Peeyush Mittal, portfolio manager at Matthews Asia, a San Francisco-based investment fund, said that no country can replace China other than India. In some form, this is the replacement that the world is probably looking for to boost growth.

Japan has benefited from investors looking for alternatives to the world’s second-largest economy. Last week, Japanese stocks hit their first new high in 34 years on the back of improving corporate earnings and a weak yen.

But the country is stuck in recession and recently lost its position as the world's third-largest economy to Germany.

Global growth drivers

There are good reasons to believe in India’s economic growth momentum. From its youthful population to its factory productivity, the country has a lot going for it.

The International Monetary Fund (IMF) expects India to grow 6.5% in fiscal year 2024, compared with China's 4.6%.

Analysts at Jefferies also expect the country to become the world's third-largest economy by 2027.

Like China more than three decades ago, the South Asian country is embarking on an infrastructure upgrade, spending billions of dollars to build roads, ports, airports and railways.

There is a “very strong multiplier effect” on the Indian economy, said Aditya Suresh, head of India equity research at Macquarie Capital.

As global businesses look to diversify away from China, New Delhi is a prime candidate to benefit from this supply chain shift, said Hubert de Barochez, market economist at Capital Economics.

In fact, some of the world’s biggest companies, such as Apple supplier Foxconn, are expanding operations in India. Tesla CEO Elon Musk said in June 2023 that the company was looking to invest in India “as soon as possible.”

Sustainable growth

While interest in the world's fifth-largest economy is growing, sky-high stock prices on the Indian stock exchange are scaring away some international investors.

Adding to the potential challenge that experts see is that India does not have the capacity to absorb all the money flowing out of China.

However, New Delhi has healthy relations with the West and other major economies, and the South Asian country is actively attracting large companies to set up factories in the country.

In her recent budget speech, Indian Finance Minister Nirmala Sitharaman said that FDI inflows since Modi first came to power in 2014 have been close to $600 billion, double what they were a decade ago.

“To encourage sustainable foreign investment, we are negotiating bilateral investment agreements with foreign partners,” Ms. Nirmala Sitharaman added.

History has shown that India's economic growth is relatively sustainable. From 2004 to 2010, the country's Gross Domestic Product (GDP) growth rate averaged 7.2%. In 2022 and 2023 - a difficult time for the world - the country still achieved impressive growth.

That partly confirms the opinion of experts on CNN : "It is difficult to stop the economic power that India has started."

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