Domestically, India’s economic structure is characterised by a mix of agriculture, industry and services. The services sector, including information technology, telecommunications, and financial services, is a major driver of growth, contributing over 50% of GDP. Agriculture remains crucial, employing a significant portion of the workforce and ensuring food security.
Much of India’s untapped potential lies in its demographic dividend, yet just 36%2 of India’s population lives in urban areas despite having the largest young population in the world. Both economic growth and urbanisation will be driven by India’s ability to incorporate this cohort – as well as more women – into the workforce.
The rise of the consumer and the manufacturing sector simultaneously could create substantial economic growth. That, in turn should give rise to a rich vein of investment prospects. Notwithstanding the opportunities, one must also be mindful of the hurdles that need to be overcome, from addressing infrastructure gaps and managing urbanisation to investing in education and skills in order to reap the demographic dividend by ensuring the workforce is equipped for the demands of a changing economy.
A key driver of India’s economic resilience and global competitiveness can be attributed to its domestic market, boasting a population in excess of 1.4 billion people. This offers both a vast and diverse consumer base. The growing middle class and increasing disposable incomes are driving demand for a wide range of goods and services – from education to healthcare, premium foods and appliances. This isn’t a one-year or five-year phenomenon, but one which we believe will play out over a number of decades.
The rapid adoption of digital technologies, including mobile internet and digital payments, is transforming India by giving more people a chance to participate in its economic growth story and creating new opportunities for businesses. The government’s ‘Digital India’ initiative aims to harness technology for inclusive growth. India’s start-up ecosystem is thriving, with entrepreneurs driving innovation in sectors like e-commerce, fintech, and health tech.
The government’s support for startups through initiatives like ‘Startup India’ is looking to foster a culture of entrepreneurship. For public market investors, this translates into an opportunity set that is broader and deeper by the year.
We believe that US companies are likely to increase investment in India’s technology, healthcare, and renewable energy sectors. Collaboration in research and development, particularly in areas like artificial intelligence (AI) and clean energy, will surely be pivotal. With India’s emphasis on digital transformation and innovation, the EU is also expected to deepen cooperation in technology, cybersecurity, and data governance, leveraging India’s strengths in IT and software services.
Long tails to growth
To reap the dividends of a large and young population (40% of India’s population are under 25 years old3), many of whom are English-speaking and can be absorbed into companies rapidly, employment is an essential component to boost economic growth.
Manufacturing , supported by the ‘Make in India’ initiative, is gaining momentum, with a focus on increasing the sector’s GDP share, creating jobs and diversifying global supply chains.
We believe that this focus on increasing production in India combined with global geopolitical dynamics supporting supply chain diversification towards the country underpin the trend of key sectors seeing long tails to growth.
A great example of this is the scale of iPhones being manufactured in India – almost 14% or $14 billion in the last fiscal year4, double the previous year and counting. It’s also feeding into a domestic market where more people want these handsets. Meanwhile, the government is telling companies that if they want to sell in India to Indians, then things have to be made by Indians in India – and we’re also a great export hub.
