Fueling growth and shaking hands

India’s economy has more than doubled in size during Modi’s decade in charge to more than $3.7 trillion last year.

The International Monetary Fund (IMF) recently upgraded its growth forecast for real Gross Domestic Product (GDP) to a robust 7.8% this year, 6.8% in 2025, and 6.5% in 2026.

India has already overtaken Britain to become the world’s fifth-largest economy. It’s on track to leapfrog Japan and Germany into third spot behind the US and China by 2027.

The country’s flagship stock index has also tripled in value since Modi took office in May 2014, thanks to wealth gains and growing investment appetites.

Moreover, one estimate puts the percentage of the Indian population living on less than $2.15 a day at below 5%, down from 12% in 2011. However, the World Bank pegged that figure at nearly 13% in 2021.

India’s middle class has also ballooned with 60 million people now earning the rupee equivalent of more $10,000 a year — about $37,200 once adjusted for purchasing power. Goldman Sachs expects the ranks of the relatively affluent to swell to 100 million by 2027.

“Modi has done an unbelievable job in India,” JPMorgan’s Dimon told the Economic Club of New York last month. “I know the liberal press here, they beat the hell out of him. He’s taken 400 million people out of poverty.”

Musk has posted on X that he’s looking forward to visiting India and meeting Modi this year. He delayed his trip last month, blaming “very heavy Tesla obligations.” The pair are expected to discuss Tesla building a multibillion-dollar factory in the country.

As for Apple’s Cook, he hailed India on a November earnings call as an “incredibly exciting market” and a “major focus of ours” given the explosive growth in potential customers as locals get richer.

Modi has also met with Nvidia CEO Jensen Huang, Microsoft boss Satya Nadella, and Alphabet’s Sundar Pichai. He’s likely to be seeking to attract foreign direct investment (FDI) in India — and to capitalize on bosses’ desire to hedge their bets on China given its strained relationship with the US, economic woes, and how disruptive its strict pandemic lockdowns were to global supply chains.

“India’s population and economic growth numbers are causing a lot of global executives to revisit their India presence and consider scaling up,” Richard Rossow, a senior advisor and chair in US-India Policy Studies at the Center for Strategic & International Studies, told Business Insider.

“Paired with increased concerns about supply chain resilience and security concerns about China, it’s a very good time for a hard push to win investments.”

The United Nations said that India and China both had a population of 1.426 billion in April last year, meaning India is probably now the most populous given its rising birth rate.

Change for the better — mostly

Modi has instigated a raft of major economic reforms since taking office, intended to make India more business-friendly, and boost government revenues by taxing more of the country’s vast informal economy.

He rolled out a tax on goods and services, simplified bankruptcy laws, lifted FDI restrictions, cut corporate income tax, and ended retrospective taxation.

However, not all of Modi’s moves spurred growth.

“Demonetisation was a key economic policy which had negative effects on the economy,” Kunal Sen, a director of the United Nations University World Institute for Development Economics, told BI.

Sen is the author of several books about India’s economy and a professor of development economics at the University of Manchester.

He was referring to Modi’s sudden declaration in November 2016 that all 500 and 1,000-rupee bills — 86% of Indian currency in circulation — would no longer be accepted as legal tender.

The government’s goals were to capture undeclared income, get rid of counterfeit currency, broaden the tax base, and bring more activities into the formal economy.

“The other key economic policy was JAM — the trinity of bank accounts for the poor, mobile numbers and a biometric card. This last economic policy has been revolutionary,” Sen said.

He was hailing a broader digitization drive under Modi that has transformed how Indians bank, invest, pay their taxes, and conduct business.

Prosperity for all

Modi’s efforts have helped to usher in a more prosperous era for some Indians, but many have been left behind.

Young people are India’s beating heart, with about half its population under 25 and almost two-thirds under 35. Matching those hundreds of millions of people with jobs has proven a challenge, with youth unemployment almost tripling from below 6% in 2000 to about 18% in 2019. It still stands at a hefty 10% in 2023, per the International Labor Organization.

The report found that nearly 30% of India’s graduates were unemployed in 2022, and only about 10% of the working-age population was formally employed.

“Unemployment is a big issue,” Rossow said, emphasizing this isn’t just a problem with recent graduates but a “much, much larger bubble: the underemployed farm laborers.”

Rising agricultural productivity is likely to help farm workers make a faster transition to city life in the years ahead, but they’ll struggle to secure modern jobs in the services industry “without significant reskilling and education,” Rossow said.

As a result, lower-skilled manufacturing and assembly jobs and lower-end services jobs will be needed, he added.

Another major challenge will be tackling a widening wealth divide. The richest 10% of the population hold more than 72% of the nation’s wealth, per an Oxfam report published last year.

Business tycoons Mukesh Ambani and Gautam Adani both rank among the world’s 15 richest people, per the Bloomberg Billionaires Index. Luxury-goods sales are booming with long waitlists for flashy purchases like the Mercedes “G Wagon.”

The lavish pre-wedding party thrown by the Ambani family earlier this year was singled out by some as an affront to the huge number of Indians living in poverty.

Almost 1.3 billion people live on less than $3,500 a year by one estimate, and India ranks 111th on the Global Hunger Index, below even North Korea.

Rising equality is partly explained by a “capital-intensive mode of economic growth along with increasing power of business conglomerates,” Sen told BI, referring to how huge companies like the Adani Group secure huge government contracts to build ports, bridges, highways, and other infrastructure.

A third challenge is regional inequality, as some states like Bihar and Uttar Pradesh haven’t experienced the same growth and modernization of their economies as others, Rossow said.

The Russia riddle

One striking aspect of Modi’s economic boom has been its reliance on Russia since it invaded Ukraine in early 2022.

India went from getting 2% of its crude oil from Russia before the war, to 35% last year. During that period, the US and Europe slapped sanctions on Russian oil to defund Putin’s military machine and punish Moscow for attacking a sovereign nation.

Despite that, India purchased an estimated $37 billion of Moscow’s oil in 2023 — 13 times the amount it bought annually prior to the conflict. Its buying helped Russia rake in a record $320 billion of federal revenue last year.

Indian demand for Russian oil has cooled in recent months as new sanctions have made it more expensive, but the buying remains controversial.

Officials in India have defended the purchases, saying that if they’d bought Middle Eastern oil instead, global crude prices would have shot up.

India is also one of the world’s largest oil refiners and has helped Western nations to maintain access to refined petroleum products even as they’re refraining from buying Russian crude directly.

Yet the country imports 85% of its oil, so its overriding interest is securing the cheapest oil possible to support its development, said Neelima Jain, a senior fellow and chair in US India Policy Studies at CSIS.

“India will continue to buy Russian oil if the price remains favorable and allows for firm volume guarantees, as the country prioritizes energy affordability and accessibility during its rapid rural-to-urban transition, which has led to a 6% year-on-year growth in energy demand,” she told BI.

“In an inflationary environment, economics [rather] than geopolitics will drive India’s energy choices.”

India the IT hub

Under Modi, India has made big strides in modernizing its economy, combating bureaucracy, and appealing to foreign investors.

Big Tech stalwarts like Microsoft have a long history of outsourcing to India, but recent efforts to cut red tape and slash corporate taxes appear to have fueled fresh interest.

Sweeping layoffs at Alphabet, Amazon, Meta, Salesforce and other US tech titans in the past few years could presage a large exodus of jobs to India.

Sanjay Shetty of Randstad India told The Economic Times last summer that he expected 30% to 40% of the tech jobs eliminated globally to move to India by 2025.

“India is going to be the biggest gainer in the medium to long term, as almost every company that we speak to is looking at expanding its India base,” Shetty said.

Even if that pans out, it won’t be a panacea for a country facing not just unemployment and underemployment, but also stark income inequality, regional disparities, and the risk of alienating Western allies by continuing to buy Russian oil.

Yet overall, India appears to be headed in the right direction.

“The growth is real, if focused on a few key states,” Rossow said. “India’s dynamic technology services sector is to IT services what China is to manufacturing. So there is much to cheer, even as the reform agenda seems to never end.”