In order to achieve investment growth in the double digits and to create employment opportunities for its swelling labor force, India will need to industrialize further target manufacturing as a share of GDP to rise to 25% by 2025 from its current level of 18%. To do this, a new potential leading sector in manufacturing must be identified based on size, productivity, employability, and exportability. Our analysis identifies chemicals (including pharmaceuticals and petrochemicals) as a promising candidate to move up the value chain, as well as food processing and textiles & apparel.
In a previous Citi GPS report Infrastructure for Growth, we estimated that on average, a 1% increase in infrastructure investment associated with a 1.2% increase in GDP growth. In the case of India, we estimate that total infrastructure spend could be around $3 trillion in the next 10 years bringing the infrastructure (power, ports, roads, rails, telecom), reforms in input markets (land and labor), focus on soft infrastructure (healthcare reforms, education) and the harnessing of resources (oil & gas, coal, cement, iron & steel) would all lead to higher productivity and growth rates.
Finally, exports as a productivity driver and employment creator could play a significant role in total factor productivity growth. If India can increase its export-to-GDP ratio (including service exports) to at least 20% by 2021, India’s exports could reach ~700 Billion.
The result of all this growth would be higher per capita income, increasing urbanization, and a shift in consumer patterns as India moves up the ladder form a low-growth to a high-growth economy.
My Account
Securing India's Growth Over the Next Decade
Twin Pillars of Investment & Productivity
In this report, we look specifically at India and what types of pillars can be identified to drive the country’s growth over the next decade. Although the past does not guarantee future results, we thought the best place to start the journey of how India can transform itself from an emerging economy into one that grows with a sustained GDP growth rate of 8%+, is to look at the lessons learned from countries which have already succeeded in transition. We found that growth in labor productivity of over 6%, growth in investment of over 10% and growth in the overall efficiency of production (the Total Factor Productivity) to 3% were the three primary drivers of GDP growth across our sample of countries. The final piece in the growth puzzle was that poorer economies grow faster in 60% of cases, those countries with 8%+ GDP growth had per capita income of less than $10,000.
Click here to view the report in full.
Subscribe to Citi GPS
Keep up to date with our latest insights.
Sign up to receive the latest news from Citi.
