In the midst of the Fourth Industrial Revolution (IR-4), characterized by the fusion of digital, physical, and biological technologies, India finds itself at a pivotal juncture in its economic trajectory. As the global landscape continues to evolve, it is essential to assess India's growth prospects and export competitiveness in this dynamic context.
India's Economic Landscape
India has emerged as one of the world's fastest-growing major economies, fuelled by a burgeoning young population, vibrant entrepreneurial ecosystem, and ambitious policy reforms. However, to sustain this momentum and harness the opportunities presented by the Fourth Industrial Revolution, concerted efforts are required across various fronts.
The country has experienced a significant economic resurgence post the Covid-19 pandemic. In FY22, the economy witnessed a remarkable surge of 9.7%, followed by growth rates of 7% in FY23 and 7.6% in FY24 (Figure 1). The CAGR of real GDP over the last five years stands at an impressive 5.2%. Additionally, the average annual growth rate over the past three years remains robust at 8.1 percent. This recovery is attributed to substantial government investment in infrastructure, strong export performance, and relatively solid private consumption, especially in urban areas. Looking ahead to FY25, achieving a growth rate surpassing 6.5-% appears feasible, contingent upon significant boosts in private investments, public expenditures, export activity, and agricultural output, while maintaining focus on government capital spending.
Source: NSO, MoSPI, GoI
Growth Prospects
With a nominal GDP of $3.54 trillion in the fiscal year 2023-24, India currently holds the position as the world’s 5th largest economy. Projections suggest that by the fiscal year 2027-28, India is anticipated to surpass Germany and Japan, elevating to the position of the 3rd largest economy globally. According to the World Bank's criteria, India's per capita nominal GDP must ascend from $2,396 in the fiscal year 2022-23 to $21,668 (assuming a 2% global inflation rate) at a Compound Annual Growth Rate (CAGR) of 9.2% over the 25-year period concluding in 2047. Concurrently, nominal GDP must reach $35 trillion (at a CAGR of 10.1%) to attain the status of a high-income economy by 2047 (Figure 2). In real terms, GDP must sustain growth within the range of 7.5-8% over the next quarter of a century to ensure sustainability.
India's reform priorities should include investment-friendly
policies, including continued investment in infrastructure; easing FDI
regulation; export-led manufacturing and services growth; significant increase
in R&D investments for raising total factor productivity (TFP) in the major growth sectors to promote export
competitiveness.
In order to fully harness the opportunities presented by IR-4, which was advocated by Klaus Schwab (2017), concerted efforts are necessary to leverage India's prowess in digital technologies and foster the development of smart manufacturing. The IR-4 offers India a significant chance for inclusive growth and socioeconomic advancement. With breakthroughs in artificial intelligence, robotics, biotechnology, and data analytics, traditional industries are experiencing profound transformations, ushering in an era of innovation-driven progress. India's strong foundation in information technology and software services positions it well to seize upon these technological disruptions and capitalize on the ensuing opportunities.
Moreover, government initiatives such as Digital India, Make in India, and Startup India are cultivating an environment conducive to innovation, entrepreneurship, and digital transformation. By leveraging these initiatives effectively, India can not only enhance productivity and competitiveness but also stimulate job creation across various sectors. These efforts will not only propel India towards the forefront of the global digital economy but also foster inclusive growth, ensuring that the benefits of technological advancements are shared widely across society.
Harnessing Opportunities in the Fourth Industrial Revolution for Transforming the Manufacturing Sector
Over the past five years, the contribution of India's manufacturing sector to the Gross Value Added (GVA) has remained static, hovering around 15%. Despite this, the sector has experienced a modest average real growth rate of 3.3% during this period. To fully leverage the opportunities presented by the IR-4, concerted efforts are necessary to capitalize on India's prowess in digital technologies and foster the development of smart manufacturing initiatives. India has demonstrated significant progress in the digital realm, particularly through large-scale projects facilitated by robust public digital infrastructure, notably in the realm of payment infrastructure.
The implementation of the Production Linked Incentive (PLI) Scheme has played a pivotal role in reshaping India's export portfolio, transitioning from conventional commodities to higher value-added products such as electronics, telecommunication goods, and processed food items. By seizing the opportunities presented by IR-4, there is potential for the manufacturing sector to emerge as a principal driver of economic growth in India.
This blog forecasts a substantial growth trajectory for India's manufacturing sector, projecting an increase from $452.3 billion in 2023-24 to $1.03 trillion by 2047-48, with a CAGR of 13.5% (Figure 3). This projection assumes the transformative impact of IR-4, with the share of the manufacturing sector in India's GVA expected to rise significantly from 14.1% in 2023-24 to 30% by 2047-48 (Figure 4).
Export Competitiveness
Export competitiveness is a vital component of India's economic growth trajectory and its integration into the global market. In the context of the IR-4, characterized by rapid technological advancements, India's ability to adapt to evolving global trends and leverage cutting-edge technologies is critical for enhancing its export competitiveness.
In 2022, India's merchandise exports reached a value of $453 billion, ranking 18th globally and accounting for a 1.8% share, as reported by the WTO in 2023. This marked a significant 15% annual growth. Additionally, India's exports of commercial services amounted to $309 billion, securing the 7th position worldwide and capturing a 4.4% share in 2022. This segment experienced a notable growth of 29%.
During the FY23, India's merchandise exports surged past $451 billion, while the combined value of overall exports, encompassing both goods and services, reached an unprecedented $770 billion. It is noteworthy that this accomplishment occurred against a backdrop of already elevated figures, as India's total exports for FY22 had also set a record at $676 billion. India is projected to achieve $2 trillion exports by 2030 (Figure 5). To achieve this, total exports need to grow at an average annual rate of 13.6%, and a CAGR of 13.8%. Merchandise and services exports need to grow at CAGRs of 11.1% and 16.9%, respectively, to achieve exports of $1 trillion, each.
Panagariya (2019) highlights compelling cross-country evidence demonstrating a robust correlation between trade openness and economic growth. India boasts inherent strengths in key sectors like IT services, pharmaceuticals, automotive, and textiles, which serve as the foundation of its export prowess. However, to sustain and expand this competitive advantage, India must prioritize efforts to boost productivity, ensure high-quality standards, and foster innovation across these sectors. This entails embracing advanced manufacturing technologies, making significant investments in research and development, and equipping the workforce with the necessary skills to operate in a rapidly evolving global landscape.
Furthermore, India can capitalize on emerging opportunities in sectors such as renewable energy, electric vehicles, and digital services to diversify its export portfolio and tap into new markets. By forging strategic partnerships with global players, adopting international best practices, and streamlining trade facilitation processes, India can solidify its position as a preferred destination for international trade and investment.
In essence, enhancing export competitiveness requires a multifaceted approach that encompasses technological innovation, investment in human capital, diversification of export sectors, and collaboration with global partners. By proactively addressing these areas, India can not only sustain its current export momentum but also position itself for long-term success in the global marketplace.
Challenges and the Way Forward
Despite the immense potential, India faces several challenges on its path to realizing its growth prospects and export competitiveness in the Fourth Industrial Revolution. These include infrastructural bottlenecks, regulatory complexities, skill mismatches, and global trade uncertainties. Addressing these challenges requires concerted efforts from policymakers, businesses, academia, and civil society.
Investments in infrastructure development, technology adoption, education, and skill development are imperative to address the structural impediments hindering India's growth trajectory. Furthermore, fostering an enabling ecosystem for innovation, entrepreneurship, and sustainable development is essential to unlock India's full potential in the Fourth Industrial Revolution.
India stands at a critical juncture in its economic evolution, poised to capitalize on the opportunities presented by the Fourth Industrial Revolution. By embracing technological disruptions, fostering innovation-led growth, and enhancing export competitiveness, India can chart a path towards sustained economic prosperity and global leadership in the 21st century.
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