'Make in India': a New Window of Opportunity for Commodities

S&P Global Platts
Written By: Sambit Mohanty et al
S&P Global Platts
Written By: Sambit Mohanty et al

India is entering a new phase in its economic history. By 2025, it will be the most populous country in the world. Its GDP growth, forecast at close to 8% this year and next, has overtaken that of China. It is a young country with a median age of just 27.6 years. According to CRISIL Research, a million people join the working-age population in India every month, more than in any other country in the world.

This is both an immense challenge and an immense opportunity.

While still predominantly rural, urbanization is progressing fast, from just over 30% in the 2011 census to a projected 40% by 2030 out of a population that will then total more than 1.5 billion. This will create millions of new urban households and huge demand for employment.

India combines extremes of both wealth and poverty, but overall has entered the middle-income bracket among countries. GDP per capita of $6,658 in 2016, on a purchasing power parity basis, is forecast by the IMF to rise to $9,306 by 2020. For the first time, tens of millions of new consumers will be able to afford vehicles, white goods and other energy consuming devices.

Comparisons with India and China are as often misleading as illuminating, but in terms of demography, rising income levels and growing urbanization, India is at similar point to China in the second half of the 2000s, a period in which Chinese GDP growth and its huge appetite for commodities shook the world.

In India, the workforce is growing, while in China it is shrinking. India’s ratio of economically-active people to dependents is rising. India has the opportunity to grasp its ‘demographic dividend’ at a time when growth in world trade has slowed, but when rising wages in China are diffusing its role as the manufacturing workshop of the world.

There is no question that the challenges are huge, and key to India’s economic future and its push to become a global manufacturing hub—exemplified by the “Make in India” initiative – are to combine its competitive labor costs and strong information technology skills base with reliable power supplies and efficient transportation infrastructure. To build its manufacturing base from 16% to 25% of the economy. Indian manufacturing needs to be competitive, both internally and externally.

The country’s demand for a variety of energy and non-energy commodities is forecast to outstrip strong GDP growth. There is little prospect that domestic production of many primary and secondary commodities will keep pace. Import gaps are a certainty. India will need partners, it will need reliable supply chains, and it will need foreign investment, if it is to grasp the opportunity that awaits…

 

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