The Indian economy is in a good place, poised to overtake Japan as the world’s fourth largest. India has been a top performer in GDP and export growth for the past decade and is well positioned to be a major player in crucial industries such as renewable energy, electric vehicles (EVs), semiconductors, and defense. The country is already home to almost 2,000 global capability centers (GCCs), serving the tech and operational needs of major companies. It is a global innovation leader, accounting for more than one out of ten “unicorns”—start-ups that achieve a $1 billion valuation.
And yet there is room for improvement. The Indian economy has the potential to grow 8 to 9 percent a year for the next generation. That is a level India has reached a few times in the past but is higher than the average of 6 percent recorded since 2015. With 8.5 percent growth, per capita income would grow almost sixfold by 2047, to the equivalent of more than $15,000 a year. That would improve the quality of life for hundreds of millions of people.
For that to happen, India cannot just keep doing what it has been doing—successful as that has been. The country needs a new playbook. This playbook will need to adapt as conditions change; that said, it should include three strategies.
Encourage greater investment formation with a shift in its mix. Capital accumulation is necessary to create jobs, technological progress, and economic growth. In the public sector, the government has invested about $1.4 trillion over the past decade to create infrastructure such as roads, railways, ports, and airports. The new playbook for government is to diversify its approach and promote the creation of economically dense infrastructure such as brownfield or greenfield cities and economic clusters.
In the private sector, corporate investment has been stable at 12 to 13 percent of GDP. What has changed is its composition, with a significant shift from debt to equity, particularly in mid- and small-cap companies. Overall, balance sheets are in better shape. Future demand signals are emerging in the form of higher capacity utilization across industries such as steel, oil refining, renewables, automotive, and chemicals; in response, corporates are getting their capital investment plans ready. With the interest rate cycle on the downswing, a blend of public equity, private capital, and debt is likely the optimal way to fuel near-term capital expenditures.
In addition, there is a need for more foreign direct investment (FDI). India’s domestic savings rate is 30 percent, and that is not likely to rise. To fund growth, the economy needs to draw in capital from outside the country. With this capital also comes technology access. In recent years, however, the trend has been in the other direction—from a net of $43 billion in 2020 to $31 billion in 2023. India has already done much to make doing business easier. To attract FDI, the new playbook should offer investors a clear pathway to value creation, in the form of predictable and effective regulatory frameworks and legal structures. Only then will multinational companies be confident that they can compete against domestic players.
Foster competitiveness in manufacturing and innovation in future growth arenas. Manufacturing policy has been strongly pro-business. Examples include the formation of new special economic zones, tax reforms, and the expansion of production-linked incentives; new infrastructure has improved supply chain efficiency. The momentum is clearly positive. Led by electronics, pharmaceuticals, automotive components, and chemicals, India is on track to double manufactured-goods exports to $1 trillion by 2030. The new playbook calls for emphasizing productivity and returns on capital in high-potential sectors.
The McKinsey Global Institute (MGI) recently named 18 “arenas of competition” it considered most likely to drive outsize growth: EVs, semiconductors, shared autonomous vehicles, space, cybersecurity, e-commerce, artificial intelligence (AI), cloud, batteries, modular construction, streaming video, video games, robotics, nonmedical biotech, future air mobility, obesity drugs, digital ads, and nuclear fission. MGI projects that these 18 arenas could account for up to $48 trillion in global revenues and $6 trillion in profits by 2040. By unwinding restrictive product market barriers and facilitating FDI, India could build on its strong position in some of these sectors (e-commerce, EVs). At the same time, it could work with strategic investors in others (electronics, semiconductors) to scale up and to foster the development of a network of domestic small and medium-size suppliers.
Match education and skills development to job creation. By 2047, 20 percent of the world’s working-age population will live in India, and this population is increasingly skilled. India today accounts for 16 percent of the global AI talent pool and turns out five times as many STEM graduates as the United States. The country can be the talent factory for the world.
The new playbook calls for skilling that can coexist with the advances of AI applications such as agentic AI in transaction processing and call centers, humanoid AI robots in factories, and software coding copilots. Skilling in this context will require public–private cooperation in curriculum development. For example, India IT services companies are collaborating with engineering/STEM colleges to offer courses in software and AI so that their graduates are ready to succeed on the job from day one. IIT Delhi recently restructured its curriculum to promote hands-on learning, enhancing learning flexibility and aligning with global trends in AI and sustainability. Finally, as India grows and prospers, there is a need to ensure competence and availability in many vocational areas, such as nursing, construction, and the trades.
The geopolitical environment is unsettled, and some reconfiguration of global trade patterns is likely. India could benefit from these shifts, but this is not a sure thing. Indeed, it is impossible to predict how matters will play out next week, much less over the long term. And that is the point: Today’s uncertainty makes it all the more important that India craft a new economic playbook that can enable the sustainable and inclusive growth required, however the future unfolds.
