Anu Madgavar and Rakesh Mohan write: India\u2019s economy could soon be on the move again. The new government is re-establishing fiscal discipline and energizing the bureaucracy, fueling optimism that rising business confidence will re-activate investment, particularly in infrastructure. But India\u2019s overall growth prospects conceal a patchwork of economic opportunities that exist within states, districts, cities, and even towns \u2013 opportunities that companies can uncover only with careful research.
\nIndia\u2019s economic data are promising. Annual average GDP growth is forecast to range from 6.4% to 7.7% until 2025. This compares favorably with last year\u2019s 4.7% rate, and is close to the 7.7% average recorded in the decade up to 2012. Moreover, it contrasts sharply with the expectations of secular stagnation in the developed world. This acceleration would place India among the world\u2019s fastest-growing large economies and increase the number of Indian consumers who can afford discretionary items from 27 million in 2012 to 89 million in 2025.
\nBut the potential is far from uniform. According to a new report, more than half of India\u2019s GDP growth between now and 2025 will come from just eight states (Gujarat, Haryana, Himachal Pradesh, Kerala, Maharashtra, Tamil Nadu, Andhra Pradesh, and Uttarakhand), home to just 31% of the country\u2019s population. Along with four dynamic city-states (New Delhi, Goa, Chandigarh, and Pondicherry), these states will be home to 50 million consumers, or 57% of the country\u2019s middle-class households.
\nIndeed, per capita GDP in India\u2019s highest-performing regions could grow to twice the national level. This reflects several factors, including rapid urbanization, sustained investment in skills and infrastructure, and a shift from agriculture to industries such as automotive components, petrochemicals, pharmaceuticals, financial, and IT-enabled services.
\nBy 2025, the economies of these regions will resemble those of middle-income countries. Maharashtra\u2019s consumer market of 128 million will wield purchasing power similar to that now seen in Brazil. New Delhi\u2019s 22 million people will boast living standards similar to today\u2019s Russia.
\nSlightly less dramatically, though still significant, per capita GDP in Chhattisgarh, Odisha, West Bengal, Rajasthan, and Madhya Pradesh, based on current trends, is forecast to reach 0.7-1.2 times the national average by 2025, swelling the number of middle-class consumers four-fold, to 16 million. By contrast, the weakest-performing states, including Bihar, Uttar Pradesh, and Jharkhand, with per capita GDP of under 0.7 times India\u2019s average, will struggle with low incomes and high population growth, unless they improve their governance and investment trajectory significantly.
\nBut investors seeking the best growth opportunities will have to search beyond states\u2019 headline figures and scrutinize India\u2019s districts more closely, especially urban clusters and their hinterlands. We have identified 49 such high-growth clusters, located in 183 districts nationwide. In 2012, these areas accounted for half of India\u2019s population, 70% of its GDP, and 71% of consumers. They are also home to 250 of India\u2019s 450 cities with populations above 100,000.
\nInterestingly, one-third of these clusters can be found in states that have delivered low to medium economic performance, or are located close to smaller, lesser-known towns in better-performing states. The Nellore cluster in Andhra Pradesh, for example, has paddy, tobacco, groundnut, mango, and sugarcane farms. The Bikaner cluster in Rajasthan is rich in oilseed and the quarrying and production of Makarana marble and limestone. The more diversified Aurangabad cluster, in Maharashtra, is home to some of India\u2019s largest seed companies, an active automotive, pharmaceutical, and sugar-manufacturing industry, and a tourism hub that includes the Ajanta and Ellora caves.
\nThe location of these lesser-known clusters underscores the point that investors, seeking low-cost real estate and a skilled workforce, should look more carefully at India\u2019s economic geography when deciding where to place their operations. These locations could eventually become knowledge-based industry or services hubs, similar to those of large Indian cities such as Bengaluru, Hyderabad, and Pune \u2013 only cheaper.
\nAs they continue to develop, India\u2019s dynamic economic clusters will themselves need to invest in modern sanitation and water systems, education and health, airports, railways, and road links. As such, they offer investors opportunities in many sectors, including consumer goods, financial services, housing, and infrastructure.
\nGiven their structural advantages \u2013 including proximity to large urban centers for some \u2013 these clusters could generate some of the best returns on investment anywhere in India. Companies hoping to catch India\u2019s next growth wave might want to consider areas that seldom feature on investment lists, but that might offer better value than marquee destinations.<\/p>\n","protected":false},"excerpt":{"rendered":"
Anu Madgavar and Rakesh Mohan write: India\u2019s economy could soon be on the move again. The new government is re-establishing fiscal discipline and energizing the bureaucracy, fueling optimism that rising business confidence will re-activate investment, particularly in infrastructure. But India\u2019s … Continue reading