By: Ben Sirois
India’s past rapid economic growth and newly elected government with a focus on economic liberalization and the economy seem to make India a prime country to invest in. However, the opportunity in India is not uniform within states, districts, cities, and even towns. Careful research will be necessary to pin point what locales offer the best conditions for business investment.
There is a promising story in the economic data. Historic growth has been high and annual GDP growth rates are expected to average between 6.4% and 7.7% until 2025. This puts India as one of the fastest growing and large economies. However, this potential varies greatly from region to region. According to a McKinsey & Company report more than half of GDP growth between today and 2025 will come from just eight states. These regions are: Gujarat, Haryana, Himachal Pradesh, Kerala, Maharashtra, Tamil Nadu, Andhra Pradesh, and Uttarakhand.
The areas account for only 31% of India’s population, however they will be home to 57% of the country’s middle-class households. There are indications that per capita GDP could grow twice as fast in its highest-performing region compared to the national average. According to Madgavkar and Mohan, these regions will have economies that resemble middle-income countries.
The weakest states, including Bihar, Uttar Pradesh, and Jharkhand have per capita income under 0.7 times the national average. Without rapid change in governance and investment strategy these areas will continue to face low incomes and high population growth. However, business investors need to look deeper than headline data announcements in identifying wise places to put their money. Specifically, certain urban clusters have massive potential. Madgavkar and Mohan identified 49 high-growth clusters. These areas held half of India’s population, 70% of GDP, and 71% of middle-income consumers.
Surprisingly, a third of these clusters are in states that have had low to medium economic growth. These various clusters have an array of industries located within them. The Nellore cluster in Andhra Pradesh is highly agricultural with paddy, tobacco, groundnut, mango, and sugarcane farms while the Bikaner cluster in Rajasthan is rich in quarrying marble and limestone.
These lesser-known clusters emphasize the point that future investors ought to look very carefully at India’s economic geography. These locales could become the knowledge-based industrial or service hubs of the future. These clusters would generate some of the best returns and ought to be getting a lot more of attention from foreign investors.
1) “Understanding India’s economic geography,” http://www.mckinsey.com/insights/asia-pacific/understanding_indias_economic_geography
2) Anu Madgavkar and Rakesh Mohan, “India’s Economic Hotspots” https://www.project-syndicate.org/commentary/india-growth-clusters-by-anu-madgavkar-and-rakesh-mohan-2014-11