How to execute business strategy in India - More on Wilfried Aulbur's acclaimed new book here
Riding the Tiger - A different type of dragon?
India's economy - A force to be reckoned with
Over the last 35-years, India's economic power has steadily increased. The compound annual growth rate of India's GDP from 1980 to 2014 was 6.3 percent, enabling the country to increase its output by about 7.9 times. Despite all the vagaries of global markets, internal strife and politics, India's economy has not disappointed beyond a certain point and has proven itself to be remarkably resilient.
Many are quick to point out China's success and highlight that China's growth has never dipped below eight percent in successive six-year intervals from 1980 to 2014, compared with five percent for India. Chinese GDP has increased by a factor of 24 since 1980, about three times larger than India's achievement. China's focus on (over) investment in infrastructure and exports of manufactured goods created well-paying jobs that lifted hundreds of millions more out of poverty than what India's socialist and democratic efforts could muster. Combined with a growing populist backlash in many countries including the US, some even question the effectiveness of democratic regimes in ensuring prosperity and happiness for most if not all citizens.
Yet, a like-to-like comparison between China and India must take the thirteen-year difference between the beginnings of economic reforms into account, namely 1978 for China vs. 1991 for India. Assuming the historic growth rate of 6.1 percent (most analysts expect at least seven percent going forward), India's GDP would be about sixteen times as large as its 1980 GDP and about 56 percent of China's 2014 GDP. To put things in perspective in a different way, India's GDP in 2014 equals 88.4 percent of China's GDP in 2001. While both countries have been operating at different speeds, the difference may not be as large as it is portrayed to be in the public domain. Going forward, India is projected to grow faster than China. If and when the country will catch up with its East Asian neighbor may be difficult to estimate. However, India's economic weight on the global scale will be substantial in the coming decades.
While the consistent growth of the Indian economy is encouraging, the growth of some of India's largest companies has been nothing short of spectacular. Take Bharat Forge as an example. When Baba Kalyani, the current Chairman and Managing Director of Bharat Forge, joined the company in 1972, its turnover was USD 1.3 million. In FY2014, the consolidated turnover of Bharat Forge had comfortably crossed the USD 1 billion mark. Overall, the CAGR of India's top fifty companies during the last decade equals 21 percent - a clear indication that once India's entrepreneurial talent was unleashed, it did find ways for value creation.
With lots of consumption still to be tapped and lots of infrastructure still to be constructed, the outlook is positive. The days of India's isolation from the world economy are definitively over. Over the last 35 years, India's import and export intensity (ratio of imports/exports to the country's GDP) have consistently grown and have been comparable to China's numbers over the last five years. With rising Chinese wages, India may be poised to take further advantage of value creation opportunities, e.g., via the "Make in India" campaign of the current government.
Challenges of doing business in India persist. With a ranking of 130 in the World Bank 2016 Ease of Doing Business Report, India and its government have their work cut out to improve the environment for businesses and to compete with other low-cost locations in Asia, Africa or Latin America. Efforts in this direction are on their way and will make a difference going forward. An example is the implementation of a uniform Goods and Services Tax. With these improvements and overall solid economic fundamentals, India today is more than ever a market that is too important to miss.