Why this is India’s decade
India is set to become the world’s third-largest economy and stock market by the end of this decade. As a consequence, the country is gaining power in the world economy, and these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies. We estimate this New India will drive a fifth of the global growth by 2031, led by a combination of offshoring, unique digital infrastructure, and energy transition.
Work from India: In the post-covid environment, global chief executive officers appear more comfortable with both work from home and work from India. The number of global in-house captive centres that opened in India over the last two years was almost double that of the prior four years. During the two pandemic years, the number of people employed in this industry in India rose from 4.3 million to 5.1 million, and the country’s share of global services trade rose 60 basis points to 4.3 per cent. In the coming decade, the number of people employed in India for jobs outside the country is likely to at least double to over 11 million, and we estimate global spending on outsourcing could rise from $180 billion per year to around $500 billion by 2030. This will have significant effects on both commercial and residential real estate demand. If India is already the “office to the world”, it is increasingly becoming its factory as well, as manufacturing capex rises helped by government policies. We estimate that manufacturing’s share of gross domestic product (GDP) will rise from 15.6 per cent currently to 21 per cent by 2031, which implies nominal output jumping from $447 billion to about $1.49 trillion.
Digital transformation at population scale: India’s internet model is different from the world, as it is founded on Indiastack, a public utility that is a highly inclusive transaction-led model and provides interoperability, democratises data, and is decentralised. The reasons for the success of Indiastack include government support for technology-based solutions, its ability to solve market and social needs, and open-source, Artificial Intelligence-driven technology built at population scale and supporting institutions for implementation (the National Payments Corporation of India for Unified Payments Interface or UPI, the Reserve Bank of India for Account Aggregator, Open Credit Enablement Network or the ONDC for digital commerce, Unique Identification Authority of India for Aadhaar). The stack has four main layers: EKYC, Digilocker, esign, and multiple payment layers including UPI. This has changed the way India processes documents, invests, and makes payments. The stack adds three significant layers that will alter the way India lends, spends and insures.
The first, OCEN (open credit enablement network), is disruptive to the incumbent banks but will simultaneously raise credit penetration by transitioning the system to cash flow-based lending. It also has the potential to lower credit costs due to enhanced data access from multiple systems. This will democratise credit at a population scale for both consumers and businesses. The second, ONDC, will aid the onboarding of merchants across the country, give consumers access to products hitherto available at higher cost, and enable interoperations between buyers and sellers. This is a major disruption to the consumer sector as products move from unbranded to branded and small traders modernise with OCEN enabling credit at scale. The third new layer, a digital health ID, will enable a unified interface which will be interoperable across health service providers. It will allow customised insurance solutions and give the population better healthcare access. All these layers are based on user consent, and we expect rapid adoption, as we have seen with payments.
Energy transition: India’s daily per-capita energy consumption is around 800 watts (excluding food). This compares with 9,000w/capita/day for the US. Given the big upgrades to transmission and distribution over the past few years, we see a step change in India’s energy consumption to about 1,300w/capita/day over the next decade bringing with it economic prosperity. A simultaneous shift in energy sources from fossil fuels to renewables — with twothirds of India’s new energy availability to come from clean sources like solar, biofuels and hydrogen — underpins a major shift, even as legacy capacity using fossil fuels will not be destroyed due to growth in energy consumption. This will improve India’s terms of trade, entail about $726 billion in capex, reduce inflation volatility, lead to better living conditions by lowering pollution, and create new demand for electric solutions.
Four drivers: These drivers of change rest on four foundations. The first is a shift in government policy towards lifting the share of profits in GDP; the second is India’s commitment to the Paris Accord and net zero emissions by 2070; the third is the success of Aadhaar, which is designed to process high volumes at low-cost with small-value transactions and forms the basis for Indiastack. Finally, the fourth is Morgan Stanley’s multipolar world thesis, which is prompting localisation of supply chains.
The implications: With these changes afoot, we see over the coming decade to 2031, India’s GDP more than doubling to over $7.5 trillion, the stock market compounding annually at 11 per cent to around $10 trillion, a discretionary consumption boom led by a rise in per capita income from $2,000 to over $5,000 and a quintupling of households earning in excess of $35,000/year to over 25 million, a rise in credit to GDP from 57 per cent to 100 per cent, causing a 17 per cent annual compounding of credit growth, and a doubling of India’s share in global exports. Of course, many things could go wrong, including a prolonged global recession or sluggish growth, adverse outcomes in geopolitics and/or domestic politics, policy errors, shortages of skilled labour, and a steep rise in energy and commodity prices. That being said, we believe the stars are aligned for this to be India’s decade.