Imagine if India had the same number of people as Bangladesh – 170 M (17 Cr). With a GDP per capita of $2,700, our economy would be around $460 B – just above Bangladesh at the 35th place and smaller than that of the Philippines, Vietnam, and Iran.
No economist or think tank would give two hoots about India. We would be just an ordinary, poor, middle-sized country. Thankfully, we are big.
The world is excited about India because of its size – 1.45 B people and $4 T economy. We are a large and fast-growing consumer market.
India is the fastest-growing big economy in the world (5th highest GDP in 2024, soon to be 3rd). This humongous size and the pace of growth attract global investors.
Unlike most lower-middle-income countries, we are not an export powerhouse. In FY24, India exported $437 B worth of goods while its imports were $677 B. India ranks a miserable 17th in the world on the merchandise exporters list, below much smaller economies like Mexico, South Korea, Taiwan, and Vietnam.
However, the Indian economy has a few inherent strengths. It is different from its peers.
It is well-diversified with no one sector dominating its exports like Textiles in Bangladesh.
It is a service powerhouse. Indian service exports in FY24 stood at $340 B, ahead of even China whose GDP is 5x that of India.
Private consumption, not exports or investments, is the major driver of the Indian economy. Private consumer spending in India is 64% of the GDP compared to a mere 38% in China. In most developed countries, consumer spending accounts for 50 to 60% of the GDP.
Hence, global investors are excited about India because of its well-diversified, service-dominated, large, resilient economy that is driven by consumer spending. This is reflected in the venture capital investments in India.
Most Indian startup success stories are from two sectors:
SaaS – Build in India, for the world
Consumer Internet, Brands and Fintech – Encourage and enable domestic consumption
The future will be different though. Which sectors will attract VC money?
Cleantech – Indian cities are polluted and dirty. We must decarbonise our economy and reduce our dependence on crude oil imports.
Hardware – Let's accept it. India will never be the next China. We won't become an exporter of low-end consumer goods like Bangladesh, Vietnam, or the Philippines. That boat has sailed. However, We will see more hardware startups from India, especially in consumer tech, deep tech, and space tech industries.
Healthcare – Drug and vaccine manufacturing and medical tourism will boom over the next decade. It has strong tailwinds. It is an exciting industry from both a manufacturing and services perspective. We have already established ourselves as a preferred manufacturer of medicines and vaccines and a leading provider of affordable, high-quality healthcare services in this sector. And it's only going to improve from here. I see it becoming a trillion-dollar industry in India by 2030.
The government of India is encouraging the domestic manufacturing industry through PLI schemes. Indian startups will produce some consumer hardware for the domestic market. We will see increased VC flow in the deep tech sector because the country has some high-quality engineering talent.
The next decade will be interesting for the Indian startups. We will see many successful companies in new sectors, outside of SaaS, Fintech, and Consumer Internet. These new industries will drive economic growth.
This article contains inputs from Peyush Dixit, partner at Strategy&.
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