India’s Plan To Become The World’s New Economic Powerhouse

country with the most people on Earth. But to meet his goals, Moody will have to tangle with the remnants of India's bureaucracy and a legacy of corruption that has held the country back, and also deal with the stark gap between rich and poor. We dig into all of that today. My colleagues Kai Schultz and Vrishdi ben of All have written a deeply reported story about India's growth.

Banks have predicted that India will drive a fifth of world expansion in this decade, making only one of three in the world that can generate more than four or so billion dollars in annual output. Growth. Apple has been boosting its manufacturing in India. It has been exporting phones which are made in India. So there is some promise, it seems. Now we'll hear from them in just a bit. First,

Milan Vishnev joins me. He's director of the South Asia Program at the Carnegie Endowment for International Peace in Washington, and he joins me now to talk about Prime Minister Modi, the man who is pushing for India to reach these ambitious goals. Milan, today we're talking all about out India's ambitions. How much can we attribute India's recent economic growth to Modi himself? Well, I think that's a very complicated question. I mean, undoubtedly, as the Prime minister, he gets the

blame or credit for India's trajectory. But you know, India has seen a revolution in its economic performance since the early nine nineties when it underwent pretty sweeping market friendly liberal economic reforms, right, and so in some sense, much of the dynamism we see in India over the past you know, more than quarter century, is a result of those reforms. In fact, Prime Minister Modis economic performance since

coming to power has been rather patchy. Now, of course, He's had some external shocks like COVID, but he's also had some self inflicted wounds like demonetization. You know, this uh wild idea that you can invalidalidate almost all Indian

currency overnight in a failed attempt to curb corruption. I think what we are seeing right now is really the product of larger international factors and the fact that at a time that China is slowing, there are a lot of headwinds in the western economies, India and relative comparison looks like the healthy performer. One of the things that has driven the growth, I imagine, is in his population growth.

How much is just this enormous population itself a driver of economic growth that may have happened no matter who was in charge. Well, you know, I think it's definitely an important factor. I mean, economists have this term called the demographic dividend, which is some countries have this youth bulge of people who start from their early twenties and go on to their early sixties when they are in

the prime working condition of their lives. And India has just a mass of ofly large number of people who are in that category. I mean, it sort of boggles the mind. But you know, more than a million Indians are joining the labor force every month and that process is going to continue for the next couple of decades,

and so it is definitely seen as a plus. But I should, you know, just issue a caveat here, which is this is premised on people finding gainful employment that is going to sustain them, sustain their families, sustain their homes.

And we are seeing right now a reasonable level of economic growth, but we are not seeing commensurate growth in job creation right so I do think that is a warning sign for people who are looking out and trying to figure out, you know, where is the Indian economy going to be, say five or ten years from now. The unemployment rate in India is very low because as a poor country, you have to work. You don't have

the option of not working. The problem is people are working in ways that are not up to their potential. They're working part time, they're working in informal parts of the economy. I'd like to talk for a moment about some of the challenge that Modi has faced at home. You mentioned one of them demonetization, which caused a lot of unresk. Can you talk to us a bit about what that was and what happened. Yeah, So two pretty large world changing events happened in November two thousand sixteen.

One of them was the election of Donald Trump in the United States, and the other was this thing we call demonetization where movie came on television that evening and basically said that by the stroke of midnight, eight six percent of Indian currency will be invalidated. Um. And these are higher denomination notes, and that doesn't mean your money is worthless. Uh. You can come in to deposit those bills into the bank or trade them in for new bills.

The idea being that if you are corrupt, and if you are holding quote unquote black money or unaccounted for money, you're not gonna want to come up to the bank and say, you know, here's suitcases full of cash, right, so you will just basically forfeit a lot of money. This created, as you might imagine, a massive panic, right, everyone running to the banks, everyone figuring out how to pay their suppliers, the entire economy sort of you know,

hit a giant pause button. And so they went through this rather bizarre draconian exercise that essentially was a wash in terms of cleansing the economy of this so called black money. Now, one positive is that it did push people into digital forms of payment. So we have seen a digital payments revolution in India play out over the

last five or six years. But the question is, you know, might there have been more humane, more gentle ways of doing that rather than putting the entire economy on pause. And yet Moody recovered from that. How did he wind up,

you know, sort of calming all of this discontent. It was very unpopular amongst economists who didn't think of it as a very sound policy, but it actually was very popular among some Indians because despite the fact that they had to go through hardship and wait an interminably long bank use and so on and so forth, they thought, for the first time, somebody is trying to stick it

to the fat cats who have fleeced this country. Right, So I may be suffering as an ordinary Indian waiting in line, but think about the really rich, corrupt person. That person is really going to suffer. Now, in the end, that person didn't suffer, but people thought, at least he's doing something. What is the opposition doing? Right? Moody has taken the biggest action against black money in seventy five

years of this country and we support him. So not only did it not hurt him, it helped him win elections. And another big challenge he faced more recently was when he angered a lot of farmers. Can you talk about what happened there? Yeah, So, you know, agriculture has been in a pretty woeful state in India for many years. A large section of the population is employed in the agricultural workforce, but agriculture does not contribute a commensurate amount

to the country's GDP. Agriculture tends to be a very low productivity activity in India, and economists have long called for a liberalization of that sector to allow for more freedom of internal trade in India, a greater participation of the private sector, to try and eliminate the role of middlemen in markets so that farmers and buyers or farmers and consumers can be more directly linked. So what Moody did was to pass a series of bills in Parliament

without any consultation either way. Frankly, other political parties or any of the state governments. And agriculture is a state subject under the Indian constitution, and so this is an area that states have jealously guarded. The central government acted by saying, well, this is in the national interest and actually it has interstate commerce implications, so therefore we can act.

This created such an uproar amongst farmers, particularly farmers in the northern stretches of India and states like Punjab and Haryana, who have been, in some regards the biggest beneficiaries of the existing scheme, the existing subsidy scheme, the existing kind of state managed scheme. We begin in India where tens of thousands of angry farmers have been camping outside the

capital of New Delhi. They're protesting against the government's new agricultural laws, which they say could devastate crop prices and reduce their earnings. Some say they're quote ready to die in a showdown with Prime Minister and the rent Remodi.

And it was one of those rare times where the political and popular blowback again maybe just limited to this section of the country was so large and farmers are seen as such a critical vote bank that the government had to withdraw those bills and with draw those reforms. So we're basically back to square one today in India. One thing that Modi has done, which has drawn a lot of scrutiny from the rest of the world, has been to take a pretty hard line on religious freedom.

And I wonder how that's playing out in India itself among different portions of population. Can you explain a bit about how that's happened, Well, I think you have to start by looking at Mr Modi's party, the b j P. The b j P and shorthand is often referred to as India's Hindu Nationalist Party. What does that mean? In a nutshell, it means that these are people who believe that Hindu culture and Indian culture are synonymous, that they're

one and the same. And because Hindu's makeup roughly of the population, what they say should go for the entire country. And this is really the movement in which Mr Modi and his party are steeped, right, So you could call it a pro Hindu movement, Hindu majority, Aian movement. But

India is a country of extreme diversity, right. Fourteen percent of the population are Muslim And you might say, well, fourteen percent is not a huge number, but that means more than two hundred and thirty or forty million odd Muslims plus a range of other religious identities, and so there has been a lot of tension between Hindus and other religious minorities over who belongs, over who truly is

an Indian. And this government, particularly in its second term, which began in two thousand nineteen, has implemented a number of policies and programs which are seen as openly pro Hindu and in some cases distinctly anti Muslim. Has that been popular just given the large Hindu majority by and large, Yes, you know, we don't have great public policy polling data in India, but you know, let elections speak for themselves. And what we have seen is that NARENDRMDI and his

party have largely been rewarded for many of these policies. Now, there are many people who believe very strongly in India's secular constitution that had specific safeguards for religious minorities, who feel like this is contrary to the spirit in which India was really founded, and so that is at the heart of the political tension. Our conversation continues after the break million. You've talked a lot about how Moody has skillfully navigated the various cross currents of Indian society and

politics and religion. He's also been very careful in his foreign policy and his approach to other nations. Well, I think it's a function today of the political and geopolitical environment where you no longer necessarily have the soul superpower

of the United States. You have something that looks and feels a little bit closer to a kind of Cold War dynamic where you have, yes, a powerful United States, but a very powerful and rising China, and then you have these kind of middle weight powers countries like Russia, like the European Union collection of countries, or India, which

are seeking to flex their muscles. And what India has tried to do under Modi is really work those seems right, And basically, when it comes to the United States, say well, look, we are both worried about China and so therefore, you know we should work together on defense and strategic and eque notic priorities. But India can also say to Russia, you know, no one is buying your oil right now, but you know, we're a poor country who needs your oil.

And India feels pretty confident that the world is not going to be able to make India change because they need India on other issues. Right, So it is what this government has called a policy of multi aalignment, where um, it's not that we can't have friends and partners and relationships, it's that we can sort of be promiscuous in how we do that. And we don't necessarily see any incompatibility between being friends with Russia today and being friends with

the United States. At the same time, Modi has something like I think it's seventy percent popularity ratings in the country. So he must be doing these things fairly right, at least as far as his citizens are concerned. He's up for re election in four again. Do you think that he will easily win again? Well, he and his party

are in the pole position without a doubt. One of the particularities about this Indian political moment is that there is only one Pan Indian political party that has widespread support, and that is the b j P of Mr Mode. It's largely frankly because of his charisman popularity. The only other national poll of politics, the Indian National Congress, is a shell of its former self. It has badly lost two consecutive elections. It is suffering through a leadership challenge

and ideological or vision challenge and organizational challenge. So in that vacuum, the b j P really is the only soul hegemon. So I think for most politically analysts, the question is not really about four where the b JP looks like they will sail through relatively easily, but really

what comes after that? Will there be some kind of creative destruction in the opposition space where either the Congress reinvents itself or other claimants to power, other regional claimants you know, decide to expand decide to work together, decided to form some kind of you know, ad hoc coalitions. That remains to be seen. But at the present momentum, the b JP is operating with many degrees of freedom and room to maneuver mill invasion of Thanks so much

for talking with me today. Thanks for having me. Now let's bring in my colleagues Sky Shows and Rishdi Beneval, who have dug into the details about how India plans to catapult itself forward. Rishti, why don't we start with you? What is Moody doing to attract these billions of dollars in global investments in the country. So Moody has been trying to attract manufacturing in India for a very long time.

It's been his dream since when he was first elected as Prime Minister of the country to make India factory for the world and the government has tried different different programs since then to make it work, but unfortunately nothing has worked so far. As opposed intage of GDP, India's

manufacturing remains around fourteen fifteen person and not moving much. Recently, the government has started offering some incentives where companies when they boost production in India, they get some financial incentives from the government and that seems to be working now. We see recently Apple has been boosting its manufacturing in India. It has been exporting phones which are made in India,

So there is some promise, it seems now. One thing you write in this story is that a lot of countries of the world are starting to sort of retract in their economies, whereas India's economy is growing pretty rapidly. Is that right, guy? That's right. India's economy is growing quickly, and we've seen rapid growth post nine, which is when India opened up its economy liberalized. Post that period, you saw foreign businesses start to open factories on home soil.

You saw the devaluation of the rupee, you saw many efforts to lower tariffs, and so that's all created a much stronger market to compete globally. In India has attempted to capture that momentum. Mody spending a record amount of India's budget this fiscal YearIn capital investments. So there's a real push to make it much more of a conducive place to do business, and I think that India has

demonstrated some success on that front. Victually, you mentioned how Moody's efforts to make India the manufacturer for the world have had mixed results. And yet we're hearing from how quickly the economy is growing, how people have money to spend. What are some of the industries that are really leading this fast growth in India? Electronics is clearly whinner, it seems at the moment they have been doing well. They have been benefiting from these incentives announced by the government

in the recent deal. Apart from that, the government has been working in pharmaceutical sector. Software has been India's the strength for a very long time now. And what is India doing to attract big companies like Apple away from China? Away from other countries, because obviously that would be a very big deal if Apple and other large companies were to move more of their production to India. One of the things that India is doing is providing financial incentives

to companies that expand in India. So this is a pool of roughly twenty four billion dollars and it's rolling out over the next few years and more than a dozen industries. So some of that money will support the production of mobile phones, semiconductors, and solar panels, and the aim is to expand the program to manufacturers of other goods in the coming months. One thing that really stood out to me in your story is that India has

creating more of these so called unicorn companies. These are companies that are worth a billion dollars before they go public. What sort of companies are these and how is India becoming such an engine of new high valued companies. Most of these companies are startups in technology sector, so we have seen these small companies mushrooming in India. There are players who are coming in education sector, food delivery, different mobile apps that are being used or right healing apps.

So we have seen this sector coming up in a big way. And uh they are able to attract good valuations from investors, and they have been doing pretty well in the recent past, but now there are also questions about the valuations they are attracting. So it remains to be seen that how far these unicorns can goo. Hi. India's population has grown really quickly, and it's also young. I asked malenvation of this question earlier, and so I'll ask you to do is India's young population and advantage?

I do think that India's young population is both an advantage and potentially a disadvantage, depending on how the government is able to harness the skills that those people bring to the economy. One of the points that stood out from our reporting was that increasingly young people are not even looking for jobs for a variety of reasons, but one piece of it is that they feel that quality

jobs are simply not being created in the market. So, on the one hand, you have a very engaged young workforce that's ready, that's educated, and that could potentially do

big things in India. On the other hand, you have a government that's still trying to figure out how to put them to work, how to incentivize them to work in factories, how to create enough quality jobs in the services sector, and so I think that that's really going to be one of the key challenges for India moving forward is how to capitalize in the demographic dividend that they have visually right that this is especially true of women who have a more difficult time finding quality jobs.

Is the government doing anything to encourage more participation, especially young women in the workforce. That's true. The participation of women in India's workforce has been falling in There are estimates ranging from nine person to say nineteen person, which is one of the lowest in the world. Women need to be part of the workforce if the economy has

to grow at a fast space. We are projecting a potential growth rate of seven to eight person for India and if women are not part of the workforce, then it will be difficult to achieve. That. The government is not doing specifically anything for the women um as of now. But yes, there there are demands from various quarters that how government can make it, you know, easier for for women to be part of the workforce where they participate in big numbers and it is easier for them to

to work and grow career. Right now in India, most of the family board is on women. Can I you talked about how India needs to grow its middle class. That's often the engine of an economy. Certainly that was true in the US and in Europe and even in China. And also how younger people are feeling like they are in a lot of good quality jobs. Is the divide between people at the top who are building these big companies, getting rich working for these big companies, and the rest

of the country growing. Inequality is certainly growing in India post liberalization. You see two things happening. Number one, absolute poverty has decreased quite dramatically, which is a great thing for India. And number two, the gap between the rich and the poor has grown. From the government's perspective, not shackling business is a priority. So if that means that these inequalities grow in the short term, that's something they're

willing to live with. But it certainly poses the risk of social unrest if India is not able to put more people to work, particularly in jobs that they want to do. My conversation with Rishti and Kai continues after the break. Rishty, can we talk for a minute about India's relationship with China, it's an important relationship. They compete and there have been some tensions. How do the two

nations regard each other. India and China haven't shared a great relationship and we have seen tensions on Bordo off and on in recent tears. We sometimes the tensions blew up a little bit, but things remain under control. I think both the leaders India and China they understand this is not the time. These are two superpower us in Asia and they have to think about their economy. So

that is the reason we think that. You know, we have seen some tensions on on border, but things are under control and both the leaders are conscious of the fact that they have to take care of their economy. India has to take care of the needs of its one point four billion people. It is investment it needs right now. China also has bigger issues to take care of right now. So we believe that they will continue to focus on their economies while protecting their border at

the same time. Actually, India will host the G twenty this year. It's a big platform to showcase India and make his case to other world leaders. How does Moody intend to take advantage of this opportunity. Prime Minister Narendra Modi would like to send a strong signal to global leaders as well as investors that India is the place to do business right now, but there is also press sure on him to shift focus from businesses to the

poor people ahead of next year general elections. In four India is going for elections and PM Moody is going to seek a re election again. He has been a Prime minister for two times now and for a third time he will be seeking votes and there's a lot of pressure on his government to do something for the poor, to create jobs, because we know unemployment is a major

between the country. One of mos big goals is to make India the world's third largest economy behind the US in China in a relatively short amount of time looking down the road. Do you think that that's a realistic goal. I do think it's a realistic goal. Banks are predicted that India will drive a fifth of world expansion this decade, making only one of three in the world that can generate more than four or so billion dollars in annual output growth, and so I think that it's something that's

within reach. As We've discussed growing inequality, problems with employment, and this bigger question of whether India can beef up it's manufacturing sector. Are three sticking points. If Moody is successful in improving those, then I think that the country has a real shot. Kai Schultz, Rishidy Beniwald, thanks so much for being here. Thank you, thank you. You can read more from Bristi Benewald and Kai Schultz at Bloomberg dot com. Thanks for listening to us here at The

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