By Rajesh Mehta & Sunny Sabharwal
2023 has been a remarkable year for India. Despite global economic uncertainties, the country has emerged as a beacon of growth, showcasing resilience and potential. As we look towards 2024, the future appears bright, with a multitude of promising sectors and opportunities waiting to be seized.
Growth story of 2023
India’s economy grew at an impressive 7.2% in 2023, solidifying its position as the fastest-growing major economy in the world. This robust growth was driven by several factors. Firstly, consumer spending remained strong, fuelled by rising incomes and government initiatives like the ‘Make in India’ and ‘Atmanirbhar Bharat’ programs.
Secondly, Foreign direct investment (FDI) inflows reached a record high, exceeding $83 billion in 2023. This substantial investment fuelled AI/tech space, infrastructure development, renewables and manufacturing industries. Next, with a young and increasingly skilled workforce, India enjoys a demographic dividend that is expected to continue driving economic growth in the coming years.
Lastly, the government implemented various reforms to improve the business climate and attract investments. These reforms included streamlining regulations, reducing red tape, and focusing on digitalization.
As India embarks on its journey towards a $5 trillion economy by 2025, several sectors are poised to play a pivotal role in its growth trajectory. Let’s look at the Indian healthcare sector which is currently valued at $372 billion and is projected to reach $658 billion by 2025, growing at a CAGR of 16.2%.
This growth is driven by rising disposable incomes, increasing awareness about health insurance, and government initiatives like Ayushman Bharat. With rising healthcare demands and a growing middle class, the demand for advanced medical services, diagnostic facilities, and specialized healthcare professionals is expected to surge.
Additionally, the integration of technology through telemedicine, electronic medical records, and AI-powered diagnostics is expected to further enhance healthcare delivery and accessibility. This sector holds immense potential for both domestic and foreign investment, particularly in areas like medical tourism, digital health platforms, and innovative medical technology.
AI is another sector which is expected to be adopted across various sectors, including healthcare, finance, agriculture, and manufacturing and hence boost growth for the Indian economy. The sector is expected to reach $7.8 billion by 2025, with a CAGR of 20.2 percent between 2020 and 2025, according to data company IDC.
The Indian government is actively promoting AI development through initiatives like the National AI Mission and the establishment of AI Centers of Excellence which will fuel further innovation and collaboration in the space. As of May 2023, the Generative AI sector in India featured over 60 startups focused on delivering solutions and services to clients in diverse industry sectors. The demand for skilled AI professionals will continue to grow, leading to an increase in training programs and educational initiatives.
In April, the Cabinet Committee on Security (CCS) gave its approval to the Indian Space Policy, 2023, emphasizing the involvement of the private sector. The industry has garnered $112 million in funding in 2022, reflecting a 22% increase year on year and $62 million in funding during the initial half of 2023, a remarkable 60% surge compared to previous year. There will be a growing emphasis on developing smaller satellites and launch vehicles, which are more cost-effective and agile. We can expect to see increased utilization of space-based technologies for various applications like Earth observation, navigation, and communication which will have a significant impact on sectors like agriculture, disaster management, and urban planning. Further, India is actively collaborating with other spacefaring nations on various projects and will contribute to knowledge sharing, technology transfer, and joint space exploration endeavors.
Eyes worldwide are also watching the Indian fintech market which is one of the fastest-growing globally, valued at USD 70 billion in 2023 and projected to reach $150 billion by 2025. This growth is fuelled by government initiatives like Digital India, the rise of mobile internet penetration, and a young tech-savvy population. With the increasing adoption of mobile wallets, digital payments, and online financial services, the fintech landscape in India is expected to witness continued expansion. New-age technologies like blockchain, artificial intelligence, and big data are expected to further revolutionize the sector, creating opportunities in areas like lending, wealth management, and insurance. Moreover, the government’s focus on financial inclusion and the rise of neobanks are poised to bring a large unbanked population into the formal financial system, further fuelling growth.
India has set ambitious targets for renewable energy, aiming to achieve 500 GW of non-fossil fuel-based power capacity by 2030. The government’s supportive policies, falling costs of renewable energy technologies, and growing environmental concerns are driving investments in this sector. With a vast potential for solar and wind energy, India is poised to become a global leader in renewable energy.
Globally, nations are focussing on replacing fossil fuel driven vehicles. Among the various alternatives being developed by nations, the electric vehicle (EV) market is most promising. This growth will create opportunities in EV manufacturing, charging infrastructure development, battery technology, and related services. Additionally, the traditional automobile sector is expected to witness significant changes with the transition towards electric and hybrid vehicles, presenting opportunities for innovation and adaptation.
Challenges abound
Despite its promising trajectory, India faces several challenges in its path towards becoming a global economic powerhouse. India’s current account deficit (CAD) is expected to widen in 2024 due to rising import costs and a slowdown in export growth.
A wider CAD could put pressure on the Indian rupee and lead to capital outflows. The Reserve Bank of India (RBI) is likely to continue raising interest rates in 2024 to control inflation which would dampen corporate investment and economic growth. While the road network in India has grown by leaps and bounds, India needs to work on unemployment and social infrastructure.
India must create more jobs to absorb its burgeoning workforce as well as address the mismatch between existing skills and industry requirements. India is facing a severe water crisis, with many parts of the country experiencing drought conditions which poses a challenge to agriculture, industry, and public health.
Lastly, India should work on creating an investor-friendly environment. Abrupt changes in tax codes, such as GST on gaming sector, dictatorial manner of functioning of government enforcement agencies as well as regional economic disparities are among the key issues highlighted by the investor community time and again.
Conclusion
With a robust foundation laid in 2023 and promising sectors driving its growth, India’s future looks bright. While challenges remain, the country’s potential for sustained economic development is undeniable. By effectively addressing existing challenges and seizing the opportunities presented by its promising sectors, India is poised to become a global economic powerhouse in the years to come.
Rajesh Mehta is a leading International Consultant in the field of Market Entry, Innovation and Public Policy. Sunny Sabharwal is a Chartered Accountant, ex-banker and a financial writer.
Disclaimer: The views expressed are not necessarily those of The South Asian Times
