India: A Rising Economic Powerhouse
India's journey to becoming a global investment hub has been marked by significant policy reforms, infrastructure development, and a growing emphasis on digitalization.
The country’s strategic location, favourable demographics, availability of natural resources, and a large, diverse market have further contributed to its appeal.
A vision for the future
With a focus on “minimum government, maximum governance”, India is streamlining processes, attracting foreign investment, and fostering a business-friendly environment. The country is rapidly emerging as a global economic powerhouse, attracting significant foreign investment and experiencing remarkable growth, averaging more than 6% per year in the past 10 years.
Several key factors contribute to this positive trajectory, making it an attractive destination for businesses worldwide.
Formalization and consumer demand
With a population of 1.46 billion, India recently overtook China (1.42 billion) as the world’s most populous country. Its economic progress this century has been nothing short of extraordinary. India was ranked 13th by gross domestic product (GDP) in 2000, but the International Monetary Fund (IMF) data indicates that it will surpass Japan as the fourth largest economy in 2025, and overtake third-placed Germany by 2028.
Two drivers have played a particularly significant role in India’s growth story. One is the formalization of the economy, where informal businesses and workers are increasingly brought into the government’s sphere of influence, benefits and taxes. Examples include the introduction of the Goods and Services Tax (GST), digitalisation of financial transactions and enrolment of informal sector workers on government internet portals. Another driver is the rapid expansion of consumerism, with private consumption contributing about 60 % to nominal GDP (By comparison, consumers’ share of GDP in China is roughly 40%).
Opportunities in key sectors
India presents significant investment opportunities across key sectors, including infrastructure, manufacturing, and financial services. Each sector is driven by unique factors and government support.
Infrastructure: India’s large and growing population requires continuous infrastructure development in transportation, logistics, and urban development. Government initiatives such as dedicated industrial corridors and port modernization offer investment avenues.
The government also has a strong focus on digital connectivity and data centres, resulting in advanced digital infrastructure. Initiatives include the Unified Payments Interface (UPI), which allows for seamless and cost-free transactions, and the Aadhaar program, which provides a unique identification number to nearly the entire population, facilitating financial inclusion and service delivery.
Manufacturing: Government policies, such as the ‘Make in India’ initiative, aim to increase manufacturing's contribution to GDP to 25%, promoting investments in key sectors, including renewable energy and electric vehicles, data centers and electronics. Production-linked incentive (PLI) schemes further incentivize manufacturing investments.
Financial Services: The expanding middle class and increasing financial literacy is driving demand for diverse financial products and services. The rise of digital payments and fintech innovations creates opportunities in payment gateways, digital lending, and insurance. There has also been significant liberalization of the banking and insurance sectors, which is attracting foreign investment and fostering competition and innovation.
These sectors collectively offer a diversified investment landscape in India, driven by government support, demographic advantages, and economic growth.
Understanding India
India's economic landscape offers plenty of opportunities for businesses seeking growth and expansion. The government has also relaxed rules on foreign direct investment (FDI) and introduced policies to attract foreign investments and promote domestic industries. These include liberalization policies, streamlined approval processes, and initiatives to improve infrastructure and manufacturing capabilities.
However, challenges remain, and businesses should have a clear understanding of the country’s bureaucratic and regulatory environment, and the importance of forming strong local partnerships with a focus on long-term growth. The country's diversity, with multiple languages, religions, and regional variations, necessitates a nuanced approach to business and investment.
Local breadth and depth
Citi has been operational in India since the early 1900s, and continues to offer a wide range of corporate and institutional services. With a comprehensive countrywide network, our financing and treasury solutions range from payments and collections to trade, FX, cards, and liquidity management.
Citi has the breadth and depth of local expertise to help corporates and investors unlock the immense potential of the Indian market.
Although the statements contained herein based on outside sources are believed by Citi to be reliable, their accuracy and completeness have not been verified. Any assumptions or information contained herein constitute an opinion only, as of the date of this article or on any specified dates and is subject to change without notice. Any forecasts or forward-looking statements may not be attained.