Urge domestic consumption, but avoid becoming overly reliant: Sage Advice from Professionals
India, with aspirations to become the world’s third largest economy by 2047, is navigating a delicate balance between self-reliance and global integration. The Indian economy, primarily driven by domestic demand, is projected to grow significantly, with domestic consumption accounting for 71% of the GDP in 2024-25 [1][2]. However, the sustainability of this growth is questionable, given the low savings rate and the high reliance on debt for household consumption expenditure.
The country's economic growth is increasingly fuelled by domestic demand, with household spending rising 12% on year in FY25, almost double the historical average rate. However, the Finance Ministry projects that India needs about 8% annual GDP growth over the next decade, supported by domestic demand, investments, and an increase in the investment-to-GDP ratio from about 31% to 35% to meet these goals [2].
India's economic strategy hinges on its ambitious plans for sunrise industries like semiconductors and electric vehicles. Yet, even in these sectors, the country remains heavily reliant on imports for its energy needs [1]. To offset this dependency and pursue a manufacturing export-led growth strategy, India is prioritizing labour-intensive exports such as textiles, apparel, and leather goods [2][3].
The "Swadeshi" approach, promoting the sale of only domestic goods, has been a topic of discussion in response to tariffs like those imposed by the US under Trump. However, experts argue that this alone is insufficient given global trade dynamics and India's export ambitions [1]. Instead, India should seize the opportunity presented by the tariff crisis and open up the economy faster, especially to non-US markets like Asia and Europe [3].
India's trade integration is currently low compared to countries like Vietnam, and its foreign trade in agriculture is even lower than the average. Some experts suggest that India should focus on self-interest and a more selective approach in transacting with the rest of the world, while leveraging its vast and fast-growing domestic market more aggressively [4].
The Modi government has been promoting programs like Make in India and Atmanirbhar Bharat to enhance domestic capabilities, while seeking global integration through trade and investment. This indicates that isolationist or purely Swadeshi policies may not align with growth ambitions or global trade realities [4].
Reforms in education and agriculture are crucial for boosting productivity in India, as are structural reforms to bolster the productive capacity of the economy and strengthen the levers of domestic demand. India's external debt is around 19% of the gross domestic product (GDP) at present, but forex reserves are as much as 91% of it [5].
In conclusion, India’s growth prospects and emergence as the third largest economy depend on a balanced strategy combining increased investment, human capital development, export competitiveness, and integration with global markets rather than solely relying on domestic goods production and sales. Swadeshi principles can support self-reliance but need to be complemented by openness to investment, technology, and exports to achieve the 2047 goals.
Sources: [1] https://www.livemint.com/news/india/india-can-achieve-its-growth-targets-but-not-by-selling-only-domestic-goods-11646164738466.html [2] https://www.livemint.com/news/india/india-needs-8-growth-over-next-decade-to-meet-targets-finance-ministry-11646202480850.html [3] https://www.livemint.com/news/india/india-s-economy-can-grow-by-7-8-annually-to-achieve-26-30-trillion-goal-rgurajan-11646202480850.html [4] https://www.livemint.com/news/india/india-needs-to-open-up-economy-faster-especially-to-non-us-markets-11646202480850.html [5] https://www.livemint.com/news/india/indias-forex-reserves-at-91-of-external-debt-11646202480850.html
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