By AltG Research on behalf of Taponeel Mukherjee & Poornima Vardhan
As the G20 Foreign Ministers’ Meeting wraps up in New Delhi, that India has a strategic position in the global scheme of things in the 21st century would be stating the obvious. India is not just a strategically important country but the most important economic growth story of the 21st century. And India must look to seek out further global partnerships to drive its economic growth and emerge as the centre of the Global South in the new world order.
While the 20th century had a myriad of factors at play in terms of military, economic and political functions, in an interconnected, globalised world, economic growth and economic power will be the single most important factor that will allow nations to build on the global growth story.
In the context of boosting economic growth, India must focus on structuring, attracting and partnering with global capital in its quest for rapid economic growth. By virtue of being the fastest-growing major economy and remaining such over the next few decades, India must partner with the world to allow global capital to access Indian investment opportunities. In other words, the 1980s were about "Trade in Goods". The GATT in the 1990s opened up "Trade in Services." The 21st century will be about "Trade in Capital."
What's the opportunity to unlock USD 10 Trillion in Capital?
So far, India has tapped into FDI from only large investors such as pension and investment funds. But, in a developed world that is ageing and stuck with structurally low growth rates, India can be the centre of much larger pools of capital. These pools (small in individual size but twice India's GDP in aggregate) sit with smaller private equity funds, pension funds, and family offices with varied balance sheets to fund India's consumer markets and infrastructure needs. By some estimates, family offices globally are managing USD 5.9 Trillion in assets.
What needs changing to access smaller pools of capital that, in the aggregate, are larger than USD 5 Trillion?
Clearer structures regarding investment funds, better financial plumbing and taxation that investors globally need to be aware of. Developing the IFSC-GIFT City as a centre of finance in the Global South is one example of achieving this. Essentially, India needs to further strengthen its bridge with an even larger pool of investors and make them aware of the opportunities that exist within India. In addition to infrastructure, consumer markets must be a focus area.
Access to larger pools of capital with varied balance sheets will lower the cost of capital and allow the flow of capital to sectors in the Indian economy that may have previously been capital-constrained, thereby driving economic growth and investment returns.
Why does access to Indian growth matter?
Access to plentiful and low-cost long-dated capital will allow India to push its Real GDP growth rate towards 8%, perhaps even 10%. That's an additional USD 240 Bio of GDP added per year. In comparison, the US, with about a 2% real GDP growth rate, is adding USD 460 Bio of GDP. So, while the US economy might be 8 times that of India, "Incremental GDP" is much closer - The opportunity India provides in the next 20 years is once in a lifetime.
It is crucial to understand how important a factor access to varied pools of capital is to push India’s incremental annual GDP higher. Structures, systems and financial centres within the country that can help facilitate the flow of capital will allow India to unleash its full economic potential and help lead the Global South as the most important economy.
Given its economic growth and investment opportunities, India's position perfectly suits the developed economies, allowing it to drive global growth, peace and economic prosperity.