In the immediate aftermath of the Brexit referendum, the headlines were dominated by news that France had overtaken Britain as the world’s fifth largest economy. The post-Brexit hysteria probably wasn’t helped by the fact that, after over a millennium of love-hate mock rivalry, the last people we wanted to be overtaken by were our cousins across the channel. Luckily, by last count, we are back on top.
But if India has anything to say about it – we’re not going to be staying there for very long. In fact, France isn’t even the sixth largest economy anymore, because India has already overtaken them. And by all accounts, we’re probably going to be next.
So is it about time that British business started paying more attention to the Indian economy? We certainly think so.
A global powerhouse
Leaving aside the ‘my economy is bigger than yours’ tit for tat, India was historically an even bigger economic powerhouse than it is today. In fact, the impression of India as a ‘developing country’ is a remarkably recent occurrence. Before the Industrial Revolution, the world was dominated by the economies of India, China, the United States and Japan. The recent explosion in prosperity in countries like China and India is probably more accurately described as a return to the global status quo.
A stifled economy
As the world’s largest democracy, it’s certainly fair to say that there’s more economic potential in India than has been realised over the last few decades. But after centuries of colonial interference, the newly independent India that emerged in 1947 had a few decades worth of growing pains to experience before it could begin to realise its full potential.
India’s economy has historically featured far more protectionist overtones than we’re used to here in the West. But in a recent raft of reforms, India looks to be driving its economy back in the right direction – which is almost certainly the reason they’re powering up the global GDP rankings.
Perhaps the most profound change in the recent 2017 budget was a wide reaching tax reform. While the tax rates themselves have remained the same, the threshold at which people pay them has been substantially raised. So people have a lot more money to spend then they used to – and spend it they do.
As well as this, the Indian finance minister is taking crucial steps to cleaning up the economy, creating a fair, transparent and open marketplace. To start with, cash transactions over 300,000 rupees (currently about £3,200) have been banned altogether, and banks have been asked to incentivise their customers to turn towards digital transactions.
These are crucial and important steps towards tackling India’s sizeable black market economy, which at some estimates could be as large as 25 per cent.
Should you sell to India?
The Indian economy still suffers profound difficulties, and it’d be naïve to assume that these reforms have turned India into a fully liberalised, Western-style market overnight. But there’s a tacit acceptance from the Indian government that improving their economy will require encouraging fair business – as well as clamping down on the black market.
Whose economy ends up being larger doesn’t really make all that much difference in the grand scheme of things. But in this brave new buccaneering Brexit world, it certainly seems like there are some economies more ripe for investment than others.
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