India’s next wave of competitiveness

New Delhi, 3 November 2014 – With a new government in place, solid growth projected, and a flourishing middle class, investors appear increasingly willing to back India—precisely what will be required to drive its next wave of competitive industries, according to a new report by Deloitte Touche Tohmatsu Limited (Deloitte Global).  

Deloitte Global’s latest competitiveness report, Competitiveness: Catching the next wave in India examines the sectors that will be critical to India’s future advancement, the challenges they face, and the potential for growth. The report also outlines the policy initiatives – including an emphasis on infrastructure, partnership with business, and better center-state coordination—essential for India to realize its full potential.  

“India is poised for improved prosperity as new government reforms begin to take shape,” says Gary Coleman, Deloitte Global Managing Director for Industries. “To fully realize its potential, India must continue to invest in infrastructure, particularly transport networks and power systems, as well as work to enhance the employability of its working population. In addition, adopting an environment that enables innovation and collaboration to flourish across borders is critical to India’s economic growth. And of course, all this requires effective implementation.”

The key industries in India poised to drive growth over the next 30 years include:

Infrastructure and construction: The sector is forecast to become the world’s third-largest construction market by 2025. With the government’s three-pronged strategy aimed at modifying the regulatory framework, removing bottlenecks for existing projects, and reviving the capital-expenditure cycle, India could lead growth among emerging economies in the infrastructure and construction sector. However, rapid economic growth and a rising population have placed immense pressure on India’s infrastructure in the near term.

Banking, financial services and insurance (BFSI): Rural India, along with the urban lower-middle class, is set to be the financial services sector’s next big opportunity. Despite the fact that more than 40 percent of Indian households currently do not have access to banking services, the government’s strategy to promote financial inclusion in India, along with the country’s rising middle class, will likely continue to drive demand for services in the sector.

Wholesale and retail: Rising incomes, growing middle class population, young, brand conscious consumers, technological advancements, and the proliferation of nuclear families will continue to strengthen this sector, playing a prominent role in India’s future growth.  The advent of organized retail (licensed retailers such as corporate-backed supermarkets and retail chains), has redefined the retail experience in India. The segregated market, including wholesale, multiband, single brand, and online retail, along with neighborhood “mom-and-pop” stores, will put pressure on retailers to innovate to compete.

Automobile manufacturing: The rising cost of automobile ownership, driven by high fuel prices and interest rates, has impacted consumer demand in India in recent years. However, a younger demographic, low labor costs, and a plentiful supply of engineers are capable of turning India into a global hub for auto manufacturing as customers around the world become more cost-conscious. A stable government will be a crucial factor in improving investment sentiments and attracting global automobile manufacturers to establish factories and R&D centers in India. All these factors coupled together will be key drivers of growth in auto manufacturing, and India is expected to grow the fastest in the sector among leading emerging economies.

Pharmaceuticals: Low investment and poor health infrastructure in India have traditionally limited the growth of this sector. However, the Indian pharmaceutical industry is projected to surpass other leading emerging economies in the 21st century as a global center for end-to-end drug discovery and innovation.  The changing profile of health problems, rise in early detection of acute diseases, and increasing availability of treatment facilities, have boosted the demand for drugs, as well as the need for health care diagnostic facilities in the metropolitan areas due to a rising middle class. And though a large proportion of the rural market still remains untapped, it represents a huge growth opportunity for pharmaceutical companies.  

Information and communication technology (ICT): India currently has the world’s second-largest mobile subscriber base (900 million) and the third-highest Internet subscriber base. As the economy expands, IT spending by both businesses and consumers is likely to increase. This will aid the wider ICT sector, which will also benefit from greater penetration of computing technology, smartphones, and the Internet in both urban and rural areas.

Anis Chakravarty, Senior Director, Deloitte India says, “Recent announcements made by the government signify a sentiment change, which can lead to a significant boost to the Indian economy. As policies start to take shape, it will be critical to take advantage of the demographic dividend, not just through the creation of jobs and employment, but also by developing a clear roadmap to navigate tough economic reforms.”