Why is India growing so fast? | CNBC Explains

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As China’s economic growth slows, people are looking for the next big driver of growth. And India seems to fit the bill. The IMF estimates that India will be the fastest- growing major economy in the world this year, which is why companies like Walmart are paying top dollar for business deals in India. It’s projected to expand by 7.4%, putting it ahead of China. So, what’s driving India’s growth? India has a population of 1.3 billion, making it the second most populous country in the world. It’s on track to grow faster, even surpassing China’s population by 2024. And that big population is also really young. India is on track to reap a handsome demographic dividend. This effect happens when a country’s working age population is larger than the non-working age population. By 2050, India is expected to have a working population of more than one billion. While many Asian countries are aging, India’s population has a median age of only 27.3 years, compared to China’s 37.6 and Japan’s 47.1. Since Prime Minister Narendra Modi came into power in 2014, his government has attracted record foreign direct investment. Modi has been credited for his strong reform agenda to improve India’s business environment. The World Bank gave a nod to his efforts, improving India’s ranking in its Ease of Doing Business ranking from 130 to 100. But India’s growth is like my cricket game – full of promise, but it hasn’t quite delivered yet. India grew faster than China between 2014 and 2016, but lost its fastest-growing major economy title last year. Within the country, domestic investment has fallen as businesses have been hesitant to invest. India’s exports have also dropped since Modi came into power, despite his Made in India campaign meant to fire up the country’s manufacturing industry. Economists say that domestic developments are to blame. In November 2016, the government’s withdrawal of 500 and 1,000 rupee notes shocked the country. 86% of the country’s currency could no longer be used in shops. Then, while businesses were trying to recover from that policy, the government implemented the goods and services tax in July 2017. It’s the biggest tax reform since India’s independence, consolidating India’s many taxes into a single structure. But it’s also baffling businesses. For instance, should coconut oil be taxed as a cooking product, or a hair product? Is a chocolate coated biscuit a chocolate or a biscuit? The two policies on tax and demonetization hit consumption and investment hard, despite most economists agreeing that the goods and services tax will bring long-term benefits for India. This year, India is likely to keep its title as the world’s fastest growing major economy. But is fastest fast enough? Former IMF chief economist and India’s former central bank governor, Raghuram Rajan has said that India needs to grow much faster. India has about one million people entering the labor force every month. So that's a big number that has to be absorbed which means we need significantly more growth to get them good jobs. But India’s growth this year faces serious challenges. Top ratings agencies like Moody’s and Goldman Sachs have cut their growth projections for India. Why is that? One reason is rising oil prices. That could mean higher import costs and higher inflation. India is the world’s third biggest oil consumer, after China and the United States. Because of low oil prices, which fell to about $40 per barrel in 2016, Modi’s government could put taxes on petrol and diesel. India has become dependant on these taxes, which made up 17% of India’s total revenue last year. The Indian rupee is also the worst performing currency in Asia this year, and it’s expected to weaken further. This may look like just a humble pakora, but this Indian street snack has ignited a huge debate about jobs in India. This year, Modi was asked about the perception that he failed to create more jobs for young Indians. His response? Such as pakora sellers. His comments caused outrage in India, because there is a lot of anxiety for stable, salaried jobs. More than 25 million people, a number greater than Australia’s population, applied for less than 90,000 jobs on India’s state-run railways. For the most junior role in Mumbai police force, 200,000 people applied for 1,137 openings. Many multi-national companies are excited about India, dreaming about selling fast food, smartphones and fast fashion to a rapidly growing middle class. But right now, that middle class with income levels of similar populations in cities like Hong Kong and Singapore is extremely tiny, estimated to be just about 1% of India’s population. The double whammy of a weaker currency and growing oil prices are going to hit India hard. Despite its challenges, India continues to grow quickly. But will it be it fast enough to benefit its people? Hey everyone, it’s Xin En. Thanks for watching! If you want to check out more CNBC videos, click here and here. As always, feel free to leave any suggestions for future videos in our comments section. Don’t forget to subscribe and see you next time!
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Channel: CNBC International
Views: 2,083,788
Rating: 4.5953612 out of 5
Keywords: CNBC, India, India economy, India GDP, India economic growth, India economy 2018, India GDP 2018, why is India growing so fast, CNBC Explains, CNBC Explains India, India demonetisation, India demonetization, Raghuram Rajan, india growing economy, india growing fast, india growing middle class, india growing economy 2018, india growing population, india economic growth, india economic growth 2018, india's economy, india's economy growth, india economic future
Id: uyyjcior9Vo
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Length: 5min 32sec (332 seconds)
Published: Thu Jul 05 2018
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