India is still showing very high growth figures, but the numbers don’t reveal an accurate picture of where the economy stands, believes financial analyst Ruchir Sharma.
In his succinct analysis, Ruchir Sharma, Chair at Rockfeller Foundation noted in Financial Times that India is not attracting investment. Foreign money coming into India has dropped, suggesting that investors think the reported GDP growth of over 8% hides real problems.
Company revenues move with the economy, but in India last year, revenue growth for listed companies was only about half of the GDP growth rate. Instead of relying on headline GDP numbers, which may be inflated by technical adjustments for inflation, policymakers should focus on the country’s weak points, he says in the incisive article that has some pointed numbers that are hard to ignore.
Some signs of weakness: India is losing more people and attracting less money than before. Each year this decade, 675,000 people left India, up from 325,000 per year in the 2010s. Only Pakistan, Bangladesh, and Ukraine have had more people leave. Part of this is a “brain drain”, skilled workers leaving the country. One-third of Silicon Valley’s tech workforce is Indian.
Job growth in India is weak, the writer highlights. For example, in 2024, 38% of graduates from the Indian Institutes of Technology did not get a single job offer from campus recruiters. Many Indians are moving to countries still open to immigrants, like the UAE and Saudi Arabia, drawn by construction jobs.
Foreign investment is also limited, he points out. India has historically attracted only small amounts of foreign capital, partly because of old regulations that make it expensive to buy land or hire and fire workers.
Other fast-growing Asian economies, like China and Vietnam, received foreign investment equal to over 4% of GDP during their growth periods. In India, it has never been above 1.5% and is now only 0.1%. Over the past decade, India’s ranking for foreign direct investment (FDI) fell from 12th to 19th among the 25 largest emerging countries.
New risks also scare investors, such as worsening relations with neighbours, trade conflicts with the US, and doubts about India’s tech abilities. China and South Korea spend over 2.5% of GDP on research and development; India spent only 0.65%, so it has no major AI companies.
These problems are affecting financial markets. While emerging markets saw net inflows last year, India had record outflows of $19 billion. Domestic buyers stepped in, but the Indian stock market still lagged behind others.
India needs much more foreign capital because domestic savings are not enough. Unlike East Asian countries, India has a weak manufacturing sector, never became a major exporter, and usually runs a current-account deficit. Foreign investment also brings access to new technology.
India has started reforms to address these issues, such as simplifying labour laws, bankruptcy rules, and red tape. The goal is to attract more investment. Domestic private investment has also been weak for the same reasons foreigners avoid India. Increasing investment, both domestic and foreign, is essential to create jobs and reduce emigration.
India’s real growth will become clear over time as technical distortions fade, the writer concludes. A clear sign of success will be when India attracts more foreign capital and fewer skilled workers leave the country.
Also Read: Food, Faith and Fascism in New India https://www.vibesofindia.com/food-faith-and-fascism-in-new-india/
