Infrastructure, Manufacturing, and Employment in Modi's New Era

With a strong mandate from the people, Modi's government is tasked with steering India towards a reform-driven transformation

By Kushmita Bose

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Infrastructure development will be a key focus for Modi. — AFP file photo
Infrastructure development will be a key focus for Modi. — AFP file photo

Published: Tue 25 Jun 2024, 10:36 AM

As the dawn breaks on Prime Minister Narendra Modi's third term in office, India stands on the precipice of a new era marked by renewed optimism and boundless opportunities for collaboration and mutual growth. This historic victory not only underscores the trust and confidence reposed in Modi by millions of Indians but also heralds a period ripe for economic, social, and diplomatic advancements.

With a strong mandate from the people, Modi's government is tasked with steering India towards a reform-driven transformation. This political capital allows Modi to implement ambitious reforms and transformative policies that can reshape India's future trajectory.


For the past two years, Prime Minister Narendra Modi has confidently spoken about his ambitious goal of transforming India into a developed economy by 2047. However, analysts believe that achieving this goal hinges on significant improvements in infrastructure development, manufacturing capabilities, and employment rates.

As Modi and his Bharatiya Janata Party-led alliance begin their third consecutive term, all eyes are on them to see if they can sustain economic momentum and continue enhancing the lives of millions.


The government has yet to outline its key priorities, but analysts predict four main areas of focus:

INFRASTRUCTURE DEVELOPMENT

India has made significant strides in modernising its highways, railways, and airports through a massive infrastructure push. EY projected that India could become a $26 trillion economy by 2047, emphasizing the pivotal role of infrastructure. In February’s interim budget, Finance Minister Nirmala Sitharaman estimated an 11.1 per cent rise in capital expenditure, reaching 11.11 trillion Indian rupees ($133.9 billion) for the fiscal year 2025, mainly for railway and airport construction.

Sam Jochim, Economist at EFG International, says that infrastructure development will be a key focus for Modi. “In his first ten years, he prioritised building roads and electrifying railways. While these ambitious targets were not always met, significant progress was often made. In his third term, the focus may shift to producing more electric vehicles and developing infrastructure to help India achieve net-zero emissions by 2070,” added Jochim.

Enhancing India's domestic manufacturing and overall economy will provide more resources for its foreign policy toolkit, allowing the country to expand its global influence and compete economically with China.
Enhancing India's domestic manufacturing and overall economy will provide more resources for its foreign policy toolkit, allowing the country to expand its global influence and compete economically with China.

ENHANCING MANUFACTURING

The Modi government has pledged to boost manufacturing in India as it seeks a third term in power, aiming to increase the country's control over supply chains and create jobs. Prime Minister Modi is attracting manufacturers to India by offering substantial incentives, such as tax cuts, rebates, and capital support. This strategy is already showing results, with companies like Apple and Samsung Electronics ramping up their production in the country.

Enhancing India's domestic manufacturing and overall economy will provide more resources for its foreign policy toolkit, allowing the country to expand its global influence and compete economically with China, according to External Affairs Minister S Jaishankar.

Jaishankar emphasised that under Prime Minister Modi's leadership, India has been focusing on boosting domestic manufacturing over the last decade. He noted that the sector faced significant neglect before 2014, which created numerous problems for the country.

Modi has aggressively pushed for India to become self-reliant and surpass China as Asia’s largest manufacturing powerhouse, particularly in chip manufacturing. US tech giants are increasingly bringing part of their supply chains to India. The Financial Times reported in December that Apple told component suppliers it will source batteries from Indian factories for its upcoming iPhone 16. Google is also reportedly set to begin Pixel phone production in India by this quarter.

Companies like Foxconn and Micron Technology are ramping up investments, with projections showing that India’s semiconductor industry could grow to $64 billion by 2026, from $23 billion in 2019.

TACKLING HIGH UNEMPLOYMENT

Analysts have highlighted that new coalition government must enhance local education standards and provide skills-based training to ensure people are gainfully employed in the right sectors.

Unemployment remains one of the most significant challenges for India, the world’s most populous country. The unemployment rate rose to 8.1 per cent in April from 7.4 per cent in March, according to the Centre for Monitoring Indian Economy. A survey by the Centre for the Study of Developing Societies in April indicated that unemployment was the top concern for 27 per cent of 10,000 respondents, with 62 per cent noting increased difficulty in finding jobs over the past five years.

“Unemployment is a major concern among Indian voters. Youth unemployment is high by historical standards, and female labor force participation is low. Reforms to outdated labour laws could help address these issues,” added Jochim.

With a strong mandate from the people, Modi's government is tasked with steering India towards a reform-driven transformation. This political capital allows Modi to implement ambitious reforms and transformative policies that can reshape India's future trajectory.
With a strong mandate from the people, Modi's government is tasked with steering India towards a reform-driven transformation. This political capital allows Modi to implement ambitious reforms and transformative policies that can reshape India's future trajectory.

INCREASING FOREIGN INVESTMENTS

India aims to attract at least $100 billion a year in gross foreign direct investment (FDI), capitalising on the trend of investors and multinational companies seeking to diversify away from China. This ambitious target represents a significant increase from the annual average of over $70 billion in FDI received during the past five years up to March 2023.

Despite a dip in FDI last year due to global uncertainties and other factors, India is optimistic that the FDI figure for the current fiscal year will be 'closer to' the $100 billion target. As the world's fastest-growing major economy, India has been actively trying to woo businesses that are looking to mitigate geopolitical risks by expanding their operations beyond China, a strategy often referred to as the “China plus one” strategy.

Market experts like Mark Mobius and David Roche remain bullish on India. With a market capitalisation of $4.9 trillion, the National Stock Exchange of India is the third largest in Asia-Pacific. India’s market cap is projected to grow to $40 trillion over the next two decades. This year, benchmark indexes Nifty 50 and the Sensex have risen by eight per cent and seven per cent, respectively, according to LSEG data. However, foreign direct investment needs to increase to further drive economic growth and development, analysts said.

— kushmita@khaleejtimes.com



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