Narendra Modi
India pushes skills training and women in workforce to fuel mfg and attract foreign investment. Stock market booms, but analysts say FDI is key for next growth stage. Wikimedia Commons

Prime Minister Narendra Modi envisions India as a developed economy by 2047, but analysts argue that success hinges on the country prioritising four essential sectors.

The 73-year-old Prime Minister of India has been promoting his ambitious vision of transforming the country into a developed economy by 2047 for the past two years. Now, all attention will be on Modi and his Bharatiya Janata Party-led alliance to see if they can maintain the economic momentum and enhance the lives of millions during their third consecutive term in office.

This is because public confidence in the BJP has waned. This decline is evident as Modi's ruling party failed to secure an outright majority in the lower house of Parliament for the first time since 2014, forcing them to rely on coalition allies.

Reema Bhattacharya, head of Asia research at risk intelligence firm Verisk Maplecroft, asserts that the government must seek common ground and build consensus across various fronts. This includes alliance partners and other stakeholder groups to pass essential legislation in Parliament and address the growing anti-incumbency sentiment across the country.

"A failure to do so could also result in further political setbacks for the ruling party in the next round of state elections scheduled for later in the year," she warned. Analysts suggest a Modi-led coalition will unlikely hinder India's economic and developmental progress.

However, they suggest the new government must rebuild public trust and maintain India's position in the Global South. While the new government has not yet detailed its key priorities, analysts predict that four main areas will be prominently featured on the agenda.

1) Advancements in Infrastructure Development

India has experienced a significant infrastructure boom, making notable advancements in modernising and connecting its highways, railways, and airports. In 2023, EY, a consulting firm, predicted India's economy would reach $26 trillion by 2047, stressing strong infrastructure as essential for achieving this.

"Since Modi's been in office, he's done his utmost to build ports, railways, and all kinds of hardline infrastructure to make business fluid. He's going to double down on that," said Samir Kapadia, CEO of India Index and managing principal at Vogel Group.

Compared to China, India has a gap to close in infrastructure development. Significant investment in this area is crucial to sustain high growth and remain attractive to foreign investors. In the 2024-2025 interim budget, Finance Minister Sitharaman allocated ₹11.11 trillion ($133.9 billion) for capital expenditure, representing an 11.1 percent increase over the previous year.

This increased spending is mainly directed towards developing railways and airports, signifying a focus on improving transportation infrastructure. While this is a positive step, economist Santanu Sengupta of Goldman Sachs cautions that India shouldn't solely focus on connecting cities.

"Along with creating physical infrastructure, India needs to remain steadfast on the structural reforms ... It needs to look at land and unlock land to set up more infrastructure in terms of factories," Sengupta told CNBC, adding that this will drive jobs growth in the sector.

However, analysts pointed out that the government might encounter resistance in this endeavour, as Modi's reduced political leverage could complicate the process of land acquisition for projects.

"Such targets may be more difficult if state-level parties have a quasi-veto due to the coalition structure," said Richard Rossow, senior advisor and chair in U.S.-India policy studies at the Center for Strategic and International Studies.

2) Boost Manufacturing Sector

Over the past decade, Modi has vigorously advocated for India to achieve self-reliance and surpass China to become Asia's leading manufacturing hub, focusing on semiconductor manufacturing.

Furthermore, in the inaugural session of the Global Partnership on Artificial Intelligence (GPAI) last year, Modi announced India's readiness to embark on a new initiative integrating AI capabilities into healthcare and agriculture.

A December report in the Financial Times revealed Apple's plans to source batteries for the iPhone 16 from Indian factories. Similarly, Google is reportedly on track to begin Pixel phone production in India by the current quarter. This shift suggests a diversification of supply chains for these tech leaders.

Foxconn, a major Apple supplier, is increasing investments in India. This aligns with the trend of US tech giants diversifying their supply chains. Micron Technology is pioneering India-made semiconductor chips. This could be a major boost for India's tech development and self-sufficiency.

Market research by Counterpoint and the India Electronics and Semiconductor Association predicts a stellar rise for India's semiconductor industry, with its value tripling to $64 billion by 2026, up from $23 billion in 2019.

"This will probably be the biggest breadwinner for India over the next five to 10 years," Kapadia said. "Modi firmly believes that if India is able to be in the semiconductor manufacturing business and if he gets it right, India can become an economy that will not be fussed with."

3) Addressing High Unemployment

India, the world's most populous country, grapples with high unemployment, a critical challenge further compounded by a skills mismatch. Sumedha Gupta, a senior analyst at The Economist Intelligence Unit, emphasises the urgency of addressing both issues.

"There is already a mismatch between the skill level of the country's workers and the demand for high innovation from employers. This will persist definitely over this decade, possibly into the 2030s as well," she told CNBC.

A survey conducted by the Centre for the Study of Developing Societies in April, before the election, revealed that unemployment was the primary concern for 27 percent of the 10,000 respondents. Additionally, over half (62 percent) of those surveyed noted that finding employment had become increasingly challenging over the last five years of Modi's second term.

Analysts emphasised that it is now the responsibility of the new coalition government to enhance local education standards and provide skills-based training to ensure people find gainful employment in appropriate sectors.

"While those with advanced education and practical experience are poised to secure jobs in this sector, creating widespread, equitable employment opportunities requires a more inclusive approach," said Vivek Prasad, markets leader at PwC India.

India's new education policies and focus on vocational training aim to create a more inclusive workforce. This will be achieved by equipping individuals with skills relevant to different manufacturing stages, not just high-level engineering roles.

As Prasad highlighted to CNBC, this approach ensures "the benefits of economic progress are shared across society." He further emphasised that boosting women's employment is crucial for India's growth.

4) Attract Foreign Investments

Increased foreign investment is another pillar of India's growth strategy. Market experts like veteran emerging markets investor Mark Mobius and global strategist David Roche remain bullish on India, highlighting the potential for foreign capital to fuel growth across various sectors.

According to data from the World Federation of Exchanges, the National Stock Exchange of India (NSE) boasts a significant market capitalisation of $4.9 trillion, solidifying its position as the third largest exchange in Asia-Pacific. Analysts are optimistic about India's market growth, with projections estimating a potential surge to $40 trillion within the next two decades.

India's benchmark stock indices, the Nifty 50 and Sensex, have displayed impressive performance this year. LSEG data shows they've gained 8% and 7% year-to-date. However, to further accelerate economic growth, analysts on CNBC emphasised the need for increased foreign direct investment (FDI) into the country.

According to Goldman Sachs' Santanu Sengupta, foreign direct investments (FDI) into India slowed down last year. This was attributed to a challenging private equity funding environment caused by high interest rates in the United States.

"India will likely attract more FDI inflows from the US once interest rates soften and the funding environment becomes easier," Sengupta told CNBC.