India:
A golden age?
Mar/Apr 2023
India is being proposed as the new key driver of global passenger demand, supplanting China, just as India in April surpassed China as the most populous country in the world (1.426bn people).
The historic growth rate in Indian airline traffic has been strong, but from a low base — during 2005-19 the domestic CAGR was 13.2% and the international CAGR 10.2%.
The potential for Indian aviation has been recognised for some time. IATA in a 2018 special report indicated that 2037 passenger volumes were likely to be in the 512m to 823m range. In 2019 total passengers (domestic and international, Indian and foreign airlines) peaked at 202m.
This April ACI at the EU-India Aviation Summit held in Delhi, called for a liberalised regulatory regime between the two regions and produced a forecast indicating a CAGR of around 8% pa up to 2041 bringing the Indian market up to 1.1bn passengers.
Meanwhile, the IMF and the World Bank are predicting real GDP growth in the order of 6-7% for India in 2023 and 2024, by some margin the best among the world’s major economies.
Yet the aviation business doesn’t seem to have quite bought into the concept of India as a super-power. For instance, in Airbus’ 2022 Global Market Forecast the Middle East, China and SE Asia are highlighted as major drivers of new aircraft demand, but not India. While IndiGo is one of Airbus’ most important A320neo customers, some of the other Indian airline orders recorded by the OEMs look a bit uncertain.
The big news this year was that Tata-owned Air India has committed to a 470-unit mega-order with both Boeing and Airbus, which has focused the OEMs’ and lessors’ attention on the subcontinent (see following article for more discussion on the Air India Group’s ambitions).
India’s growth economics and demographics
Two graphs taken from EY’s India@100 economic analysis, published in October 2022, give an interesting insight into global trends. These very long-term projections, up to 2046-50, are in one sense slightly absurd — nothing is really predictable — but they do reflect how developmental economists and management consultants are thinking about the world, and that in turn will influence how the global economy will evolve.
Firstly, although all growth rates mature over time, India has the ability to keep its advantage over China and the USA. Secondly, China will in the next five years overtake the USA in terms of share of global GDP (measured on PPP basis), it will then plateau whereas India will continue to increase its share, eventually catching the USA.
Indian optimists have started referring to an Amrit Kaal, roughly translated as “golden age” of strong extended economic and social progress. The parallels are: Germany, 1950-69, Japan 1956-72, USA 1959-66, China 1982-2011.
A large part of analysis refers to demographics. It not just population growth, which is expected to peak around 2060, but the fact that India is youthful: at present 68% of India’s population is in the working age group — and India is now forecast to supply up to 24% of the incremental global workforce over the next ten years. China, by contrast will hit peak population in the next few years and a rapidly diminishing proportion of the population will be of working age, largely because of the one-child policy.
Moreover, the young urban population tends to be well-educated and adept in the skills that the world needs, ie technology.
India’s export growth is being driven by IT services: growth at around 14% pa over the past 20 years to $255bn in FY 2022. India has realistic ambitions to overtake Silicon Valley as the global software innovator.
India is the world leader In Global Capability Centres (GCCs). These are an evolution from the outsourcing of back-office functions like billing, revenue accounting and tele-sales by Western corporations, into more complex business activities that involve problem-solving, product innovation and strategy development.
Over half of the world’s GCCs — 1,500 — are based in India, and nearly 70% of them belong to US-headquartered companies, followed by 20% from Europe and 10% from Asia/Pacific. 80 of the top 100 global retail and CPG (Consumer Packaged Goods) companies are estimated to have GCCs in India.
Heath services represent another fast-growing industry — with patients travelling to India for treatment by highly qualified but much less expensive medical staff. There is an acute shortage of health workers to deal with the West’s ageing population (one estimate is 550,000 personnel in the USA by 2026). India can solve this problem by training up health care professionals who could work either in home country facilities or temporarily in foreign countries.
Modi’s transport infrastructure project
More immediately, the government of Narendra Modi is concentrating on boosting transport infrastructure in order to facilitate rapid GDP growth. Investment is on a China-type scale.
India’s notoriously slow railways are being replaced by state-of-the art-rapid transit — for example, a new line between Mumbai and Ahmedabad will reduce travel time from six hours to under two. Freight corridors are also being built, linking the Punjab and West Bengal and between Delhi and Mumbai. Roads are being upgraded everywhere. Airports are being built or rebuilt throughout the country — ₹1tr ($12bn) is budgeted over the next two years, and the number of commercial airports is up from 74 in 2014 to 148 today, and is expected to increase to 220 by 2025. Funding will come from the Airports Authority of India, about $3bn, and private construction companies, $9bn.
A sample of current airport projects:
- Navi Mumbai, a secondary airport for Mumbai, designed to handle 90m passengers by 2036.
- Capital New Delhi, addition of new facilities with capacity for 70m passengers.
- Bhiwadi, a greenfield airport near Alwar.
- Hyderabad Rajiv Gandhi, new passenger terminals to grow capacity to 34m by 2024.
- MIHAN (Multi-Modal International Hub at Nagpur), the largest investment project currently, constructing a cargo hub and a Special Economic Zone.
- Chennai, replacement of two terminals and development of a new secondary airport.
- Mani, greenfield airport.
- Jewar, greenfield airport.
What all this does to India’s carbon footprint is another issue, but one that has to put in the context of a serious reduction (hopefully) of India coal-burning power generation.
