What are the major trends in the Indian market ten years after the launch of Narendra Modi’s “Make in India” plan?
In early June, the world’s largest democracy re-elected Indian Prime Minister Narendra Modi after six weeks of voting. In power since 2014, Modi launched the “Make In India” development plan, the aim of which was to increase the contribution of the manufacturing sector to India’s GDP. Almost a decade later, what is the impact of this development plan and what are the major trends in the Indian market?
Over the past ten years, India has laid the foundations for long-term structural growthincluding by adopting numerous reforms aimed at improving the country’s competitiveness. These include the redefinition of the Reserve Bank of India’s (RBI) mandate on inflation control, demonetization (particularly to combat the informal economy), several banking reforms (to increase the transparency of banks) and a major simplification of taxes alongside a reduction in corporate tax (from 30% to 25% and 15% for companies making new investments in manufacturing).
These reforms have created a favorable environment for many investments, particularly in the technology sector. Apple is a perfect example. The Cupertino company is steadily increasing its production of iPhones made in India, which reached $14 billion in 2024, or one in seven iPhones produced worldwide. This figure could reach one in four by 2025, according to JPMorgan.
Over the years, the Make In India plan has thus evolved from an “import substitution plan” to a comprehensive “strategic development plan” for Indian manufacturing, targeting not only the domestic market but also the country’s integration into the global supply chain.
In addition to targeted tax incentives, The government has also increased investment in infrastructure. A real brake put forward by many foreign companies, the Modi government has implemented a $1,000 billion investment plan over the past five years to modernize its infrastructure and public service networks. These investments have considerably boosted India’s productivity: the contribution to GDP of the industrial sector should thus increase from 17% today to 25% by 2025.1.
Geopolitical tensions between the United States and China, particularly after the Covid crisis in 2019, have also played an important role in accelerating the strategy of diversifying global supply chains.
India is thus regaining market share in international trade and is increasingly emerging as a future manufacturing power thanks to this development policy, its competitive cost structures, its large pools of skilled labor, its supply capacity in Asia and its domestic market.
This also translates into an increase in turnover and an improvement in the margins of local companies, the latter producing goods with higher added value. The competitive environment also remains favourable with increasing but still reasonable capital investments in relation to turnover (capex/sales).
A second supporting factor is India’s growing population and the emergence of the middle class.. India has indeed benefited from an increase in formal job creation as more multinationals are outsourcing to India. Its large English-speaking population and abundant skilled workforce support this dynamic, enabling the country to offer competitive outsourcing services not only in information technology but also in human resources, legal services, etc. According to Morgan Stanley’s estimates, global outsourcing spending could increase from $180 billion to $500 billion by 2030.2This growth will support formal job creation, middle class growth and increased consumer spending, which will have a positive impact on demand for commercial and residential real estate.
The last decade has also been marked by a massive digital transformation ranging from the creation of a unique identifier (Aadhar) to the Chandrayaan lunar missions (2008 – 2023). The digitalization of payments and public services or the creation of a favorable framework for the development of e-commerce (Open Network for Digital Commerce) are also examples of India’s desire to gradually build a first-rate digital economy.
Especially since the Indian e-commerce market is growing strongly with nearly 230 million online buyers in 2022, compared to 350 to 400 million expected by 2025, more than 750 million internet users and a growth in smartphone sales of 10% per year (15% for iPhones).
Zomato, a food delivery company, is a good example. This profitable technology company has seen its net revenues grow by more than 50% in recent years, with a 35% annual increase in the number of users between 2021 and 2024, thanks in particular to the combination of several factors: a still nascent market, a rapidly growing middle class, an available workforce and a duopoly situation.
Energy transition also plays an important role in the development of the Indian economy. With the growth in economic activity, India’s energy needs are increasing and government policies aim to meet this demand primarily through renewable sources. The government has thus set an ambitious target of 500 GW of installed capacity (220 GW today) to reach 50% of power generation by 2030 (compared to 70% of electricity generation from coal today).
The aim is also to reduce India’s dependence on oil imports, which will have a positive impact on its trade balance and represents an important support for the stability of the local currency.
Valuation: what long-term visibility?
The debate on the valuation of the Indian stock market remains open. At 23 times twelve-month price earnings, it is 1.5 times above the historical level. While this may seem high, we believe that it is not disconnected from the fundamentals of the Indian economy, particularly given some visibility on:
- The continuity of its economic policy;
- macroeconomic stability;
- the proper implementation of political reforms;
- stronger than expected profit growth and;
- the increase in the weight of private companies in the index in recent years to the detriment of public companies (generally better valued).
India reminds us of China in the early 2000s
These developments indicate that India is laying the foundations for a more consumer-driven economy. Together, these elements – economic reforms, expanding manufacturing, and improving digitalization and electrification – should, in our view, enable the Indian economy to more than double in size over the next decade.
1Source : Department of Commerce, Ministry of Commerce and Industry, Government of India.
2Source : Morgan Stanley, Octobre 2022.
