Taj Mahal, Agra, India in the lights of the sunset.

India: Ascent interrupted, for now

India is set to be the fourth largest economy by 2026, powered by economic policies such as the “Make in India” initiative. But there are short-term challenges. Discover the dynamics driving change.

India’s economy, which is expected to become the world’s second largest by 2050,1 has come to be defined and driven by a fast-growing consumer class that could be as large as 89 million households in the next five years.2 Indeed, domestic demand contributed to 60 per cent of the country’s GDP growth in 2018, and the trend is likely to continue until 2030.

But, in a sign of the near-term challenges facing the country, the IMF has lowered its growth estimate for India for 2019 to 4.8 per cent from a 6.1 per cent projection in October3 while various rating agencies have revised down their 2020 growth forecasts to between 4.9 per cent4 and 5.4 per cent. 5Looking further down the road, however, the reelection of the Narendra Modi government is seen providing the necessary political stability that could help eventually fuel the country’s steady ascent and help it surpass Germany to become the world’s fourth-largest economy by 2026.6

Sectoral changes

As India’s economy and trade continue to grow, thanks specifically to enhancements in the country’s digital infrastructure,7 ongoing industrial shifts are also influencing the country’s key sectors - such as those involved in the production of chemicals, and textiles and garments.

India’s chemicals sector and allied industries are specifically adapting to the rise of the circular economy, which has led to a profusion of local, regional and global regulations – aimed at encouraging worthy objectives such as emissions reduction, eliminating wasteful consumption and product safety.8

For example, in India, many states have banned the use of disposable containers and straws, which has reduced the demand for polymers and prompted companies to switch to decomposable plastics. Similarly, a ban on chemical insecticides9 is leading a push for biologically friendly alternatives.10

In the textiles and garments sector - one of India’s oldest and most diversified industries dating back centuries – mid-corporate companies are overhauling long-established business practices to adapt to the changing demands of customers, who are now seeking more personalised products and services.

Inevitably, these changes are adding to production costs and pinching margins in an industry also coping with growing competition, including from regional players. As Pravin Hanotia, General Manager Sales at House of Anita Dongre Limited, observed: “International players are entering the Indian apparel market, putting competitive pressure on local firms and raising the expectations of local consumers.”

Opportunities at home and abroad

Amid the ongoing uncertainty, there is still significant potential for future growth that domestic mid-corporates can capitalise on.

Growing domestic demand continues to underpin growth in the chemicals, and textiles and garments sectors alike.11 As Bhavin Jethva, owner of Neelam Garments which exports to markets like the United States, observed: “Due to the fast-growing middle class in India, we have seen growth in domestic demand and we expect India to become a large market for us in the coming years.”

The textile and garments sector is expected to expand at over 16 per cent CAGR to reach USD223 billion by 2021.12 India’s chemicals and allied industries was worth USD163 billion in 2018 and is predicted to grow at 9 per cent CAGR to reach over USD304 billion by 2025.13

Overseas markets also offer a major growth area for both the chemical sector as well as the textiles and garments sector. Africa, the third largest importer of chemical products, is the largest destination for Indian chemicals exports (27 per cent share in 2017), growing at a rate of 6 per cent (CAGR 2012-2017).14

“We are selling huge quantities of agrochemicals in Nigeria and Ethiopia,” noted Ashish Soparkar, Managing Director, Meghmani Organics Ltd. “East Africa in particular is an attractive market for us because of its size and accessibility by ship and because the registration costs of chemical products are much lower than for the US or Europe.”

Exports of textiles and garments are also forecast to grow strongly and exceed USD82 billion by 202115 from USD39.2 billion in 2018,16 with the Middle East emerging as an attractive market.17 But there is room for further growth as evidenced by market data, which show India’s share in the export of global textiles stood at just 6 per cent.18 Chinese companies, in comparison, currently hold a 38 per cent share of the market.19

Robust long-term outlook

Even as global macroeconomic factors remain in a state of flux, government reforms and initiatives should help shore up business sentiment and spur domestic demand to ensure long-term growth.

Recent measures by the Modi administration to kickstart the economy include reducing the corporate tax rate for local businesses to 22 per cent from a base rate of 30 per cent.20 This move is expected to provide added stimulus to the state-led “Make in India” initiative that aims to draw foreign investors, especially in the manufacturing sector, to its shores and boost private sector competitiveness.21

Meanwhile programmes like ‘Start-up India’ are already helping enhance the participation of foreign investors and reviving growth in sectors ranging from e-commerce to healthcare to aviation.22 On the trade front, according to Standard Chartered’s Trade20 index, India is ranked among the top five markets in the world, thanks mainly to the government’s efforts to prioritise cross-border commerce as an engine of growth.23

In other moves, the government is merging state-run banks to address the sector’s bad debt24 problem while planning measures to spur growth in bellwether industries such as housing, auto and infrastructure.25 The landmark Goods and Services Tax, implemented in 2017, should also further enhance the ease of doing business in India, which should prove especially beneficial for small and mid-sized businesses. The country has climbed 14 places to 63 in the World Bank’s latest ease of doing business rankings26 - a rise attributed to the Modi administration’s commitment to reforms such as simplifying an archaic tax structure, increasing competitiveness and helping generate greater tax revenues.27

Together, these measures are expected to contribute to an improved business environment, revive overall sentiment and rejuvenate consumption among the country’s fast-growing middle class.28 And, once successfully implemented, they should enhance India’s appeal and stature as one of Asia’s, and the world’s, economic growth engines, and help achieve the government’s goal of becoming a "$5 trillion economy" by 2025.29


1 PwC report; World Bank, ‘India Overview’, April 2019
2 https://www.mckinsey.com/featured-insights/employment-and-growth/indias-ascent-five-opportunities-for-growth-and-transformation
3 https://www.mckinsey.com/featured-insights/employment-and-growth/indias-ascent-five-opportunities-for-growth-and-transformation
4 https://economictimes.indiatimes.com/news/economy/indicators/fitch-solutions-cuts-indias-economic-growth-forecast-to-4-9-for-fy20/articleshow/74437823.cms
5 https://economictimes.indiatimes.com/news/economy/indicators/moodys-cuts-india-growth-projection-to-5-4-per-cent-for-2020/articleshow/74171366.cms?from=mdr
6 https://economictimes.indiatimes.com/news/economy/indicators/india-may-surpass-germany-to-become-fourth-largest-economy-in-2026-report/articleshow/73019430.cms?from=mdr
7 https://www.sc.com/en/insights/trade20/
8 PwC Report; Reuters, ‘Exclusive: India set to outlaw six single-use plastic products on October 2 – sources’, August 2019
9 https://krishijagran.com/industry-news/18-pesticides-banned-by-govt-of-india/
10 PwC Report; Reuters, ‘Exclusive: India set to outlaw six single-use plastic products on October 2 – sources’, August 2019
11 PwC report; Make In India, ‘Textiles and Garments’, June 2019; Invest India, ‘Textiles and Garments’
12 PwC report; World Integrated Trade Solutions, ‘World Textiles and Clothing Export by Country and Region’, 2017
13 PwC report; Invest India, ‘Chemicals’, 2019
14 PwC report; Indian Brand Equity Foundation, ‘Textiles and Apparel’, August 2018;
15 PwC report; Indian Ready Made Garments Industry Overview’, April 2019
16 https://www.ibef.org/industry/textiles.aspx
17 PwC report; World Integrated Trade Solutions, ‘World Textiles and Clothing Export by Country and Region’, 2017
18 https://pib.gov.in/Pressreleaseshare.aspx?PRID=1580265
19 PwC report; World Integrated Trade Solutions, ‘World Textiles and Clothing Export by Country and Region’, 2017
20 https://www.straitstimes.com/business/economy/india-slashes-corporate-tax-rate-for-local-companies
21 https://www.indiatoday.in/india/story/modi-corporate-tax-cut-move-economy-make-in-india-1601254-2019-09-20
22 PwC Report; World Bank, ‘Doing Business 2019 Economic Profile: India’, 2019
23 https://www.sc.com/en/media/press-release/our-new-trade20-index-reveals-the-rising-stars-of-global-trade/
24 https://www.wsj.com/articles/india-merges-state-banks-to-battle-bad-debt-11567176133
25 https://economictimes.indiatimes.com/news/economy/finance/stimulus-measures-for-auto-housing-sectors-likely-will-frontload-infra-spending-to-bolster-economy-says-fm/articleshow/71073624.cms
26 https://www.livemint.com/news/india/india-vaults-to-63rd-in-ease-of-doing-business-rankings-11571941484955.html
27 https://www.hrblock.in/gst/impact-gst-indian-economy
28 PwC Report; World Economic Forum, ‘Future of Consumption in Fast Growing Consumer Markets: India, January 2019
29 https://yourstory.com/2019/08/india-gdp-policies-independence-day