Last July 14, Narendra Modi, the Indian Prime Minister, was the guest of honor at the Bastille Day parade in Paris. He returns the favor to the French president, since Emmanuel Macron is in turn invited to the Constitution Day, Thursday January 26 in New Delhi. Catherine Bros, professor of economics at the University of Tours and specialist in India, gives explanations on the country’s economy.
franceinfo: Beyond the symbol, is it important today to appear alongside the leading demographic power in the world? Can France benefit from this mark of attention?
Catherine Bros: This is important from a strategic point of view. India is not a very big partner of France and France is not a very big trading partner of India. But in fact, they trade in sectors which are extremely strategic since they are indeed nuclear, defense and aeronautics.
France has in fact sold Rafales to India: 36 have already been ordered and 26 others are under negotiation.
Yes, absolutely, so aeronautics exports from France to India are increasing. But all things considered, it is not a very important partner since India is France’s 14th customer and 16th supplier. So it is not an important partner in terms of volume, but important in terms of strategy of presence in the Indo-Pacific region.
The sectors in which France exports are important: aeronautics, chemicals, the pharmaceutical sector, and communication equipment too. So, beyond volumes, it remains a strategically important partner?
It is important to position ourselves in India and all the economic powers are currently positioning themselves in India because, indeed, it is the leading demographic power. It is the fifth largest economy, but obviously, in terms of GDP per capita, it is far behind. It is above all a growth driver currently for the global economy, since there is 7.3% growth expected this year, which is enormous in the current context. So it is an important partner, but it is a bet on the future because there are currently still a lot of structural weaknesses in the Indian economy.
India is known for its training, its brains, but also for its underinvestment in health and education. Among all G20 countries, India has the lowest per capita income. Less than 2,000 euros per inhabitant per year. Is this a sustainable model?
For the moment, growth, at least last year, has been driven largely by public investment in infrastructure, and therefore not by private investment. There are very structural weaknesses in India: too little job creation, incomes too low to drive mass consumption and private investment which, given the circumstances, should be higher. There are in fact rates of utilization and productive capacity which are already very high, with cash flow which is very comfortable. So, we should have solid private investment. However, that is not what we see.
How do we explain this private underinvestment?
I think there’s a lot of wait-and-see attitude, actually. There is also very strong activity from the State, with current growth which is largely driven by construction, which itself is driven by the recovery plan via infrastructure. And public spending has a very significant ripple effect. But there is still a question about internal consumption, which still represents 60% of economic activity, because income is not increasing.
“40% of the population is still in agriculture while it is 15% of GDP, which is specific to India.”
Catherine Bros, economics professor and India specialistat franceinfo
Incomes in agriculture are stagnating and are being eroded even by inflation. So you already have 40% of the population whose income is not increasing. And so the middle class, which consumes and saves, we are still looking for. So there is a lot of wait-and-see attitude on the part of private players in India to see how consumption evolves.
At the same time, we see an Indian government which is very protectionist, which protects its internal market, pharmaceuticals, agri-food, and automobiles too. Is there any hope, for French companies in particular, that this will change or is it a wasted effort?
As far as “pure” commerce is concerned, it’s quite unlikely that that will change. Indeed, the strategy that has been developed so far is a strategy of protecting industry, export subsidies, customs duties on imports.
So, this domestic market is in its infancy, we don’t even have access to it?
We access it through investment, in fact. This is India’s whole plan, to say “if you want to be able to access this market, you have to invest. We will not do that through commercial integration, it will be done through investment.”
India dreams of itself as a “New China”. Today, it is the fifth largest economic power in the world. It can become the third largest economy in 2030, in any case that is what Standard and Poor’s recommends. In your opinion, is this possible?
Yes, it’s possible because there is a crystallization of hopes for India, so everyone wants to position themselves on India. In the short term, there is a real ripple effect. But, if we look structurally, there are very clear weaknesses, such as consumption. We don’t really know where it’s going to come from because incomes are struggling to grow precisely because of this structure of the workforce which is in fact very disproportionate, both a lot in agriculture and then a little in services.
Major elections are looming this year in India. Narendra Modi’s regime tends to get tougher. Can this authoritarian trend thwart the country’s economic growth?
It’s unlikely. On the one hand, because the result of the elections is still expected. I don’t think there’s much suspense. Furthermore, the regime is getting tougher on points that are truly domestic policy. From an economic point of view, the line was quite clear and a little protectionist, but with liberalization, at least internally. The only doubt we have about the relationship between politics and the economy is rather what we call crony capitalism which seems to be strengthening a little in India and which can actually chill investors because it is very difficult to read.