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Challenges on the Path to India’s Prosperity: Finding the Way Forward

By Sanhitha Raghuveera, Global Capital & Strategy Associate at FCA Corp, Houston, Texas

I recently had the chance to visit with Patrick Santillo, a Senior Vice President at the Business Council for International Understanding (BCIU) and former Minister Counselor for Commercial Affairs at the U.S. Embassy in New Delhi. During our conversation, Mr. Santillo reflected on India’s projected growth: “I see tremendous potential and opportunity in India. The country is experiencing major demographic shifts and a growing economy. The country has an innovative and enterprising spirit.”

FCA Corp, a Houston-based investment advisor and financial planning company that is also a portfolio manager of the Commonwealth Global Fund, felt it crucial to understand India’s unfolding growth story and the obstacles the country faces. The following are some key issues India must deal with as the country takes the global stage.

Asserting Global Leadership

As the 2023 President of the Group of 20 (G20), India will host the G20 Summit in New Delhi in September, bringing together leaders from the world’s largest economies. India’s presidency occurs during geopolitical tumult and uncertainty during a post-pandemic economic recovery. For India, the G20 presidency is a long-awaited moment to spearhead new policies while also providing the opportunity to set the tone of cooperation between the East and West as the second of four consecutive Global South country hosts. The G20 presidency is a massive undertaking but allows India to shape an agenda for global collaboration while highlighting its emerging status as a leading power. As the world’s largest democracy with a population of 1.4 billion, India’s population is expected to overtake China and become the most populous nation by 2028. In terms of economic growth, India could become the world’s third $10 trillion economy by 2035.

Reliance on Russian Arms and Oil

In 2021, India’s military spending ranked third highest in the world at $76.6 billion after the US and China, and just over the past decade, the country’s defense spending has increased by 50%. Spending goes towards the modernization of the military and the transition to local manufacturing as part of Prime Minister Narendra Modi’s broader “Make in India” campaign. This campaign aims to modernize the country’s army and indigenize the equipment. Even though the country is starting to shift away from defense system imports, 70% of India’s military equipment are still Russian-made and India could face a critical shortage of helicopters by 2026 and fighter jets 2030.

Similarly, India relies on Russia for oil. By the end of 2022, Russia was India’s primary source of oil, surpassing Iraq and Saudi Arabia as suppliers. While Western countries have been disappointed in India’s neutrality towards Russia following the invasion of Ukraine, India’s reliance on Russian oil and weapons is not necessarily revealing of a warming of relations between India and Russia; rather it is an example of how India is focused on taking advantage of a financial opportunity, especially given the heavily discounted oil. India has shown that it will continue balancing its relationships with Russia and the West.

Open Communication with Japan, Australia, and US

India has long been concerned about China-Russia relations but is more acutely worried about Russia aligning with China given tensions on the Sino-Indian border. Part of India’s approach to handling the rising threat of China is its partnership with the US, Japan, and Australia known as the Quadrilateral Security Dialogue (Quad). The Quad at its core is a symbolic partnership and it operates as a meeting format for senior officials to discuss regional security issues. While it is unlikely that India will move away from its nonalignment policy and formalize a partnership with the US through a formal or informal military alliance, its engagement in Quad dominates India’s view on China. India has traditionally been keen to ensure that the Quad does not become a formalized alliance-like structure to maintain its policy of nonalignment.

Energy Self-Reliance

During the 2021 United Nations Climate Change Conference (COP26), Prime Minister Modi pledged to reach net-zero emissions by 2070 and for renewable energy to account for 50% of the country’s energy mix by 2030. While the current plan focuses on the growth of renewables, specifically solar and wind, India needs to address concerns with the current system. The first step is to reconfigure India’s grid to manage and produce a stable stream of supply from wind and solar, both of which are unpredictable. Structural changes need to integrate the state-run grids into a more coordinated system that can use surplus power in one region to compensate for outages in others. The history of corruption and politicians manipulating power companies for election benefits causes difficulties in achieving the much-needed reform.

Overcoming Infrastructure Constraints

As noted earlier, India will overtake Japan and Germany and become the world’s third-largest economy by the end of this decade. This growth is fueled in part by the country’s manufacturing sector. Infrastructure development is critical to achieving this goal. Last year, during India’s 75th Independence Day, Prime Minister Modi laid out his government’s plan to invest $1.35 trillion in infrastructure to support the manufacturing sector and to boost economic growth to reach the 2030 milestone. India is striving to improve its manufacturing competitiveness as China is shifting to consumption-led economic growth. Timely execution of projects within this infrastructure plan is one key challenge, as well as staying within budgeted costs. Projects should also then be centered around improving India’s transportation infrastructure. The country’s congested roads, delays in railway freight movement, inefficient and lengthy turnaround time at ports, and highly concentrated airport sector are causing serious capacity constraints.

India’s Challenge

While the “Make in India” campaign is a step towards self-sufficiency, India’s dependence on Russia for military equipment and oil has immediate geopolitical implications that shape India’s role on the global stage. Western countries have taken part in sanctions against Russia but India has maintained a policy of neutrality, being the only democracy in the UN Security Council to abstain from a February 2022 vote deploring Russia’s actions in Ukraine. Then again in March, India abstained from voting against Russia during the UN General Assembly and again during a UN Human Rights Council vote to launch a probe into rights violations in Ukraine. India’s neutrality towards the invasion only further highlights its policy of “strategic autonomy.” But as the country grows, driven by its population and transformative economic and industrial policies, time will only tell how India reassesses its autonomy, the impact it will have on geopolitics in the region, and the global economy.


The thoughts and opinions expressed in the article are solely those of the author as of April 4, 2023. The discussion of individual companies should not be considered a recommendation of such companies by the Fund’s investment adviser.  The discussion is designed to provide a reader with an understanding of how the Fund’s investment adviser manages the Fund’s portfolio.