At a time when China's economy is being questioned for being too dependent on investment, India is trying to ramp up manufacturing. Investors from around the world are setting up shop in India to produce goods to export. One major success story is Apple's decision to expand its supply chain into other Asian countries, notably India. Investment incentives have been extended by New Delhi in an effort to get more manufacturing enterprises to establish their global headquarters in India. We are now patiently awaiting the surge of foreign direct investment. Prominent brands like Tesla are being courted. In order to attract multinational manufacturers, the country is constructing its infrastructure at a breakneck pace.
Given the constraints of the Chinese model, this seems like a dangerous course of action. Yet, this is India's sole option for achieving its goal of becoming an upper-middle-income nation within the next 25 years. Production as a percentage of GDP by manufacturers has been relatively flat. The acquisition of energy results in ongoing trade deficits. Plus, the service sector simply cannot handle the influx of extra workers from the agricultural sector. These issues are resolved by robust exports of manufactured goods. A further way around limited domestic consumption is the ability to produce on a global scale. Furthermore, due to the release of credit from questionable lending, India's investment rate has dropped below its peak.
To encourage private investment, the government of India is directing more and more household resources into infrastructure projects. Preemptive measures to restrict consumer borrowing have been implemented by RBI. India is in a position to shift demand from consumption to investment. It should be careful not to do it too much, though. In order to achieve balanced growth, social investment is just as important as physical investment, as we can see from China's experience. An update to the infrastructure is urgently needed in order to enhance industry. The focus should shift later on to constructing a sufficient social safety net to support consumption at lower income levels. But it's still early days for India, so the country can focus on constructing its industrial infrastructure.
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