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India’s Economic Transformation: From Public Sector Dominance to Global Competitiveness

India has come a long way since its first prime minister, Jawaharlal Nehru, envisioned a dominant public sector for the country. In 1956, Nehru’s Industrial Policy Resolution set the stage for a socialist pattern of society, with 17 economic areas reserved for the public sector. This socialist ideology was carried on by his daughter, Indira Gandhi, who nationalized industries such as banks, coal, copper, and general insurance when she became prime minister in 1967. At that time, the export and import of goods were primarily handled by public-sector trading corporations. As a result, private-sector companies in India remained relatively small compared to global standards, and foreign investment was rarely allowed or encouraged.

Limited liberalization began in the 1980s, easing some of the stringent controls. However, true liberalization didn’t occur until the reforms of 1991, which marked an end to the era of industrial and import licenses and introduced convertibility of the rupee on the current account. Critics feared that globalization would lead to the domination of Indian companies by multinational corporations or their conversion into subsidiaries. While foreign investment was gradually permitted, it was predominantly in sectors like automobiles and telecommunications. Notably, multinational auto corporations seized the opportunity to tap into the potential of the world’s most populous country in the 21st century. However, many struggled for over a decade to turn a profit and eventually exited the Indian market. Suzuki and Hyundai emerged as the top foreign auto brands, while Tata Motors and Mahindra emerged as competitive domestic producers and exporters. By the 2000s, India had become a significant exporter of cars, scooters, motorcycles, and auto parts.

The introduction of new patent rules through the creation of the World Trade Organization (WTO) in 2015 faced strong opposition from Indian political parties. Indian drug companies, which had relied on reverse engineering to produce patented drugs in the West, feared bankruptcy under the new patent regime. Surprisingly, the WTO rules opened up a massive global market for generic drugs, allowing Indian companies to become major players. Today, they supply 40 percent of the U.S. generic drug market.

While some Indian companies struggled against foreign competition, others thrived and became multinational corporations in their own right. The Mittal Group, for example, acquired France’s Arcelor, making it the largest steel company globally. The Tata Group made significant acquisitions in the UK, such as Corus and Jaguar, establishing itself as the largest private-sector employer in the country.

One of India’s most surprising successes has been in the field of computer software and business services. The 1990s witnessed a surge in India’s software exports, with Bangalore emerging as a prominent software city. The term “Bangalored” even came to represent jobs lost to outsourcing. During FY 2022-2023, India’s information technology industry accounted for 5.4 million jobs and $194 billion in exports.

Foreign direct investment in India has historically been lower than in China. However, with the deterioration of political relations between China and the West, many multinational corporations have started to shift their operations from China to India. Apple is a prime example, with the company producing $7 billion worth of iPhones in India during FY 2022-2023, $5 billion of which were exported. Apple aims to generate revenues of $20 billion by 2025, and its component manufacturers are also expanding rapidly in India.

While India is home to many Fortune 500 companies, these companies are primarily present through global capability centers rather than factories. Interestingly, many Indians who work in these centers later venture out to start their own businesses. As a result, these global capability centers have become incubators for Indian entrepreneurs. Bhavish Aggarwal, for instance, started his career at Microsoft but went on to establish Ola Cabs, India’s answer to Uber. Aggarwal is now building Ola Electric, which has the potential to become the world’s largest electric two-wheeler company.

India’s economic transformation from a focus on the public sector to global competitiveness has been a remarkable journey. With the right reforms, liberalization, and entrepreneurship, India has successfully positioned itself as a major player in various industries, including automotive, software, pharmaceuticals, and services. As the country continues to attract foreign investment and foster a thriving business environment, its economic growth is set to propel it further onto the global stage.

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