Strategic Analysis of Future Business Growth in India
Predicting the future is perilous, but so is not trying to do so at all. Business leaders always ask themselves what trends are likely to endure and where the next disruption might come from. In most instances, the recent past can offer guidance for the future. In this context, the signals for India are decidedly mixed.
Looking at 2005-20, the McKinsey Global Institute (MGI) evaluated 12 high-growth, dynamic industries that did the most to reshape the global economy in these years. MGI then looked at future ‘arenas of competition’ that are most likely to drive outsized growth for companies over the next two decades: e-commerce, cloud services, artificial intelligence (AI), semiconductors, cybersecurity, electric vehicles (EVs), shared autonomous vehicles, batteries, streaming video, video games, digital advertisements, non-medical biotech, obesity drugs, robotics, modular construction, nuclear fission, future air mobility and space.
Together, these 18 arenas could account for up to $48 trillion in revenues and $6 trillion in profits by 2040.
Current Landscape
In the arenas that defined 2005-20, India had few global players, and in 2020, they accounted for less than 1% of the global market capitalization of companies in those arenas.
Some of these industries may still present opportunities for India—such as the growth of payments and consumer electronics. However, there is considerably greater potential for Indian firms in arenas of the future.
Opportunities in E-commerce
Take e-commerce. India is the fastest growing e-commerce market in the world, with its size going from $3.9 billion in 2009 to $200 billion in 2024, driven by smartphone penetration and the use of digital payments. Online retail represents 25% of India’s total retail market. This is expected to grow to 37% by 2030.
Urban consumers dominate e-commerce, but services in rural areas are improving too, supported as they are by infrastructure investments. India has a strong cohort of local players such as Flipkart (acquired by Walmart) and Meesho; and global companies like Amazon and Rakuten.
IT Industry and AI Services
India’s information technology (IT) industry, valued at around $250 billion, already serves many of the world’s leading companies, and its market for AI services is growing rapidly. Moreover, India has an abundance of IT talent, and given the shortage of AI talent globally, this wealth of expertise could be a significant competitive advantage in a market for AI services that could reach $1.5-$4.6 trillion globally by 2040.
Further, major Indian companies are diving in: For example, Reliance Industries has launched AI initiatives in high-potential sectors such as energy and telecommunications; Tata Consultancy Services has announced a $1.5 billion investment in its Generative AI project pipeline.
Potential in Emerging Arenas
India is well placed to build on these strengths, expand its domestic market and use its capabilities to make an impact in the global AI ecosystem. And it will be fascinating to see how (and if) India can use its low-cost innovation capabilities to enter some of the next big arenas of competition.
For example, India has proven that it can complete complex space missions using a lower-cost but effective approach. The Mangalyaan Mars orbiter and Chandrayaan-3, which landed on the moon, both cost the country around $74 million, which was much less than what similar missions cost America’s National Aeronautics and Space Administration (Nasa). The market for commercial space applications is currently nascent, but with falling launch costs and accelerated innovation, this could be an arena for India to watch.
Conclusion
The same dynamic could play out in other areas, such as obesity drugs, biotech, batteries and even nuclear fission. In electric vehicles, for example, India is leaving the top of the EV market to others and carving out a significant niche in two-wheeled and three-wheeled electric mobility. Indian manufacturers are also innovating in lower-cost compact sport-utility EVs for the domestic market, but could launch electric SUVs regionally and eventually globally.
Evaluating the arenas of the future matters. The arenas that MGI evaluated in 2005 generated less than 10% of the total global economic profits then; by 2019, they accounted for nearly 50%. Action has now shifted to future arenas of competition—and India needs to be part of it.
Predicting the development of new arenas is not an exact science. There could be technologies we haven’t heard of that might become important. Geopolitics and unexpected changes in trade policies, climate finance and regulation could make a big difference.
Having said that, the next big arenas of competition will still go a long way towards determining the world we live in—shaping how we use data, move people and goods, heal the sick and communicate.
FAQ
What are the key industries driving future growth in India?
The key industries driving future growth in India include e-commerce, AI services, space technology, electric vehicles, and biotech, among others.
How can Indian companies leverage their strengths in the global market?
Indian companies can leverage their strengths in technology, innovation, and cost-effective solutions to compete in the global market and expand their presence in emerging industries.
References
This article originally appeared in Mint.
