India Aiming to Leap with Semiconductors: 'Dreaming of 3rd Largest GDP in the World by 2030' [Global Focus]

Q1 India's GDP Hits $854.7 Billion... Surpasses UK, Former Colonial Ruler, for First Time
Annual Ranking Secures 5th Place Globally... IMF Projects 7.4% Growth This Year
Modi Pledges $10 Billion Support for Semiconductor Sector... Attracts New Fab Investments

[Asia Economy Reporter Park Byung-hee] May 5th was Teacher's Day in India. Narendra Modi, Prime Minister of India, shared special remarks at the government-hosted Teacher's Day commemorative event.

"India's economy has surpassed the United Kingdom. More than the fact that we rose from 6th to 5th place globally, I am happier that we have pushed back those who ruled us for 250 years. It is very special."

India gained independence from Britain in 1947. This year, marking the 75th anniversary of independence, India's economy has surpassed that of the UK for the first time. According to Bloomberg, India's Gross Domestic Product (GDP) in the first quarter of this year was $854.7 billion, exceeding the UK's GDP of $816 billion. Bloomberg explained that this calculation was based on the International Monetary Fund (IMF) GDP statistics converted at dollar exchange rates. This is the first time India's GDP has exceeded that of the UK.

On an annual basis, India's entry into the world's top 5 economies is also expected to be confirmed. India recorded a GDP growth rate of 13.5% year-on-year in the second quarter of this year, while the UK only managed 2.9%. Moreover, the Bank of England (BOE), the UK's central bank, has forecasted a prolonged recession for the UK economy from the fourth quarter of this year through the end of next year. In contrast, the IMF expects India's economy to achieve a remarkable 7.4% growth rate among the Group of Twenty (G20) countries this year.

◆ Overflowing rosy forecasts... 3rd place by 2030? = The UK economic analysis firm Macro Economics predicted in its report on the 6th that India will surpass even Japan and Germany to become the world's 3rd largest economy by 2030. It is expected that India could rise to 3rd place as early as 2028. Capital Economics analyzed that the share of emerging markets in global GDP will exceed 50% by 2030, with India leading this trend. They also forecast India's average annual real GDP growth rate to be 6% from this year through 2030.

Credit rating agency Moody's also released a report on the same day, stating that India has high growth potential and that its Baa3 credit rating is stable. Moody's projected India's real GDP growth rate to be 7.6% in fiscal year 2023 and 6.3% in fiscal year 2024.

Investment funds are also flowing into India. According to Goldman Sachs, the Asian region recorded net foreign capital inflows for the first time this year last month. The net purchase amount was $10 billion, of which $7 billion went to India.

With forecasts that China's economic growth rate could fall below 3% this year, there are also expectations that India will replace China as the engine of the global economy in the future. Unlike China, where aging has become a serious social issue, India still has a high proportion of young people, giving it relatively greater growth potential. According to a report by India's National Statistical Office last year, the proportion of the population aged 60 and over rose from 8.6% in 2011 to 10.1% in 2021 and is expected to reach 13.1% by 2031. According to Chinese government announcements, China already recorded a 60+ population ratio of 18.7% as of 2020.

◆ $10 billion support for the semiconductor sector = Since taking office in May 2014, Prime Minister Modi has emphasized fostering manufacturing. His goal was to develop India into the world's factory replacing China. Four months after his inauguration, he announced the manufacturing promotion policy 'Make In India.'

After winning re-election in 2019, Modi continued to introduce manufacturing promotion policies. Immediately after re-election, corporate taxes were lowered, and in 2020, the Production Linked Incentive (PLI) scheme was introduced to support manufacturing. The PLI scheme provides subsidies or tax benefits equivalent to 4-6% of the sales increase based on products manufactured in India.

On September 25, 2014, four months after taking office, Narendra Modi, Prime Minister of India, unveiled the logo of the manufacturing promotion policy 'Make In India' in the capital city, New Delhi. New Delhi (India) = AP Yonhap News Photo by AP

Prime Minister Modi aims to elevate the value chain of Indian manufacturing through semiconductor production. According to major foreign media, the Modi government has offered $10 billion in subsidies and is seeking investments for new fabs (semiconductor wafer fabrication facilities).

India's abundant information technology (IT) workforce and the fact that the United States is building a new semiconductor supply chain excluding China are seen as opportunities for India. The increasing disruptions in local factory operations in China due to strict COVID-19 lockdown policies and other policy uncertainties also raise expectations for a spillover effect benefiting India.

There are actual signs of expanding semiconductor investments in India. Foxconn Chairman Liu Yangwei, who mainly produced products in China, said at an investor meeting last month, "We are expanding investments in India," adding, "India's industrial environment is developing, and India will play a very important role in the future."

The Modi government aims to increase electronics industry sales from $75 billion in 2021 to $300 billion by 2026, targeting $120 billion in exports. At last month's Independence Day event, Prime Minister Modi boldly declared the goal of becoming a developed country by the 100th anniversary of independence in 2047.

However, there are also forecasts that it will not be easy for India, a latecomer in the semiconductor sector, to gain competitiveness. Above all, major countries such as the United States and the European Union (EU) are all aiming to increase semiconductor self-sufficiency.

The Biden administration in the United States unveiled detailed implementation plans on the 6th for the $52 billion 'Chips and Science Act (CSA)' signed by President Biden last month. The EU has prepared a semiconductor industry investment plan worth 43 billion euros (approximately 58.7 trillion won) targeting a 20% global market share by 2030, and China is also promoting a 'semiconductor rise' policy to increase domestic semiconductor self-sufficiency to 70% by 2025.

Additionally, India's poor infrastructure is pointed out as a potential obstacle to attracting semiconductor investments. Semiconductor processes require extremely high precision, and even brief interruptions in power or water supply can lead to enormous losses. Power outages are still common in many parts of India, and most companies have their own power supply facilities.

This content was produced with the assistance of AI translation services.