India’s global ambitions

It's a big year for India. It's become the world's most populous country. In September, it will host the G20 summit at a crucial time for global partnerships in a post pandemic world and an ongoing conflict in Ukraine. And in just about a year, voters will go to the polls in parliamentary elections.

These recent global events have prompted India to recalibrate its geopolitical strategy. India has earmarked manufacturing as a key sector to manifest its global ambitions, not least to attract jobs at home. The country is keen to use platforms like the G20 and COP 28 to demonstrate to the world how it balances domestic needs with international pressures to pursue energy transition.

Here are some insights from our recent podcast episode on India's global ambitions:

Q: How would you describe the recalibration of India's geopolitical strategy?

Deepa Kumar: An evolution in India's geopolitical strategy is driven both by external factors and internal factors.

Externally, India is looking at the world and how it is getting shaped right now, be it in a post-pandemic scenario or post-Russia's war in Ukraine, and thinking that it's a good time to want to do foreign policy differently and engage with countries in a slightly different tenor.

And internally, it's the fact that India is growing so much. Our own data suggests India is expected to become the world's third-largest contributor to global growth within the next decade. And the understanding is that as India becomes a bigger economic behemoth, it should also have more geopolitical heft that matches it.

It's basically India saying that we're going to choose our partnerships with a lot more self-interest. There are three pillars to this. One is how India defines its spheres of influence. One is what it chooses to do in its immediate neighborhood with a neighborhood first policy, then moving a little outwards towards Asia-Pacific and all the emerging economies and some of the challenges and benefits its finds there. And then the broader piece, which I would say India considers to be the culmination of a successful strategy, is how does it lead the agenda for emerging economies on a global stage?

Q: What are the factors contributing to further the Indian government's push to turn India into a manufacturing powerhouse from what is essentially a service-led economy?

Ashima Tyagi: There is consensus that manufacturing in India has largely underperformed, with its contribution to GDP just 17.7% in the last financial year, even though the government's initial target to increase the share to 25% was until 2022. Nonetheless, there is a lot of optimism on what Indian manufacturing sector could achieve in the coming decade, with some even calling it a renaissance.

The primary reason for this enthusiasm is the Indian government's continual efforts towards offering a very conducive policy framework to incentivize for the Make in India, Make for the World plan. This includes promoting homegrown manufacturing capacity expansion through production-linked incentive schemes, rationalizing corporate tax structures, improving the ease-of-doing-business rankings.

They're entering bilateral trade agreements very strategically, injecting investments into infrastructure development and many other things. Additionally, factors such as diversification of the global supply chains post-pandemic, favorable demographics, and healthy competition between the various states to attract investment, have all added to its potential and opportunity.

Q: To drive a manufacturing boom, India's going to need more energy. At the same time, we've got international pressure on India and other economies to curb emissions. How is India balancing its energy needs with the energy transition?

Gauri Jauhar: India will have to connect the energy transition to its economic transition. I think connecting those dots of India's energy transition to India's economic transition is very critical. What we need to understand is that as India transitions, India also grows, and as India grows, India also transitions. These are incredibly interlinked phenomena.

When we look at economic variables, the key variables to look at are things like the increase in urbanization. Our projections show that India will transition from a middle-income economy to an upper middle-income economy by 2034.

What we see happen in the mid-2030s is certain points of inflection which get achieved on key economic and key energy variables. We also see India by 2050, adding about 362 million additional people to its urban population, which is almost saying that you add a new United States by 2050 to India.

When you look at the impact on energy variables, we see primary energy consumption grow. India's per capita energy is also expected to grow. Going back to the underlying economic transition, we will see an increase in urbanization. We will see a shift in the quality of mobility. India's cars per capita will grow and motorcycles per capita — India's still largely a two-wheeler market — will rise.

All key economic variables are impinging on critical energy, demand and energy consumption, and really the quality of the energy transition.

Q: Is the Indian energy transition focused more on local air pollution or on climate change first?

Gauri: For India especially, local air pollution is that critical building block on the path to a net-zero vision for 2070, which has been outlined by the government. That is because that is what really matters most to the electorate. That is what policy makers will be increasingly held accountable for.

When we look at the international climate negotiations, India, like many other emerging markets takes a just energy transition view that climate change is a global phenomenon. However, there has to be a basis for equity in climate action it was developed countries who were responsible for almost the entire CO2 emissions till the 1980s.

To answer your question again, local issues will dominate the near-term focus, especially for policymakers, while still keeping an eye on the ball for that long-term vision of a 2070 net zero.

Listen to the full podcast episode here

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.