If you solve a problem in India you reach 1.3bn people; at such scale, the task of economic reform demands a differentiated, solutions-focused approach and the commitment of government, regulators, companies and investors. 
Modi Operandi
The Modi administration underlined its commitment to structural reform in 2016 with demonetisation before implementing the goods & service tax (GST) in July last year. By improving the ease of doing business in India and raising tax revenues, Modi signalled a willingness to accept short-term economic pain for long-term gain and laid strong foundations to India’s wider reform agenda.
GST has already doubled the number of enterprises registered for tax, making crucial progress in the formalisation of economy with low productivity and contributing to growing consensus confidence in the nation’s capacity for change.
Speakers in New Delhi, Mumbai and Bengaluru reiterated that ‘good business is good politics’, but in the context of India’s election cycle, what may be good for business is rarely palatable in short-term politics. Modi pursued and executed GST and demonetisation early in the election cycle, allowing voters time to digest the pain and begin to see the green shoots of economic promise.
Short-term politics will continue to frame India’s immediate economic future; India will hold eight state elections this year and, with a weather eye on central elections in 2019, many investors are cautious of committing long-term capital to a country perennially in election mode.
That said, today’s major parties - the incumbent BJP (right of centre) and the opposing Congress party (left of centre) – share common economic ideologies, many of which reflect the common goals of the wider population. During our tour, one chairman noted that “the policy path is structurally and directionally fixed” and there are currently no radically different policies on the radar either side of the aisle.
What may differ of course is the pace and success of execution, given that only the party in power can determine the pace and breadth of implementation. Whatever the outcome of India’s upcoming elections, Modi’s strategic execution will prove a tough act to follow. With the heavy lifting for this electoral cycle out of the way, Indian conglomerates believe the economy is now well-positioned to reap the benefits of structural reform, evidenced by current buoyant levels of both domestic and foreign direct investment.
Demographics: dividend or dilemma?
Underpinning the reform agenda, India’s demographic presents both promise and problems. Relative to developed and indeed other emerging market peers, India’s scale and promise of youth provides an attractive entry point into the investment cycle.
More broadly however, 1.3 billion people striving for a better quality of life injects momentum across the economy; over the next 10 years, both per capita income and GDP are forecast to double, making India the world’s third-largest economy by 2027.
Sustained economic expansion rests contingent on continued employment growth, which, to keep pace with current demographic trends, requires the creation of 15 million new jobs each year. To provide some context to the scale of this task, the US added 2 million jobs in 2017, a year considered to be one of the strongest years for the American labour market over the past decade.
With the average age of India’s population at 27, India comprises one-fifth of the working world’s population, but currently delivers just 3 per cent of global GDP. But with unemployment running below 5 per cent, India’s low productivity boils down to underemployment rather than a lack of jobs, which companies are addressing with vocational training, apprenticeships and digital education. Across multiple sectors, companies are seeking digital solutions to educate their workforce in a cheaper, timelier and more accessible format, ultimately targeting higher-wage jobs.
Digitalisation
Indian policymakers recognise the need to replace a wholesale education system with a model tailored to meet India-specific business needs. The size and diversity of India’s workforce requires a customised, low-cost approach which can be delivered at scale, which is currently driving an unprecedented rate of adoption of digital technologies.
A major driver of this shift is the accelerating transition of workers from agriculture (currently 50 per cent of employment) into the manufacturing and service sectors. The offline to online conversion is not just the reserve of developed industry, however. Technology is empowering India’s 60 million local shops to digitalise, gearing up a vast network of ‘mom & pop shops’ to digitally engage in an economy where e-commerce remains relatively nascent.
Looking ahead, data generation and usage will be a critical trend underpinning the next phase of Indian growth, supported by declining smartphone costs and rising data demand. India is set to become data-rich well before it becomes economically rich, with the average Indian already generating the same amount of daily data as an American of average wealth. Through data leveraging and machine learning, companies are driving cheaper and more efficient delivery of services as a way of customizing solutions for a massive and diverse population. By harnessing the power of its people, we believe the Indian economy will continue to provide opportunities for strong returns for equity investors.
Hiren Dasani is co-head of emerging markets equity and lead portfolio manager at Goldman Sachs Asset Management. The views expressed above are his own and should not be taken as investment advice.