Journey of India Toward a Developed Market

June 21, 2025

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India, though very much an emerging market, has made drastic moves toward developed status. Such a change carries significant implications for both foreign and domestic investors, presenting both substantial opportunities and challenges.

Knowing the direction and the drivers behind this change is important for savvy investment choices. In this article, we will cover what India’s current economic status is, the steps it is taking to move to a developed status, and what the implications are for investors.

India's Current Trajectory: Where India Stands Now, And Where It's Going

Global index providers such as MSCI and FTSE Russell categorise markets along lines such as economic development, size and liquidity of the market, and market accessibility. Although India has come a long way in economic development and boasts a very large and liquid market, it continues to have issues with some areas of market accessibility, such as capital controls and foreign investor regulatory disclosure. This places India firmly in the "emerging market" bracket.

India has recorded a healthy GDP growth rate and is likely to continue being among the world's fastest-growing large economies, with a projected 2025 growth of approximately 6.3%. Growth is supported by a series of transformative reforms:

● Goods and Services Tax (GST): The Goods and Services Tax (GST) has integrated the previously heterogeneous indirect tax regime into a simpler one for businesses to navigate.

● Insolvency and Bankruptcy Code (IBC): The Insolvency and Bankruptcy Code (IBC) has enhanced credit culture and provided more predictable mechanism for resolving stressed assets and bankruptcies at a faster pace.

● Direct Benefit Transfer (DBT): It has improved welfare delivery and financial inclusion.

● Production Linked Incentive (PLI) schemes: These are encouraging domestic manufacturing in the focus areas of electronics, automobiles, and pharmaceuticals.

● Economic Formalisation & Digital Leap: Economic formalisation and widespread adoption of digital infrastructure, as seen in the case of UPI and Aadhaar-linked instruments, further enhanced efficiency and transparency while bringing more economic activity into the formal sector.

Pillars of Progress: Capital Markets, Infrastructure and Industry

● Growth of BSE and NSE: Indian capital markets, especially the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), have witnessed striking transformation. These institutions have substantially modernized, becoming deeper and liquid, and have an essential role in capital formation for India's expanding economy.

● Growth of Retail Investors and SIP Culture: The growth in the number of retail investors and the use of Systematic Investment Plans (SIPs) have revolutionized market dynamics. SIPs have instilled long-term discipline in the investing behaviour of Indian households, leading to stable market flows and widened investor participation.

● Strengthening the Foundations:

o Robust Market Regulation by SEBI: The Securities and Exchange Board of India (SEBI) has been instrumental in developing a credible and transparent market culture. SEBI continually strengthens market integrity with reforms like IPO/delisting news, REIT/InvITs regulations, and AI supervision guidelines. Recent reforms also ease FPI disclosures and co-investment regulations for AIFs.

o Market Transparency: Requirements such as real-time API filings, ESG disclosures, and the Electronic Bidding Platform for debt raise India's corporate transparency and accountability standards.

o Mature Market Infrastructure: Shifting to T+0 settlements for the highest-stocked stocks, retail SIP culture deepening, and robust digital channels such as UPI reflect increasing efficiency and investor inclusivity.

o Investor Protection: Tools such as the Investor Protection Fund (IPF), checks on speculative F&O trading, and tighter intermediary regulation facilitate a more secure investing environment.

● Infrastructure Revolution: The $1.4 trillion push towards infra growth is also a pillar of India's growth story. Initiatives like PM Gati Shakti for multimodal connectivity and the National Infrastructure Pipeline are massively reducing logistics costs and improving efficiency.

● Industrial Resurgence: Industrial corridors and manufacturing clusters, supported by policies like "Make in India", are converting India into an international manufacturing hub. In addition to this, investments on a massive scale are being directed towards energy transition and green infrastructure development.

The following chart highlights net investments by Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs) over the past several years, offering insights into market confidence during India's economic transitions:

Foreign Investment Trends: Riding on Demographic and Geopolitical Strength

India has witnessed strong Foreign Institutional Investor (FII) and Foreign Direct Investment (FDI) inflows. Services (insurance, finance, banking), telecom, and computer hardware & software have been in high demand. FDI policy relaxation, tax reforms, and investor protection measures have made India a destination for investment. Foreign investors still face problems of capital controls, though gradually easing, and calls for greater regulatory transparency in some segments.

● Demographic Dividend: India's demographic dividend is a powerful growth driver. With the largest youth population in the world and a rapidly expanding middle class (projected to reach 1 billion in 2047), there is a rapid expansion in discretionary incomes. This is propelling consumption-driven growth, supplemented by urbanisation, creating new opportunities in real estate, urban infrastructure, and consumer durables.

● Geostrategic Advantage: India's geostrategic location is also emerging as an important factor, particularly with the "China plus one" policy (refers to the business practice of companies diversifying their manufacturing and supply chains by expanding operations beyond China), as global companies attempt to diversify their supply chain. India's accession to free trade agreements and initiatives towards supply chain diversification are making it more integrated with the global economy. India has shown macroeconomic resilience during global recessions and has thus proven itself to be an attractive investment hub.

Thriving Tech & Persistent Challenges

The thriving start-up culture of India, in the shape of the rapid expansion of unicorns, is a badge of honour. Measures such as Digital India are boosting market and credit access through platforms like UPI. However, significant challenges remain:

● Structural Hurdles and Skill Gaps: Income inequality and regional disparities remain problems. Formalising the huge informal workforce and bridging skill gaps through training efforts are needed to fully harness the demographic dividend.

● Governance & Predictability: Bureaucratic inefficiencies, functioning of the legal system without delay, and the need for greater policy predictability are areas requiring constant attention for higher investor confidence.

Strategic Insights for Domestic Investors

As India’s economy continues to gain prominence on the world stage, domestic investors have a unique opportunity to participate in this upward momentum. A thorough understanding of emerging sectors, evolving trends, and regulatory shifts can help Indian investors make more informed and prudent decisions. Consulting a financial advisor with deep expertise in India is highly recommended. A seasoned financial advisor who understands the Indian market will be a big boost for this endeavour.

Significant long-term opportunities also exist in infrastructure, renewable energy, financial services, and the digital economy sectors. However, the investors must, remain vigilant and keep an eye on risks such as valuation cycles, political changes, and global capital flow dynamics that affect market volatility. Success will favour those adopting a long-term perspective, strategically navigating these factors to capitalise on India's immense growth potential.

Developed Market Status: The Road Ahead

The transition from an emerging to a developed market is not just about GDP size—it requires holistic advancement in health, education, income equality, infrastructure, governance, and social indicators.

Indian Prime Minister Shri Narendra Modi stated that while India is now the fourth-largest economy, the pressure to reach the third position is intensifying. He reaffirmed that, India must become a fully developed nation by 2047, marking 100 years of independence with global recognition as a prosperous, strong country.

Conclusion: Positioning for the Future

India’s economic transformation is not a matter of if but when. For investors, this is an era of strategic accumulation, whether through long-term equity investments, sector-focused funds, or infrastructure plays.

As India builds the foundation for a developed economy, those who understand the shifting landscape early can benefit the most. It's time to look beyond short-term noise and embrace the structural opportunity that India's growth story presents.

-Sukalyan Halder & Akshit Bajaj

-Dayco India

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Journey of India Toward a Developed Market

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