Hong Kong/London(CNN) When Tim Cook arrived in India earlier this month to open Apple’s first bodily retailer within the nation, he was welcomed like a hero.

The CEO was greeted with cheers and applause, presented with a classic Macintosh and held court docket with the nation’s officers, including Prime Minister Narendra Modi.

Cook’s go to, the newest by a high world govt, exemplifies the rising tide of curiosity that firms and governments are displaying in doing enterprise with India. Just days after his landmark journey, Pret A Manger, a classy British sandwich chain, arrange its first outlet within the industrial capital of Mumbai, because it wager on the nation’s rising center class.

India will surpass China to become the world’s most populous nation this weekend, in response to calculations from the United Nations, in a milestone that may solely cement its rising picture as darling of the worldwide economic system.

Its new standing has forged consideration on whether or not its economic system will harness that demographic energy to displace China in different methods.

The case for investing in India — a nation of 1.4 billion — is obvious, and solely bolstered by current geopolitical shifts. As Western leaders look to spice up financial cooperation with international locations that share related values, India, the world’s largest democracy, stands to achieve.

Until just lately, many international locations and corporations “had put all their eggs in the China basket,” stated Partha Sen, professor emeritus on the Delhi School of Economics. As tensions proceed to flare between the West and Beijing, there’s “a move to diversify away, and India fits right into it,” he added.

India’s so-called “demographic dividend,” the potential financial progress arising from a big working-age inhabitants, represents a serious alternative. Its huge shopper market and pool of reasonably priced labor can be drawing extra consideration from world manufacturers and buying and selling companions.

Cozying up

In a bid to spice up the economic sector and carry exports, the Indian authorities has sought to signal free commerce offers, a transfer that is been warmly obtained all over the world.

Since 2021, India has struck agreements with Australia, the United Arab Emirates and Mauritius. It can be negotiating offers with the European Union, the United Kingdom and Canada.

Russia, whose commerce with the West has slumped since its invasion of Ukraine final 12 months, can be serious about growing ties with India. The transfer is seen as dangerous, because it requires a tough balancing act for New Delhi of retaining Washington completely happy whereas warming as much as Moscow, according to Shilan Shah, deputy chief rising markets economist for Capital Economics.

The United States and India have taken steps in current months to strengthen their ties, significantly in protection and expertise, as they try and counter the rise of an more and more assertive China.

In January, the White House launched a partnership with India that Washington hoped would assist the international locations compete in opposition to China on synthetic intelligence, army tools and semiconductors.

The United States touted the deal as reinforcing “our democratic values and democratic institutions,” whilst these beliefs have been undermined by India’s current crackdown on opposition politicians and the media.

In February, Air India purchased greater than 200 plane from Boeing (BA) within the American planemaker’s third-biggest sale ever. President Joe Biden hailed “the strength of the US-India economic partnership.”

“Together with Prime Minister Modi, I look forward to deepening our partnership even further as we continue to confront shared global challenges,” he stated.

A month later, US Secretary of Commerce Gina Raimondo visited New Delhi together with a bunch of senior executives from US firms. There, she signed an agreement with Indian leaders to debate coordination of funding in one another’s semiconductor industries.

Speaking on the Indian embassy in Washington final week, Raimondo stated: “In the years to come there will be two ecosystems of technology. One consistent with our democratic values, and another not.”

‘Economic miracle?’

Beyond geopolitics, India’s financial and demographic fundamentals are driving enterprise curiosity.

The International Monetary Fund expects the South Asian nation to outperform all main rising and superior economies this 12 months, logging GDP progress of 5.9%. By comparability, the German and UK economies will stagnate, whereas the United States will develop just one.6%.

If it may well preserve its momentum, India will overtake Germany because the world’s fourth largest economic system in 2026 and knock Japan from the quantity three spot in 2032, in response to analysis by the Centre for Economics and Business Research.

India’s working-age inhabitants stands at greater than 900 million, in response to 2021 knowledge from the Organisation for Economic Cooperation and Development. In the following few years, its workforce may very well be larger than China’s, according to Capital Economics.

The Biden administration has embraced India’s anticipated progress with unbridled enthusiasm.

“We want to be part of your economic miracle,” Donald Lu, the US Assistant Secretary of State for South and Central Asian Affairs, told Indian information company PTI final week.

But India’s spectacular GDP and inhabitants progress belies a rising headache.

“If you look at the overall data — GDP growth, the entire national income growing, India’s doing moderately well,” stated Kaushik Basu, an economics professor at Cornell University. “The bottom end of India is not doing well,” he added. “The key reason for that is in terms of employment, India is doing rather poorly.”

At 7.1%, India’s unemployment price stays above its pre-pandemic common. Basu informed CNN the roles challenge, which some analysts have called a looming time bomb, was changing into one in all India’s greatest issues and could also be exacerbated because the inhabitants grows.

Growing manufacturing

Economists say there’s a clear reply to the employment downside: construct extra factories.

“The demographic potential and the key to unlocking that would be developing this globally competitive and labor-intensive manufacturing sector,” stated Thamashi De Silva, an assistant economist for Capital Economics.

As of 2021, manufacturing accounted for lower than 15% of India’s economic system or employment — comparatively small by world requirements, famous Shah from Capital Economics.

Luckily, its want for extra meeting traces comes as firms are scouting for brand spanking new manufacturing hubs.

Apple (AAPL) has expanded production considerably in India after struggling provide chain snags in mainland China. Last week, throughout his go to, Cook pledged to speculate additional throughout India.

Weeks earlier than, the chief of Foxconn additionally visited India and met with Modi. The Taiwanese electronics maker, which provides to Apple, was one of many fastest-growing producers in India late final 12 months and is seeking to broaden.

“Apple increasing production and investment in India has certainly raised hopes of forming an electronics ecosystem in the country and more broadly encouraging other multinationals as well,” stated De Silva.

Obstacles forward

India will profit as firms diversify their provide chains away from China, however “several obstacles” will impede this shift, stated Alexandra Hermann, a lead economist at Oxford Economics.

She cited stringent labor legal guidelines, excessive import duties and logistics challenges. Although India’s tech exports have grown steadily in recent times, locations resembling Taiwan and Vietnam “have so far benefited more from the search for alternative import sources,” she informed CNN.

Despite enhancements in infrastructure, India’s logistics prices are nonetheless increased than in China, South Korea, Japan, Malaysia and Thailand, in response to the World Bank.

Basu of Cornell University stated the important thing now was for the federal government to provide you with a plan to soak up the surplus labor by creating manufacturing jobs.

“Do it right, and this is a dividend,” he stated. “Do it wrong, and this is going to be extremely worrying for the Indian economy.”

CNN’s Vedika Sud in New Delhi contributed to this report.