Thread by @Trinhnomics

Modi likely got re-elected (official results on 23rd) 👏🏻Let's look at Modi's performance & also what is needed for him to take India to the next level.

Let's 1st look at 3 factors of production (Solow model): labor, capital & productivity.

After, we compare China & India 🇨🇳🇮🇳🤗

India has 1.38bn people & 📈to 1.66bn in 2050 (yes, a lot of people) & esp working age population, which is a good thing if there are jobs & bad if no jobs (loitering & causing troubles).

Labor participation is 54% vs China's 68%; 82% 🇮🇳labor force is informal (🇨🇳 60%).

India needs 11-million jobs per yr in the next decade to absorb incoming working age population.

Where do jobs come from? Firms of course b/c informal jobs not as lucrative as formal jobs & to increase jobs, need to make investing in India attractive 👇🏻(+ progress on doing biz)

Okay, so some improvement on 'soft' infrastructure, but what about hard? We know India needs jobs, esp manufacturing jobs to absorb massive labor force. So having a good infrastructure for that is key.

But its hard infra hardly improved as infra spending STALLED after a burst🇮🇳

What is the problem? Like Indonesia, India got a financing gap (current account deficit means spends more than it earns). Previous gov' pushed for banks to lend to infra to boost infra investment & they did that.

So NPL in infra rose for public banks😮& infra invest lower now.

Okay, but hope is eternal & everyone wants India to succeed (okay, maybe not everyone). So let's see what India needs to get to where it wants to go.

Similar to China, India will urbanize & needs tons of investment to: a) improve infra (transport, housing); b) create more jobs!

How much more FDI does India need? 2% of GDP more if u compare it w/ China from 2000-2009. If it can boost this, then it can plug its funding gap w/ more stable sources of financing & not have to fret over volatile factors like oil & Fed rates.

Manu FDI % of GDP is low vs China

India's current account deficit was -2.4% in 2018 so a 2% of GDP FDI increase will surely plug the gap & allows Modi to push for higher infrastructure investment w/o adding a huge burden on public banks.

Modi is far from this but he succeeds, it will be globally consequential 👌🏻