India is ascendant as China begins its long economic decline. India will not be another China. India will continue to grow rapidly, and in a few years, along with the United States, it will be a second engine of growth for the global economy. Today, India’s GDP is about $4 trillion. Its economy is growing at a rate in excess of 7%. India has sustained that rate for the past two decades. Many economists project that India’s economy can grow at high rates for the foreseeable future.
China’s GDP, around $18 trillion, dwarfs that of India. The U.S. GDP approaches $30 trillion. But China’s economic growth is slowing, and its official statistics are suspect. China is on the verge of economic stagnation and perhaps deflation. In contrast, India has several advantages that make economists optimistic about its future.
For one, India has a young population, whereas China is in a demographic doom loop. India is rapidly becoming a technology powerhouse. It creates 500,000 new software engineers every year. Only the U.S. has more programmers. Its information technology sector is expanding at 11% annually. The Indian population is linked with electronic identity, which enables digital banking and online payments. Electronic banking is the foundation of India’s dynamic venture capital market, the third largest in the world after the U.S. and China. Importantly, India embraces technology dynamism while China imprisons innovators who dare to act creatively.
India also enjoys a significant cost of labor advantage over China. Production wages in India are 50% lower than in China. Foreign businesses are leaving China because of uncertainty about the Chinese Communist Party’s commitment to capitalism and the absence of any meaningful independent rule of law. Many such companies are moving manufacturing operations to India. Apple, Nvidia, Microsoft, and Google are all investing heavily in India. Globally, India is sixth in manufacturing. Its enormous supply of young, low-cost labor presents an irresistible opportunity for the U.S. and other Western nations.
The world’s capital markets have already voted for India. Its weighting in the MSCI global equity index already exceeds that of China, even though China’s GDP is more than four times larger. Global investors look to the future, not the past.
There are other feathers in India’s economic cap. Consider, for example, that India has a domestic savings rate of 30% and that the government is investing heavily in infrastructure, education, and low-cost energy. Critically, India’s high growth rate is sustainable because the foundation of the economy is household consumption, which accounts for 60% of GDP. India is not reliant on exports for growth. India does not destroy capital by investing in housing developments where nobody lives. India generates high rates of return on capital investment projects.
India can do more. Almost 50% of the population is not usefully employed. Its land transportation system remains inadequate for its burgeoning manufacturing sector. The infamous Indian bureaucracy can still stifle growth. Still, India has arrived on the global economic stage.
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The U.S. should embrace India’s economic rise. India is an important partner in containing Chinese imperialism. The people of India are nationalistic.
Occasionally, Indian nationalism will create friction with the U.S., but it is in America’s interest to look past occasional conflict and see a future in which the U.S. and India are cooperatively generating almost 40% of global GDP.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected]