As China begins its long-term economic decline, India is gaining ground. India will not become a second China. India will continue to grow rapidly and will become the world’s second largest growth engine alongside the United States in a few years. Currently, India’s GDP is approximately $4 trillion. Its economy is growing at a rate of over 7%. India has maintained that percentage for the past two decades. Many economists predict that India’s economy is likely to grow at a high rate for the foreseeable future.
China’s GDP is approximately $18 trillion, much lower than India’s GDP. US GDP approaches $30 trillion. However, China’s economic growth is slowing and its official statistics are questionable. China is on the brink of economic stagnation and perhaps deflation. In contrast, India has several advantages that make economists optimistic about its future.
First, India has a large young population, while China is stuck in a demographic catastrophe loop. India is fast becoming a technology powerhouse. 500,000 new software engineers are created every year. Only the United States has more programmers. Its information technology sector is expanding at an annual rate of 11%. India’s population is tied to electronic IDs, which enable digital banking and online payments. Electronic banking is the foundation of India’s dynamic venture capital market, which is the third largest in the world after the US and China. Importantly, while India embraces the dynamism of technology, China imprisons innovators who seek to act creatively.
India also enjoys a significant advantage in labor costs compared to China. Production wages in India are 50% lower than in China. Foreign companies are leaving China because the Chinese Communist Party’s approach to capitalism is unclear and there is no meaningful independent rule of law. Many of these companies are moving their manufacturing operations to India. Apple, Nvidia, Microsoft and Google are all investing heavily in India. India ranks 6th in manufacturing in the world. The vast supply of young, low-wage labor presents a unique opportunity for the United States and other Western countries.
Global capital markets have already voted for India. China’s weight in the MSCI World Stock Index already exceeds that of China, even though China’s GDP is more than four times larger. Investors around the world are looking to the future, not the past.
There are other feathers in India’s economic ceiling. For example, consider that India’s domestic savings rate is 30% and the government is investing heavily in infrastructure, education, and low-cost energy. Importantly, India’s high growth rate is sustainable because the foundation of the economy is household consumption, which accounts for 60% of GDP. India does not depend on exports for growth. India will not destroy capital by investing in unoccupied housing developments. India generates high rates of return on capital projects.
India can do more. Almost 50% of the population is not effectively employed. Its land transportation system remains inadequate for its burgeoning manufacturing industry. India’s notorious bureaucracy could still inhibit growth. Still, India has reached the global economic stage.
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The United States should welcome India’s economic rise. India is an important partner in containing Chinese imperialism. Indian people are nationalistic.
At times, Indian nationalism can cause friction with the United States, but it is in the United States’ interest to look past the occasional conflicts and see a future in which the United States and India work together to generate nearly 40% of the world’s GDP.
James Logan is a former U.S. diplomat who went on to work in finance and law for 30 years. he writes notes every day About markets, politics, and society. You can contact him at: [email protected]
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