Gwynne Dyer: Can India surpass China as Asia's fastest growing large economy?

Soon after winning an absolute majority in the Indian parliamentary elections, prime minister-elect Narendra Modi promised “to make the 21st century India’s century”.

If he can avoid tripping over his own ideology, he might just succeed.

“India’s century” is a misleading phrase, of course, because no country gets to own a whole century. It wasn’t ever really going to be “China’s century” either, although China is a huge country whose economy has grown amazingly fast over the past three decades. What Modi meant was that India, the other huge Asian country, may soon take China’s place as the fastest growing large economy—and it might even surpass China economically, in the end.

At first glance this seems unlikely. India’s GDP is currently less than a quarter of China’s although the two countries are quite close in population (China 1.36 billion, India 1.29 billion). Moreover, the Chinese economy’s growth rate last year, although well down from its peak years, was still 7.7 percent, while India’s grew at only 4.4 percent.

But China’s growth rate is bound to fall further for purely demographic reasons. Due partly to three decades of the one-child-per-family policy, the size of its workforce is already starting to decline. Total population (and hence total domestic demand) will also start to shrink in five years’ time. And this doesn’t even take into account the high probability of a financial crash and a long, deep recession in China.

India’s growth rate has also fallen in recent years, but for reasons like corruption, excessive regulation, and inadequate infrastructure that are a lot easier to fix. And the reason that Narendra Modi’s Bharatiya Janata Party (BJP) won by a landslide was precisely that voters thought he would be better at overcoming these obstacles to growth than the worn-out and deeply corrupt Congress Party.

Modi did not win because a majority of Indians want to pursue divisive sectarian battles that pit Hindus against India’s many minorities, and especially against Muslims. That has always been part of the BJP’s appeal to its core voters, but its new voters were attracted by Modi’s reputation as the man who brought rapid development to the state of Gujarat, which he has ruled for the past 13 years. They want him to do the same thing nationally.

They overestimate his genius: Gujarat has always been one of India’s most prosperous states, and the local culture has always been pro-business. It was doing very well even before Modi took power there. Nevertheless, he might well be able to fulfill the hopes of his new supporters, for he arrives in New Delhi without the usual burden of political debts to special interests.

The BJP’s absolute majority in parliament means that Modi will not be constrained by coalition allies like previous BJP governments. This could lead to a leap in the Indian growth rate if he uses his power to sweep aside the regulations and bureaucratic roadblocks that hamper trade and investment in India.

He also has a golden opportunity to crush the corruption that imposes a huge invisible tax on every enterprise in the country.

Unfortunately, his extraordinary political freedom also means that he will find it hard to resist the kind of sectarian (i.e. anti-Muslim) measures that the militants in his own party expect. He cannot use the need to keep his coalition allies happy as an excuse for not going down that road. Nobody knows which way he’ll jump, but it might be the right way.

Even some Muslims in Gujerat argue that Modi has changed since he failed to stop the sectarian riots that killed around a thousand Muslims there in 2001. Moreover, the election outcome makes it clear that a considerable number of the country’s 175 million Muslims must actually have voted for him. If he can keep his own hard-liners on a short leash, everybody else’s hopes for a surge in the economic growth rate may come true.

What might that mean over the next decade? It could mean a politically stable India whose growth rate is back up around seven or eight percent—and a China destabilised by a severe recession and political protests whose growth rate is down around four percent.

While neither political stability in India nor political chaos in China are guaranteed in the longer run, by 2025 the demography will have taken over with a vengeance. China’s population will be in decline, and the number of young people entering the workforce annually will be down by 20 percent and still falling. India’s population will still be growing, as will the number of young people coming onto the job market each year.

That will give India a three or four percent advantage in economic growth regardless of what happens on the political front. In the long run both countries may come to see their massive populations as a problem, but in the medium term it looks increasingly likely that India will catch up with and even overtake China in economic power.

Comments (11) Add New Comment
Sam C
'because no country gets to own a whole century'.

The US owed the 20th century.

Always look forward to reading your columns. Keep up the good work!
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Chris B
I think most of Europe would disagree before 1945. Half a century ain't bad tho.
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Sri
I don't know much about China, so I won't talk about it.

India is at an interesting spot now. With an active and progressive minded government at center, India is poised to do well in the next 5 to 10 years.

There are hundreds of millions of young people in India. They will keep the domestic economy chugging along nicely.

Let us see.
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Sam C
Most of Europe?

'While the United States has consistently had the world's largest economy since the late nineteenth century, and by a margin that has generally widened over time' - from Wikipedia
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Bruce
Absolute versus relative and exponential decay of the second over time. (This may seem like a puzzle, but actually it is the most simple mathematical economics )
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John
@Sri: Did you say progressive minded government? This is the most regressive and hindu nationalist right wing group that India could ever come up with. The Hindutva foot soldiers and party cadres as well as the leader have in the past shown admiration for facists like Hitler. The BJP when it was the opposition actually introduced a motion to explicitly outlaw homosexuality in India when the Supreme court overturned a British era law that was used to persecute the LGBT community. That does not even count the communal hatred and outbursts of its campaign leaders like Amit Shah against religious, and cultural minorities who threatened them with revenge, and extermination by violence. Not to mention the fact that 1 out of 3 MPs elected for the BJP, and the NDA has a criminal case pending against them.
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Keshav
Well - it is easy to accept that USA has been the world's largest economy for more than a century (since 1890) India and China are only getting back to their original position as world's N0.1 and No.2 economies. Any historian can tell that India and China have always been the world's largest economies and the last few centuries are just an aberration due to Islamic invasion of India and European Colonialism. Search in Wikipedia or google - you will find that India's share in world economy in 0 AD was 53-55% - rest of the world including China accounted for less than half. India remained as world's largest economy till 1600 AD from at least 3000 BC. Compare these 4600 years of being world's largest economy with British Empire or USA which have held that position for one or two centuries.
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Pradeep
Well said Keshav..
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Bleh
European countries could be individually less powerful, economically or otherwise, yet collectively more so.
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I Chandler
Eric Margolis wrote about how India ( with US and Russian aid ) has developed submarine launched missiles (SLBM) and MIRVed ICBMs while trying to reduce poverty:

"According to the World Bank, 32.7% of Indians subsist below the international poverty level of $1.25 daily, and 68.7% on less than $2 daily. Aid agencies say 33% of Indian children are malnourished."

http://ericmargolis.com/2013/04/the-nuclear-new-boy-we-should-be-watchin...
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Dip
Measuring development and growth in terms of material parameters are misleading. They tend to make a country a slave economy like China. Overall Human development Index and Index of Dependence on Global Economy are better parameters.
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