Opinion
An economic miracle is shifting the global balance of power
Peter Hartcher
Political and international editorThe stereotypical Indian scene of traffic jammed around cows on the road? It’s a thing of the past, according to Pushkar Misra, a senior executive with the giant Hinduja conglomerate: “India has really rapidly transformed into one of the world’s most vibrant economies.”
You are more likely to see the new made-in-India Mercedes-Benz EQS electric luxury sedan. Like the made-in-India Apple iPhone 14, it’s evidence of the country’s emergence as a sophisticated part of global manufacturing supply chains. Many of the sacred cows that long blocked India’s economic emergence have been slaughtered.
Illustration: Andrew Dyson. Credit:
“Now, online payments are so widely accepted that even the street hawker will not ask for cash. You can buy fish from a woman sitting on the side of the road and pay electronically,” Misra says of the Modi government’s digital democratisation that has seen half a billion people brought into the formal economy in the last decade.
India’s physical infrastructure boom is impressive enough, with more than a trillion US dollars of investment planned to expand its highway and railway systems, including fast train lines built by Japanese firms. But its digital infrastructure expansion, while less visible, has been stunning in empowering its marginalised millions.
While most of the world’s economic and business commentary today is suffering from shock at the stubborn failure of China’s economy to rebound, many overlook the new economic miracle unfolding in the world’s most populous nation.
Thirty years ago, Australia’s economy was about 9 per cent bigger than India’s. Today, India’s is more than twice Australia’s size. Indeed, the Indian economy has overtaken Britain’s to become the fifth biggest in the world.
Now the world’s fastest-growing major economy is projected to outgrow Japan and Germany to rank third in the world within five years. And while its income inequalities remain shocking, its newfound vibrancy has lifted a broad mass of India’s people out of poverty.
In 2005, most Indians – 55 per cent – lived below the poverty line, according to the UN Development Project. By 2021, only 16 per cent did so. That represents 415 million lives transformed, according to the UN economists.
Sound familiar? India’s take-off does ring with echoes of China’s, but a couple of decades behind. “India’s economic rise over the next 15 to 20 years will mirror China’s transformation between 2005 and 2020 in many respects,” says Ketan Patel, head of London-based Global Pacific Capital.
As India accelerates, China slows. Although China’s economy is likely to pick up somewhat, its long run at breakneck speed of 8 to 10 per cent is over. It’s a structural thing. China’s growth in recent years was very largely the result of never-ending supplies of fresh workers and capital. Both are running down.
First, labour. China’s workforce has started shrinking inexorably, by about 0.8 per cent a year, as its birth rate falls and its ageing speeds up.
Second, capital. New capital investment accounted for three-quarters of total economic growth in pre-pandemic China and “this will roughly halve over the coming decades”, the Lowy Institute’s Roland Rajah and Alyssa Leng write.
Big new injections of labour and capital – factor-based growth – isn’t the only way to achieve expansion. Increasing productivity is another pathway to rising incomes and better living standards. But that requires good policy to wring more growth out of the existing levels of labour and capital. And here, China is a poor performer in the last decade, with dim prospects of improvement, Rajah and Leng find.
The implications are profound. If China were able to keep its economic growth rate around the annual 4 to 5 per cent range that the IMF expects it will achieve this year, and keep it in that range for the next 30 years, “it would be on track to eventually become far and away the world’s largest economy and a massive economic bloc unto itself”, the Lowy economists say. “Chinese global hegemony would be a real possibility.”
But the pair estimate that China is, instead, settling into long-run growth averaging 2 to 3 per cent over the next few decades. And what a difference that couple of percentage points makes when compounded over the years.
At this slower rate, “its advantage over the US would be modest. Moreover, China would lack the economic heft needed to compete with the major western economies as a group”, they write in their report Revising Down the Rise of China.
India, on the other hand, has entered a self-sustaining growth phase of about 6 per cent a year, its projected growth rate for this year and the next couple of decades to come, according to the IMF.
India’s economic ascent has global consequences. It would make it the swing power in global strategy but also in global warming. Prime Minister Narendra Modi’s enthusiastic embrace of the Quad group – including the US, Japan and Australia – swings India’s economic bulk into the Indo-Pacific democratic bloc. In other words, India is contributing to the group of nations “balancing” against the power of the People’s Republic of China.
And in global climate change? “Only if India’s growth is green and aligned with the UN’s sustainable development goals is the world’s sustainable transition possible,” observes Patel. Today India is making huge investments into both renewable and carbon energy systems to feed its energy hunger. Its future choices hold Earth’s climate in its hand.
If India’s new boom is reminiscent of China’s old boom, we should be able to learn some lessons from our collective Western misreading of China. The dominant Western delusion was that prosperity in China would lead to the evolution of a more politically liberal nation.
The opposite has happened. The Chinese Communist Party has used the country’s growing economic power to feed an increasingly chauvinistic nationalism. On the evidence so far, Modi’s India is heading in the same direction. The opposition leader has been sentenced to jail and 17,000 civil society groups denied permission to renew or operate in India.
India is not about to blossom into a Nordic social democracy, so let’s not be naive in our expectations. But it is very likely to remain a democracy, and an increasingly prosperous and powerful one.
Peter Hartcher is international editor.
correction
This article has been updated to correct an earlier version which stated India’s opposition leader has been jailed. He has currently been sentenced to jail.