international analysis and commentary

The elephant in the Asian room: India’s great power moment in the shadow of China


After half-a-century of ceaseless fascination with China’s economic miracle, Western observers have begun to move in the completely opposite direction in recent years. In fact, the new fad in journalistic and policy circles nowadays is the debate over so-called “Peak China”, as the Asian juggernaut faces a toxic combination of demographic winter and economic slowdown.


China’s slowdown

In fairness, the data is compelling. In the pre-pandemic period, China alone was responsible for 35 percent of global Gross Domestic Product growth; just over two years later, it was down to around 25 percent. Not long ago, almost all experts expected China to overtake America as the world’s largest economy in the early decades of the 21st century. Latest projections by leading financial institutions and economics, however, suggest that this may not occur until well into the century or, perhaps, never at all.

By all indications, the gap between the US and China’s GDPs is increasing. Last year, Southeast Asian nations such as Indonesia, the Philippines and Vietnam grew faster than China for the first time in 30 years. This year, China posted a second consecutive year of demographic shrinkage, portending a structural slowdown in the country’s economic growth for the foreseeable future. Although extremely dynamic, it’s not clear how China’s burgeoning tech industry can compensate for the dramatic slowdown in other key sectors.

With the bloom off the Chinese rose, attention has naturally shifted to other major emerging economies. And there is no one as big as India, which became the most populous nation on earth last year. After decades of laggard growth, India has now transformed into the fastest growing major economy as well as having recently overtaken its former colonizer, the United Kingdom, to become the world’s fifth largest economy.

And despite its wide range of vulnerabilities, including a highly polarized domestic political landscape and lopsided economic growth, India is well on its path to becoming a major power in the near future. But can it catch up with its giant neighbor, China, anytime soon? There are three reasons to be relatively optimistic about India’s trajectory, namely its demographics, diplomacy, and developmental policy.


In the shadow of the Dragon

Despite their similarly sized populations (around 1.4 billion people), India and China are not (yet) in the same economic league. China’s GDP is almost five times larger than India’s, with the former becoming a trillion-dollar economy as early as 1998 compared to India in the late-2000s. In terms of per capita income, China is edging closer to becoming a ‘high income’ society based on World Bank threshold, while India is just above the low-income category.

The differences are just as stark when it comes to their economic structures as well as hard infrastructure. Thanks to decades of aggressive industrial and trade policy, China now boasts a number of national champions with global footprint, ranging from Huawei to Tencent and Tiktok. Last year, China also overtook Japan as the world’s largest automotive exporter.

In fact, Chinese companies are expected to be a dominant player in, if not the dominant force, in a range of cutting-edge industries, most notably in Electric Vehicle (EV) production. BYD, China’s leading automaker, recently overtook longtime industry leader, Tesla, in EV production.

The secret sauce of China’s economic miracle is public policy innovation under a proactive statist regime, which has corralled national resources as well as aggressively courted talent, capital and information from leading nations for the past three decades.

Since the 1990s, India has transitioned from an inefficient statist-socialist system, which was notorious for laggard growth, into an increasingly oligarchic system, which boasts large number of new (politically-connected) billionaires but a relatively small middle class (compared to China).

In contrast to China, which has become a global manufacturing powerhouse, India’s growth model has been heavily dependent on relatively low-to-medium-end services as well as few major industries dominated by conglomerates. India’s much-vaunted Business Process Outsourcing industry only caters to a small portion of the labor market and is comparable in size to that of the Philippines, which has a tenth of India’s population.

As economist such as Dani Rodrik have argued, the manufacturing sector can “absorb large numbers of workers with moderate skills, providing them with stable jobs and good benefits. For most countries, therefore, it remains a potent source of high-wage employment.”

This is not the case in the services sector in most emerging markets, where labor rights are weak and employment opportunities are extremely precarious. Thus, India’s poverty and hunger rates remain significantly higher than those of China, which has lifted 600 million people out of poverty and created a half-a-billion-strong middle class in the past three decades.


India’s geoeconomic strategy

Since assuming office, the Indian Prime Minister Narendra Modi, who rose to the pinnacle of power on a nationalist-populist agenda, has sought to transform his country into a global power. Three factors have facilitated Modi’s vision.

To begin with, India is benefiting from a demographic dividend: Close to two-thirds of Indians are under the age of 35, and there are more than 600 million Indians between the age of 18 and 35. Way into the middle of this century, India is expected to enjoy a highly youthful and productive demographic. As leading emerging markets experts have noted, population growth is often the best predictor of long-term economic growth.

Second, India has adopted an activist diplomacy, which has effectively jettisoned the Nehruvian ‘non-alignment’ tradition. By and large, the South Asian powerhouse has adopted an increasingly pragmatic-opportunistic ‘multi-alignment’ strategy, which has allowed it to simultaneously (i) expand ties with the West; (ii) preserve robust ties with energy powers such as Russia and Iran; and (iii) maintain a relatively stable relationship with China.

India’s ruthlessly pragmatic foreign policy approach places it in a strategic sweetspot, namely allowing it to expand trade networks as well as diversify sources of capital and technology with an extremely diverse (if not conflictual) network of partners across the Indo-Pacific and beyond. At once, India is deepening security and strategic economic cooperation with the US, Japan and Australia under the Quadrilateral Security Dialogue (Quad); the European Union (EU); Israel, Saudi Arabia, the United Arab Emirates, Russia ,and Iran.


New Geoeconomics – all our dossiers


This stands in stark contrast to the case of China, which is confronting an expanding set of economic and technological sanctions under the West’s ‘de-risk’ strategy.

Crucially, India’s ‘multi-alignment’ policy has placed it in a strong position to present itself, along with Mexico and Vietnam, as a major alternative to China. And this brings us to the third key factor, namely India’s new development strategy with a focus on a proactive industrial policy.

After decades of reliance on service-driven growth, New Delhi is now aiming to become a global manufacturing hub and rely on export-oriented industries under a whole series of initiatives such as the Production Linked Incentives (PLI) scheme. This has gone hand in hand with a remarkable expansion in India’s infrastructure spending, with increasingly modern ports, roads, and railroads emerging all across the nation.

Between 2017 and 2022, India’s electricity-generation capacity grew by 22 percent while renewable energy capacity almost doubled. Broadband connection has jumped from 61 million to 816 million between 2012 to 2022. This has, in turn, boosted the country’s digital economy(expected to become a trillion-dollar sector by 2030). In 2022, India spent close to 2 percent of its GDP on transport infrastructure alone, aiming to reduce freight cost and connectivity.

Notwithstanding the above-mentioned auspicious factors, India still has a long way to go before catching up with China, which boasts a far larger and more sophisticated economic base. Not to mention, India also faces major domestic challenges, partly due to the polarizing effects of Modi’s Hindu nationalist agenda, which has sparked “a million mutinies” in regions with large minority populations. Nevertheless, India is well on its way to become a major global power, thanks to the sheer size of its population and economy, and likely transform into a pillar of an increasingly tripolar order (with China and the US) in the Indo-Pacific.



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