India’s economy has long labored in the shadow of its great Asian rival, but now officials in New Delhi and private economists say Beijing’s recent stumbles could provide a big opportunity for India to close the gap.
While China’s stock markets have tanked amid mounting reports of slowing growth, India is poised to steal the mantle as the world’s fastest-growing major economy while sidestepping many of the problems that face other emerging economies as China cools.
“I see this as a great opportunity,” Indian Finance Minister Arun Jaitley told the BBC last week as global markets reeled from the bad news and volatility coming from China.
“The Chinese ‘normal’ has now changed. It is no longer the 9 percent, 10 percent, 11 percent growth rate,” Mr. Jaitley said. “So the world needs other engines to carry the growth process, and in a slowdown environment in the world, an economy which can grow at 8 to 9 percent like India certainly has viable shoulders to provide the support to the global economy.”
Bikky Khosla, writing on the Indian business web publication SME Times, said there was a growing feeling in the government of Prime Minister Narendra Modi that “China’s loss is going to be India’s gain.” India’s population is younger and soon will be bigger than China’s. Debt levels are low, falling oil prices are a boon for the energy-importing Indian economy, and there is room for massive productivity growth given the country’s huge infrastructure needs and the movement of hundreds of millions of Indians from poverty to the middle class.
“I strongly believe that we are today in better shape compared to China,” Mr. Khosla wrote. “The Chinese economy is slowing, but India is gathering pace.”
Analysts have been predicting that the Indian tortoise would soon outpace the Chinese hare for decades, only to be regularly proven wrong. Despite its seeming advantages — democratic rule, a well-established legal system, a large percentage of the population that speak English — India has lagged behind as China became the world’s manufacturing superstar and newest economic superpower.
China’s gross domestic product and per capita income are both more than twice that of India, while the percentage of those living below the official poverty line is 6.1 percent in China compared to nearly 30 percent in India. Foreign direct investment — the key indicator of global market commitment — was just $35 billion for India last year, according to the U.N., compared to $128 billion — No. 1 in the world — for China.
Mr. Modi, elected in May 2014 largely on the hopes he could jump-start the economy, has struggled to implement his ambitious reform program. His plans to overhaul land acquisition laws and the country’s notoriously Byzantine tax code have been blocked this year, and his “Make in India” program has made little apparent headway in changing the image of India’s stifling, business-unfriendly bureaucracy.
Ashoka Mody, an international economics professor at Princeton’s Woodrow Wilson School and a former deputy director at the International Monetary Fund, cautioned against the notion that India would automatically profit from China’s woes.
“The illusion that India actually benefits from the recent turmoil — because, for example, oil prices are low — ignores the fact that prices are low because the global economy is so weak,” Mr. Mody wrote in a blog post for the Brussels-based economic think tank Bruegel this week.
“The pervasive global weakness ultimately does the greater harm, especially because India is not competitive,” he added. ” … China has been the linchpin of the global economy for a decade. If China goes into a swoon, so will India.”
But the mood is far more optimistic these days among top Indian officials, who cite a number of factors working in their favor.
While resource-rich rivals such as Russia, Mexico and Brazil have been slammed by falling oil and commodity prices, India’s economy is far less reliant on such exports. The Indian economy essentially matched China with 7 percent annualized growth in the second quarter of 2015, and the IMF now projects that India will grow faster than China for all of 2015 and for 2016 as well.
A wealthy and well-educated Indian diaspora in the United States and other developed markets is proving a rich source of investment and business connections for the home country. Mr. Modi was greeted as a virtual rock star at a rally at New York’s Madison Square Garden with Indian-Americans on his trip to the U.S. in September 2014, and the prime minister plans a similar gathering at London’s Wembley Stadium when he visits Britain in November.
While Chinese officials face a difficult transition from export-led growth to encouraging domestic consumer spending and investment, India’s economy is already consumer-oriented. The image of Beijing’s top officials as efficient technocrats and stewards of the economy has been badly dented by this summer’s events.
The rupee and the Indian stock market were not spared by the global rout that sent stocks tumbling around the world in August, but Indian officials say their markets held up relatively well compared to many around the world.
“Capital is attracted to strong economies,” Reserve Bank of India Gov. Raghuram Rajan told The Wall Street Journal late last month. “What we’ve seen in India is that for the most part we have been attracting capital.”
India boosters point to a number of signs that international investors are rethinking their view of the market. Taiwanese iPhone maker Foxconn recently announced a $5 billion investment to make phones in India, already the world’s third largest smartphone market, while Japan’s Sony said last month it was resuming television production in Chennai after a decade.
“China’s slowdown is a historic opportunity for India as Chinese production becomes less profitable,” said government Chief Economic Adviser Arvind Subramanian said in a speech Monday in New Delhi, adding, “India is a net importer, so China’s slowdown is an opportunity to relaunch growth in India.”