Will India Become The Next China?

Since the end of the 20th Century, China has become Asia's powerhouse. It has pulled ahead of India because of its savvy government and investment in infrastructure, and focused on industries that were both economic and employment multipliers.

China was fast to develop Special Economic

Zones with a focus on manufacturing and export-orientated industries.

On the other hand, while India has succeeded on several fronts such as its IT/BPO industry, which surprisingly generates almost as much as Saudi Arabia's crude exports. Its successes have been despite the unease of doing business. India is infamous for its red tape and confusing bureaucratic ways, and it has a habit of putting foreign investors to the sword such as Vodafone and POSCO. However, there is hope that India's golden decade is about to come.

China's economy now is the world's second-largest, having grown at a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.” This growth has allowed China to double its GDP every eight years and has lifted 800 million people out of poverty. Its GDP per capita is roughly $10,000, having grown from $1,000 in 2000.

However, as economies grow, their bulk can slow them down. In China's case, rising wages have begun to make it less competitive. The country needs to think of upscaling its industry mix and think of other aspects beyond wealth creation, such as the environment and green belting of industrial zones. China is relinquishing its leadership in certain areas as its economy continues to evolve, which has allowed other developing countries to grab market share.

In the current scenario, there is a growing need for companies to diversify their supply chains beyond China to ensure seamless production. The disruption caused by the pandemic saw 3,000 force majeure declared by Chinese companies earlier this year. Even China, which has over 50% of global steel production capacity, needed to import steel due to logistical issues. Another reason to diversify has been the ongoing trade wars between the US and China.

How does this bring about India's “Golden Decade”? Well, in the middle of 2020, with the hope that science prevails, the wind is in India's favor. For one, those looking to relocate world factories of scale, a key requirement will be strong local demand to offload production quickly. With a population of 1.3 billion people and an aspirational middle class of around 300 million, India surely has that potential.

Also, there is growing buying power. The current nominal per capita GDP is $2,199, which is expected to increase to $5,625 by 2030. Even if we broadly assume that 75% is non-discretionary, then discretionary spending is predicted to increase by around 500%.

Other favorable macros include falling oil prices. India imports 220 million tons of oil—80% of its needs. This, give or take, is a $100 billion spend. The fall in prices and its capping through shale and renewables will be a welcome relief. Interest rates and inflation have so far been kept under control.

Is the world excited about India's prospects? It appears so, as demonstrated by the frenzy of global bigwigs hopping-in to the Reliance Jio party. From Facebook to ADIA to KKR, many of the world's mega names have all become part of Mukesh Ambani's digital ambitions.

Where does the government come into this? While it has taken hard decisions such as demonetization and uniform taxes, they have been deflationary in nature. And despite winning the majority in last year's elections, the Narendra Modi government has yet to come up with any transformational policies—it somehow wishes for capitalistic growth with a socialist mind set. If lifting its people from poverty was truly its intention, it would do well to take a leaf out of China's own playbook by improving the ease of business and taking advantage of the shifting geopolitical tides. And this is where the hope lies for India.