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Can India Become the Next China?

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Pacific Money

Can India Become the Next China?

With its growing labor force, the South Asian giant has some impressive long-term growth potential.

Can India Become the Next China?
Credit: India construction via gnomeandi /

China’s citizens may have celebrated “APEC blue” skies at the recent Beijing summit. But amid the nation’s recent diplomatic triumphs, analysts suggest China could still be eclipsed by India as Beijing confronts growing environmental and structural challenges.

Speaking at Brisbane’s recent G20 Leaders’ Summit, China’s Finance Minister Zhu Guangyao said the world’s second-biggest economy was undergoing “a period of pain” as it tackled structural problems threatening its growth targets.

“We do have problems that have been accumulated over time…the first is the overcapacity of our economy, second is the problem of shadow banking, and the third main problem is debt accumulated over time by local Chinese governments,” he said.

Zhu said the world economy “faces greater downward risks,” with the Chinese economy also adjusting to a “new normal” of slower growth.

“Right now the Chinese economy is in a period when we are changing gear. Our economic structure is undergoing a period of pain and we are also in a period when we are absorbing large-scale stimulus packages we rolled out earlier,” he said.

He added, “Now is a ‘new normal’ for China’s economy…[which] means the Chinese economy will be running at a relatively high speed instead of a super-high speed. In the normal economic functions we must also take into consideration factors such as the environment and energy.”

Zhu quoted the Chinese president in suggesting that Beijing’s emissions deal with the United States reflected a new focus on putting the environment ahead of unsustainable economic growth.

“[Chinese] President Xi Jinping attaches great importance to our work on this front…he said we want both clear water and green mountains as well as golden and silver mountains. And if we have to choose between the two, we would rather choose clear water and green mountains over gold and silver,” he said.

China’s pledge to peak total emissions by 2030 and boost the share of non-fossil fuels in its total energy mix to 20 percent has sparked concern among coal exporters, with the G20 urging Japan to apply its lower-emission technologies to coal-fired power stations around the region.

But while Zhu pointed to China’s rapid growth, saying its GDP expansion for 2013 was the equivalent of its entire economy in 1994, he said the nation was attempting to drive structural reform to build “a new model where we are powered more by innovation.”

India to Outpace Rivals

Japan’s economic woes since the 1990s in attempting to change its previous growth model might indicate the challenge Beijing faces. But according to a recent report by the University of Oxford’s Oxford Martin School and Citi Research, India’s superior demographics have it well placed to expand at a faster pace than its communist rival.

Based on OECD projections, the report predicts India outpacing rivals by growing at an average annual rate of 6.8 percent from 2018 to 2030 and 4.3 percent from 2031 to 2060, ahead of China’s 5.4 percent and 2.1 percent, respectively.

“The demographics of India are more favorable than those of China as China’s labor force has already peaked. Conversely, India still has a young population and will grow at least through 2045 when the country is projected to be home to just under 1 billion workers…India will have 25 percent more workers than China by 2060 while China has 24 percent more today,” the report said.

The report suggests the “demographic window” that has helped power economic development will close in China by 2020, remaining open in Indonesia until 2035, Malaysia until 2040 and not shutting in India until 2045.

While China is expected to have a $30.6 trillion economy by 2030 compared to India’s $13.7 trillion, India’s growth is “poised to remain elevated for the foreseeable future, even as China’s economy slows.” Yet the report also cited challenges to the world’s most populous democracy, including its gridlocked lower house, compared to China’s “highly centralized and authoritarian government.”

In announcing plans to secure a free trade agreement with India within a year after achieving similar deals with China, Japan and South Korea, Australian Prime Minister Tony Abbott described India as “the emerging superpower of Asia [that] is already a democracy.”

The OECD’s latest economic survey of India has also pointed to “signs of a turnaround,” with growth expected to expand by more than 6.5 percent annually in the coming years.

While the Paris-based organization expects China to slow to 6.8 percent over 2015-19, affected by its demographic changes, environmental and other issues, a separate OECD report predicts Asia’s wealthiest country will become the world’s biggest spender on research and development by 2019, ahead of the European Union, Japan and the United States, helping its innovation push.

China’s renewable and nuclear energy drive is also seen aiding its emissions target, amid pressure from its populace to make Beijing’s “APEC blue” skies a permanent feature.

Fortunately for the rest of the region, India’s predicted rise should support economic growth, even while debate continues over whether it can truly become the “next China.”