India is regaining its place as one of the world’s great economies, but major hurdles remain
Minhaz Merchant
In 1700, the British Empire was a distant gleam in the eye of traders from the East India Company who had set up mercantile posts along India’s busy port towns. India was a prize catch. Though fragmented, it had a population of 165 million and the world’s largest economy. China was the world’s second most populous nation with 138 million people. It was also the world’s second largest economy after India. Together, the two Asian giants produced over 50% of global economic output. The yet-to-be United States was still a smattering of 13 British colonies.
And Britain? It had a population of 8.6 million and produced a mere 3% of the world’s output. Colonisation, the Atlantic slave trade and the industrial revolution changed the world dramatically over the next 150 years. By 1870, the average Briton was six times richer than the average Indian or Chinese.
If history teaches us anything, it is that it repeats itself. In 2016, according to the International Monetary Fund (IMF), China’s economy will overtake America’s. Chinese GDP, assuming an average annual growth rate over the next five years of 9.50%, even as the global economy slows, will rise from $11.20 trillion (by purchasing power parity) in 2011 to $17.50 trillion in 2016. US GDP, hit by the eurozone meltdown, is likely to grow at an annual average of an estimated 1.75% during the same five-year period, rising to barely $16.60 trillion from its current level of $15.20 trillion – losing its status as the world’s largest economy for the first time since the late 19th century. Meanwhile, establishing another milestone, India, despite the current slowdown, is set to become the world’s third largest economy – ahead of Japan – in 2011-12 with a GDP (PPP) of $4.45 trillion.
Beyond the numbers, however, lies the real story. For the first time since the West became the world’s dominant geopolitical, military and economic force 200 years ago, the tide has turned decisively. The rise of China and India, the
relative decline of the US and the fall of Western Europe will establish a new world order.
For India, the next few years present great challenges but even greater opportunities. The defining relationship of the 21st century, as US President Barack Obama declared on his visit to India last November, will be between the US and India. For the US, India serves two purposes. First, as a counterweight to China, militarily and strategically. Second, as a market for the US economy which can no longer rely on sclerotic Europe. India will have the world’s largest middle class by 2025 – double today’s 270 million. Just as it was in 1700 to European traders and colonisers, India is once again the big prize.
The US is a declining economic power but will remain dominant militarily for several decades. It has the world’s largest blue sea naval fleet led by 11 aircraft carriers. In contrast, China’s first aircraft carrier (of vintage Ukrainian stock) has only recently commenced sea trials. India’s lone aircraft carrier, INS Viraat, is a 52-year-old British craft.
China’s rise could be slowed by two imponderables: one, the deep suspicion of its hyperpower among the littoral states of the South China Sea, especially Vietnam. Two, the unsolved dispute with Taiwan. While the present Kuomintang government in Taipei is friendlier to Beijing than previous regimes in Taiwan, the island remains a point of friction between China and the US. Tibet and the restive region of Xinjiang, with its large Muslim population of Uighars, are other worries for China’s communist government. The largest concern, though, is the possibility of a ‘Chinese Spring’ erupting as more affluent Chinese seek real freedoms. It is a social time bomb India must note as it nuances its relationship with Beijing.
India at first sight seems an unlikely global power. It has an obsessively hostile neighbour to its northwest, a four-decadeold Maoist insurgency, corrupt political governance and over 445 million poor people who live on less than Rs 26 a day. India’s economy and markets are growing despite political misgovernance. The entrepreneurial energy unleashed by economic liberalisation in 1991 has given India a seat at the high table of world affairs. And yet, a timid foreign policy has let slip the advantages a world, starved of growth, offers India’s demographically charged economy.
To play a role in world affairs in line with its size, population and economy, India needs to think and act like a major power. It must fix governance at home, build a strategic foreign policy and leverage its demographic and economic assets. In the emerging world order, the India-US partnership will be as pivotal as the Anglo-US axis was for most of the 20th century. China will play the role of the old Soviet Union with economic satellites in an arc curving down from central Asia to Africa where China is now the world’s biggest investor.
As one of the pivots in this new world order, India has three priceless assets and two damaging liabilities. The assets are its growing economy, market size and plural democracy. The liabilities? Misgovernance and social inequality. Unless good governance overlays our economic growth, poverty will persist. No nation can be great if nearly half of its people live in penury. Inclusive growth follows from good governance. Without that, India’s rise as a great power will falter.
Article Window Times of India
Minhaz Merchant
In 1700, the British Empire was a distant gleam in the eye of traders from the East India Company who had set up mercantile posts along India’s busy port towns. India was a prize catch. Though fragmented, it had a population of 165 million and the world’s largest economy. China was the world’s second most populous nation with 138 million people. It was also the world’s second largest economy after India. Together, the two Asian giants produced over 50% of global economic output. The yet-to-be United States was still a smattering of 13 British colonies.
And Britain? It had a population of 8.6 million and produced a mere 3% of the world’s output. Colonisation, the Atlantic slave trade and the industrial revolution changed the world dramatically over the next 150 years. By 1870, the average Briton was six times richer than the average Indian or Chinese.
If history teaches us anything, it is that it repeats itself. In 2016, according to the International Monetary Fund (IMF), China’s economy will overtake America’s. Chinese GDP, assuming an average annual growth rate over the next five years of 9.50%, even as the global economy slows, will rise from $11.20 trillion (by purchasing power parity) in 2011 to $17.50 trillion in 2016. US GDP, hit by the eurozone meltdown, is likely to grow at an annual average of an estimated 1.75% during the same five-year period, rising to barely $16.60 trillion from its current level of $15.20 trillion – losing its status as the world’s largest economy for the first time since the late 19th century. Meanwhile, establishing another milestone, India, despite the current slowdown, is set to become the world’s third largest economy – ahead of Japan – in 2011-12 with a GDP (PPP) of $4.45 trillion.
Beyond the numbers, however, lies the real story. For the first time since the West became the world’s dominant geopolitical, military and economic force 200 years ago, the tide has turned decisively. The rise of China and India, the
relative decline of the US and the fall of Western Europe will establish a new world order.
For India, the next few years present great challenges but even greater opportunities. The defining relationship of the 21st century, as US President Barack Obama declared on his visit to India last November, will be between the US and India. For the US, India serves two purposes. First, as a counterweight to China, militarily and strategically. Second, as a market for the US economy which can no longer rely on sclerotic Europe. India will have the world’s largest middle class by 2025 – double today’s 270 million. Just as it was in 1700 to European traders and colonisers, India is once again the big prize.
The US is a declining economic power but will remain dominant militarily for several decades. It has the world’s largest blue sea naval fleet led by 11 aircraft carriers. In contrast, China’s first aircraft carrier (of vintage Ukrainian stock) has only recently commenced sea trials. India’s lone aircraft carrier, INS Viraat, is a 52-year-old British craft.
China’s rise could be slowed by two imponderables: one, the deep suspicion of its hyperpower among the littoral states of the South China Sea, especially Vietnam. Two, the unsolved dispute with Taiwan. While the present Kuomintang government in Taipei is friendlier to Beijing than previous regimes in Taiwan, the island remains a point of friction between China and the US. Tibet and the restive region of Xinjiang, with its large Muslim population of Uighars, are other worries for China’s communist government. The largest concern, though, is the possibility of a ‘Chinese Spring’ erupting as more affluent Chinese seek real freedoms. It is a social time bomb India must note as it nuances its relationship with Beijing.
India at first sight seems an unlikely global power. It has an obsessively hostile neighbour to its northwest, a four-decadeold Maoist insurgency, corrupt political governance and over 445 million poor people who live on less than Rs 26 a day. India’s economy and markets are growing despite political misgovernance. The entrepreneurial energy unleashed by economic liberalisation in 1991 has given India a seat at the high table of world affairs. And yet, a timid foreign policy has let slip the advantages a world, starved of growth, offers India’s demographically charged economy.
To play a role in world affairs in line with its size, population and economy, India needs to think and act like a major power. It must fix governance at home, build a strategic foreign policy and leverage its demographic and economic assets. In the emerging world order, the India-US partnership will be as pivotal as the Anglo-US axis was for most of the 20th century. China will play the role of the old Soviet Union with economic satellites in an arc curving down from central Asia to Africa where China is now the world’s biggest investor.
As one of the pivots in this new world order, India has three priceless assets and two damaging liabilities. The assets are its growing economy, market size and plural democracy. The liabilities? Misgovernance and social inequality. Unless good governance overlays our economic growth, poverty will persist. No nation can be great if nearly half of its people live in penury. Inclusive growth follows from good governance. Without that, India’s rise as a great power will falter.
Article Window Times of India
