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India’s Rise

Ichiro Suzuki India is on the rise. It is expected to overtake China as the most populous country as soon as in 2023. This takes place at a time when China’s population is peaking out. If it has not already peaked by now, it will in 2023. Then China’s population gets onto a path of long time decline whereas India keeps expanding its number of people well into the latter half of the 21st century. Rising wealth and urbanization in the recent decades have got India’s population growth onto a slower track than expected earlier in this century. Nonetheless, India is one distinct country where population keeps growing for years to come. Even in Latin America, once a region of high birth rates, peak population is in sight in the distant future in major countries such as Brazil and Mexico. The only other region where population is expected to keep growing is the Middle East & Africa. Economies in this part of the world unfortunately are not likely to take off in a meaningful fashion any time soon, despite their promises that have been talked about well over a century. So India has a chance to stand out in economic performances over the next 50 years. India’s rise is going to be far from super-normal growth that was witnessed in the Far East from the 1960s to the first decade of the 21st century, from Japan to China. There will be no double-digit growth rates, as India estimates its growth potential at 7%, which does not look an achievable objective. It is going to be a more incremental process. India has not been capable of building infrastructure as torridly as China did. Regulations have been often standing in the way of higher growth. Unlike a one party state, it takes some time for a democracy to get things done. Literacy rate remains uncomfortably low in rural India and that prevents India from taking off as the world’s workshop in an East Asian fashion. Literacy rate can improve only slowly from an estimated 75% in 2020, and this could weigh on India’s long-term growth. From a different perspective, however, such bottlenecks give longevity to India’s period of rise. It is not going to be over in a decade or decade and half. ‘Miracles’ in the Far East were compressed in a relatively short period of a little over a decade that witnessed spectacular double digit growth rates. India’s growth is considerably more unspectacular than those witnessed in East Asia, but with a longer shelf life. While India’s growth rate itself may not impress the world, the country should catch attention because of its scarcity value. India offers growth at a time when handsome growth rates are increasingly hard to find not only in the developed but also in the developing world. When Japan was growing at breakneck rates, the United States was posting 5% growth rates, higher than India and China today. When the People’s Republic was roaring in several years that preceded the 2008 Olympics in Beijing, other emerging markets grew at high single digit rates. Remember the BRICS boom? In the second decade of the 21st century and beyond, India leads the world in growth rates with less than 5%. China’s growth has downshifted to well below 5% with a downward trajectory, and the U.S. grows at 2.5% at best. Growth has become a scarce commodity. India offers growth that is refashioned in the 2020s, for decades to come quite possibly. While it India is growing at faster rates than most countries on earth, it is far from rivaling China in terms of the size of their economies. India’s per capita GDP at $2,227 is only one-fifth of China that is on the verge of rising above the upper band of middle income countries. India is about to overtake Britain, its former suzerainty, in terms of size and that’s where the country stands in the global ranking of the economy. Nonetheless, durable slow rise of India over a very long time can affect geopolitical balance in the region, in India’s relationship with China. There is a strong chance that China would not be as dominant as President Xi Jinping wants his country to be. Worse for China, its population could almost halve by the turn of the next century, making India considerably larger country in terms of population, and possibly rivaling in size of the economy toward the 22nd century. India’s rise could alter balance also against its strategic rival Pakistan, whose economy has always been constrained by the country’s messy politics. South Asia could see a new geopolitical balance. So everything is going in favor of India? Probably not. Economists Arvind Subramanian and Josh Felman call India a “promised land”, that is filled with hopes in everyone’s mind. Despite high hopes, India can still surprise us a lot on the downside. Gautam Adani has suddenly rose to the 4th place on the ranking of the world’s richest persons from almost nowhere. Subramanian and Felman doubt if he has always competed fair and square on his meteoric rise. India has been known for not always having embraced foreign capital whole-heartedly. Apple’s decision to shift some production facilities from China to India has not caused waves of multinational corporations to follow Apple’s lead. Executives in the west are skeptical if they are allowed to compete on a level playing field. They are still wondering if India has become truly friendly to foreign capital, or not. Despite well justified skepticism, it is certain that India’s unspectacular progress continues, faster or more slowly than expected. The demography part of India’s story is definitely in place. It alone can set India apart from the rest of the world. If reasonable growth is attached to it, it would still make India a favorite destination for international capital. About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.

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