Does India have the means to become the new China? – The Express

Does India have the means to become the new China

Is the mirage of the 21st century presented as “India’s century” dissipating? Re-elected painfully for a third five-year term at the beginning of June, Narendra Modi has his wings clipped. His party, the BJP, with sixty fewer deputies, has lost the absolute majority in Parliament, and the difficulty of the tasks awaiting him relegates to the background the secret economic and commercial battle that the self-taught leader imagined leading against Beijing to make of the subcontinent the new workshop of the world.

The object of all the fantasies in Western business circles for a year, the so-called Indian El Dorado can certainly boast of its demographic advance, with a population which now exceeds that of the Middle Kingdom, and a GDP which has mechanically become the fifth of the highest on the planet. But the wealth produced in India is still almost five times lower than that of China.

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And the political context has become complicated for catching up on this delay: following bittersweet legislative elections for them, Hindu nationalists now have to deal with several regional potentates of dubious loyalty, within a heterogeneous coalition where every decision will be subject to bargaining. The springs of Indian democracy have in any case regained vigor, and the authoritarian and repressive regime in place since 2014 will have to learn the art of compromise. Politically, after raising fears, India is moving away from the path taken by China.

A “very relative” economic potential

On the economic level, apparently, India can also harbor hope, buoyed by its undeniable acceleration in renewable energies, IT services, pharmaceuticals, or the dazzling success of some of its conglomerates. A few hours before the end of the legislative elections, New Delhi announced that Indian GDP had jumped by 8.2% last year, one of the most dynamic growths in the world, contrasting with the Chinese slowdown (5.2%). . According to Bloomberg, India’s tiger is expected to accelerate to 9% by the end of the decade, while China’s dragon is expected to top out at 3.5%, allowing India to overtake China in 2028 as the biggest contributor to global growth (the IMF is counting on 2037).

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Nothing is less certain, however. While the two countries were at a comparable level of development in 1980, Modi’s India only accounts for 3.5% of global GDP, compared to 18% for Xi Jinping’s China, observes the World Bank. It also represents only 1.5% of global trade in goods, compared to 13% for its rival, on which it remains very dependent for its supplies of manufactured goods. Not to mention that many economists doubt the veracity of the Indian figures and claim that the real economy of the subcontinent is experiencing a continuous slowdown since the end of the Covid pandemic – but the Chinese statistics are also questionable… According to JP Morgan , gross value added is a better indicator of growth, because it does not take into account the cost of raw materials, which is currently on the rise. It increased by 6.3% year-on-year at the end of March, compared to 8.3% a year ago.

In any case, the double-digit growth targeted by Narendra Modi to achieve a satisfactory level of development remains a pipe dream. “This objective has still not been achieved, the economy being weakened by structural issues that the government is unable to address,” notes a Western diplomat stationed in New Delhi, speaking on condition of anonymity. “India’s potential is very relative,” agrees a European ambassador who also prefers to remain silent. “Its economy is driven by at best 200 million individuals, while 1.2 billion inhabitants remain immersed in the informal economy, participate in no way in development and generate no savings capable of financing activity,” he recalls.

An insufficient productive device

In this regard, the gap is immense with China, where the aging population saves more than 30% of its gross income. Declaring that India will supplant China is “premature”, agrees former chief economic adviser to the Modi government, Arvind Subramanian. Among India’s constraints, the inadequacy of its infrastructure (despite a clear improvement over the past ten years), the level of its activity rate (one of the lowest in the world, 40%, compared to 68% in China ), and the inability of its education system to provide adequate training, which puts into perspective the comparative advantage of the lower cost of its workforce (the monthly salary is equivalent to 95 dollars per month in India, compared to 361 dollars in China) . Clearly, Indians are cheap, but they do not have the skills required by the globalized economy, with a few exceptions, such as in IT. Among those over 15, 25% are illiterate, nine times more than in China.

Another limitation of India is its productive apparatus, incapable of creating enough jobs for the 12 million young people who enter the job market each year. Finally, its weak link is still industry (15% of assets, 20% of GDP in 2021), compared to unproductive but still predominant agriculture (44% of the workforce, 17% of GDP) and the overweight of services. A clear sign is that India’s global market share in manufactured products is limited to 1%. Thirty times smaller than that of China, despite some recent transfers of factories to India, for example those of Apple or Samsung in smartphones.

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More generally, the gap between the two Asian giants remains colossal, according to the Bernstein Research firm. India is thirteen years behind China in terms of consumption; fifteen years in terms of annual per capita income ($2,730 for the first, $13,140 for the second); twenty years for foreign direct investments. And it’s not likely to get better any time soon. Faced with the new political situation in New Delhi, foreign investors will undoubtedly be cautious. On the Bombay Stock Exchange, the price of companies owned by oligarchs close to power plummeted on June 4, upon the announcement of the bitter victory of the nationalist leader. Some have lost up to 20% in a single session.

A withdrawal into oneself?

The first signs of loss of confidence in India were felt in 2023, with a very clear decline in foreign direct investment, even though these, at 40 billion dollars on average per year since ten years, were already well below the flows entering China (232 billion) or the Asean countries (140 billion), Vietnam, Indonesia and the Philippines in particular.

“Narendra Modi is not Deng Xiaoping”, we note in Western chancelleries, to recall that unlike the Chinese leader, architect in the 1980s of the capitalist conversion of the regime founded by Mao, the First Indian minister revealed himself to be protectionist under the test of power, by increasing customs barriers at his country’s borders.

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Ahead of the first hundred days of his third term, the Hindu nationalist asked his administration to prepare for the relaunch of the “Make in India” and “Atmanirbhar Bharat” (“For a Self-Sufficient India)” programs. . A form of withdrawal. However, all is perhaps not yet completely lost for New Delhi, according to political scientist Raja Mohan, “some analysts believe that Xi Jinping is not able to reverse the situation. China’s relative economic decline, no matter what it does. To benefit from it, India must avoid the nationalist pride that has undermined Beijing’s fortunes.” This is precisely what Indian voters have just asked of Narendra Modi, by inflicting a Pyrrhic victory on him in the legislative elections.