Power to the people: India's economy is yet to replicate China's prosperity

Power to the people

‍At the most basic level, more people need more power, which is why India’s national power output is also growing at its fastest pace in over 3 decades. Although the country has doubled down on renewables to meet this demand, it has also historically relied heavily on coal — a reliance that hasn’t faded as demand has shot up.

There is also a sharp split between the “economic engine” of the urbanized south of India and the less-monied north, which has widened in recent decades. Managing that divide — which is a complicated issue encompassing language, religion and geography — is likely to be a defining issue for the upcoming election. However, despite its rifts, India’s huge working population is creating an enormous middle class, with poverty rates falling to new lows of <5% last year.

Diverging fortunes

‍In recent years, India’s economy has continued to boom, just as China and other fast-growing countries have endured a post-pandemic slowdown. But, the country has a long way to go to replicate China’s success, after the economic fortunes of the two diverged dramatically some 30 years ago. Indeed, as recently as 1992, the GDP per capita of the 2 countries — which share a 2,167-mile border — was roughly equivalent: today, India’s is roughly one-fifth of China’s reported $12.7k.

The International Monetary Fund (IMF) predicts that India made up 15% of global growth in 2023, and, having overtaken the UK as the world’s 5th largest economy in 2022, it’s now on track for 3rd place behind the US and China by 2030.

New trade deals under a ‘quid pro quo’ market access policy are opening India up to foreign investment. Two weeks ago a free trade pact was signed — binding 4 European countries to a $100bn investment after 15 years of negotiations — and tariffs are being lowered to encourage companies such as Tesla to build factories, while Indian firms increasingly make themselves indispensable parts of the Apple supply chain.

‍When, not if

‍It seems inevitable that India will be a global superpower in the shape of the US and China. How quickly it achieves that status will depend on how it bridges the political, cultural and environmental lines of division that threaten the country’s ability to unify as a thriving single market.