Hamish McRae: India is more important to us than China

China now; India next. This will be the year when the eyes of the world will be on China the Games, of course, but also the country's pivotal point in the world economy, with Chinese demand surging on through the global downturn but also driving commodity prices to ever-greater heights. But it will be a year, too, when we will hear much more of that other awakening giant, India.

It will, after all, be the year when the Indian company, Tata, is set to get control of Jaguar and Land Rover from Ford. Talks on the details are taking place right now. It took over Corus, itself formed out of British Steel, last year. Can the Indians make a go of these British icons where the previous owners failed? If they can, it will be not so much a case of the empire striking back, but rather the empire rescuing its former rulers. It occurred to me after a visit to India over the Christmas holiday, that from a British perspective, as opposed to an American one, what happens in India over the next decade will be even more important than what happens to China. We are certainly more prepared to have Indian companies invest in the UK, for we feel at home with India in a way that we don't with China.

Within the next decade, it looks very much as though India will become a bigger economy than the UK, the first Commonwealth country to do so. That would signify an interesting change of power indeed. Last year it grew at about 9 per cent, almost three times the rate of the UK, and I have just been looking at some projections by Lehman Brothers that suggest that with the right reforms it could grow at 10 per cent a year for the next decade. But, of course, no economic analysis can compete with the feel of the place on the ground, and in particular the drive of its biggest city and commercial capital, Mumbai.

Amidst the many astounding things about India right now is its economic self-confidence. Here and elsewhere in the developed world, there is the insecurity of the indebted, the fears of a slowdown, maybe even a recession. In India, as in China, there is nothing of that. Of course, millions of people live deeply insecure lives, for the burgeoning wealth being created is only slowly trickling down. There is, too, a great contrast between the cities and the countryside, and between the north of India and the south. But among the professionals and executives of Mumbai there is a huge sense of momentum, a sense that for all India's many problems, the future will be bright. We went to the wedding of the son of some dear friends. This was not the stuff of Bollywood glitterati, just hard-working professionals but they still flew in four chefs from Kolkata so that the meal would have its proper Bengali ambiance.

The most visible evidence of India's economic take off can be seen on the roads. Mumbai still has its 1950s Fiat-style taxis but, whereas three years ago these dominated the roads, now they elbow their way alongside a mass of Toyotas, Mercedes, Hondas and 4x4s. There is even a Rolls-Royce showroom in Mumbai, which, when we passed it, had not only a regular Phantom in the window but the new convertible version being shown to a client outside.

The conspicuous consumption of Mumbai makes many people feel uncomfortable. The top Indian surgeon who was with me the sort of person who in London might well have one told me that he felt it could not be right in a country with India's poverty to have people spending upwards of 250,000 on such a car. It is certainly true that Ratan Tata, current head of the Tata group, lives modestly in his bachelor flat in Mumbai and the group gives much of its profits to its own charitable foundation. On the other hand, there are other Indian industrialists who have a quite different profile.

There will be further symbols of India's economic progress on the roads this year as a result of a Tata initiative, and not doubtless the rising numbers of Jaguars and Range Rovers. No, the symbol will be the "one lakh car". One lakh rupees is equivalent to about 1,275 and Tata is launching a new car for that price later this year. So suddenly the growing ranks of the new Indian middle class will be able to trade up from cramming a family of four or even five on to a motor-scooter and have a real car instead. It will be the equivalent of Europe's Fiat 500 and Citroen 2CV after the Second World War.

As such, it illustrates the way economic development in India is taking a rather different route from development in China. In China the cars are big bigger on average than here and there has been massive infrastructural investment to try to accommodate them. Go to Shanghai or Beijing and you will find that multi-lane highways are shooting up all over the place, to be immediately crammed with cars.

By contrast, investment in infrastructure in India has lagged behind and, with education, is one of the two serious challenges that the country faces. Compared with Shanghai, Mumbai feels a mess. The two cities are of roughly comparable size with around 17 million inhabitants, but whereas in Shanghai you feel you are in a fully developed country, in Mumbai you are very aware that you are in a developing country. More than half the population still lives in shanty town settlements, not something they allow in Shanghai.

But if development in India has, so to speak, further to go than in China, there are reasons to believe that it may go on for longer. One is demography. China's population is ageing fast, thanks in part to the one-child policy. Though birth rates have come down in India, they are still above replacement rate. Within about 30 years, India's population will pass China's. Another is that while China's burst of investment is remarkable, actually rather frightening in its scale, it will come to an end, whereas India will have to carry on investing for two, three or more generations to come. Some calculations by Goldman Sachs suggest that 20 years from now, India will be growing faster than China.

If that is correct, getting the relationship between the UK and India right is of prime national importance. It is important to us not just because Tata seems to have a better chance of maintaining jobs at Jaguar and Land Rover than Ford could manage. It is important because power is shifting from both Europe and North America towards Asia.

It is a shift almost as important as the shift away from Asia and towards the UK, then Europe, then the US, that happened 200 years ago with the Industrial Revolution. Our influence in the world will increasingly be through our friends in Asia. We need to continue building our relationship with China and it is wonderful how many young Chinese students there are in the UK right now, more in fact than in the US. But maybe we have not focused enough on India even if India is now about to focus on us by injecting a new lease of life into two of our most famous motoring brands.

h.mcrae@independent.co.uk