India will soon be the new China. It's the demography, stupid

Indians voted for growth, and one area in which they are already getting it is in their population



The Indian electorate has spoken. It wants economic growth. Of course, it wants other things too and, of course, there will be sections of the electorate concerned about the record of the country's new Prime Minister, Narendra Modi. But the BJP campaigned on a ticket of economic competence, supported by the strong growth in Mr Modi's home state, Gujarat, and they now have the strongest mandate of any Indian government for 30 years. That says something about what people want.

It also says something else. It holds out the possibility that India may start to grow more swiftly than China, as you would expect from India's more favourable demography. And if that happens, then all our ideas about the relationship between economic success and democracy will be reshaped. The wisdom and durability of China's present advance will be more questioned and the robustness of India's economy more admired.

A bit of history: we know quite a lot about the relative economic size of different countries, thanks to the work of the late Angus Maddison, a British economic historian. He calculated that in 1820, before the Industrial Revolution had really begun to propel first Britain, then Europe, then the United States to economic stardom, China and India were by far the two largest economies in the world. China was just ahead of India, though if you go back further to 1500, India was larger than China. It is true that wealth per head in both countries was much lower than in Europe or the US, but the gap was not nearly as large as it is now. Going back still further, at the time of Christ both India and China were larger economies than the entire Roman Empire. Anyone who is concerned about the growing weight of China and India in the world economy should be aware that Asia has accounted for more than half of world output for 18 of the last 20 centuries.

At the moment there is tremendous focus on China. Thus we have just had some estimates that China has already passed the US in the size of the economy, measured at purchasing power parity (PPP) exchange rates, and forecasts of the passing point at actual exchange rates range from the early 2020s to the 2040s. (If you are interested in comparisons of living standards PPP is better; if you are interested in economic power, market exchange rates are more relevant.)

There has been less of a focus on India, partly because it is still a much smaller economy than China and partly because its growth has been slower. Last year, according to the International Monetary Fund, China grew at 7.7 per cent, India at 4.4 per cent. But there are a number of reasons why the gap is likely to narrow, even cross over. Demography is perhaps the most important. India's population, currently 1.29 billion, is expected to pass that of China, now 1.36 billion, around 2025. China's workforce is starting to decline, whereas India's is projected to grow for at least another generation.

Output per head in India is, and is likely to remain, much lower than that of China, though India was ahead until 1979, before the reforms under Deng Xiaoping began to take hold. It is between a third and a half of the level of China now. But the gap may narrow. Consider, for example, how Indian prosperity has been held back by poor infrastructure. That is being remedied, albeit slowly, and it looks likely that this will be one of the big issues that the new government grasps. By contrast, you can argue that China has spent too much on infrastructure: too many empty flats, too extensive a high-speed rail network, too many regional airports and so on. As a result it has a financial system with potentially huge bad debts, often concealed. Indian banks have problems too, but on balance not so serious.

It is tempting to assume that a politician who has delivered growth at a regional level will be able to do the same at a national one. This will not be easy to do, because power is quite diffuse in India, with individual states having a lot of leverage on economic policy. There is also the danger of excessive expectations: the Sensex share index is close to its all-time high, on Friday up more than 14 per cent this year. And there are underlying difficulties of a budget deficit of 4.5 per cent of gross domestic product, inflation of 8.6 per cent, and the prospect of a bad monsoon – very important for food production and prices.

But the important thing is to look beyond troublesome data and political euphoria and ask what chance the new government has of nudging the economy closer to its potential. India should be able to sustain growth of around 7 per cent a year; China by contrast will find that very difficult. Some time in the next decade, probably before the two populations cross over, expect the two growth rates to converge too.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Programme Test Manager

£400 Per Day: Clearwater People Solutions Ltd: Our client are currently seekin...

IT Network Manager - Shepherd's Bush, London

£28000 - £30000 per annum: Ashdown Group: IT Network Manager - Shepherd's Bush...

Secondary supply teachers needed in Peterborough

£21000 - £35000 per annum: Randstad Education Cambridge: Secondary supply teac...

Modern Foreign Languages Teacher

£100 - £110 per day: Randstad Education Group: Full time German Supply Teacher...

Day In a Page

Read Next
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh  

Scottish independence: Forget Yes and No — what about a United Kingdom of Independent States?

Ben Judah
Francois Hollande at the Paris summit on Iraq with ministers from Saudi Arabia and Bahrain on 15 September  

What's going to happen in Syria and Iraq? A guide to the new anti-Isis coalition's global strategy

Jonathan Russell
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week