Will India overtake China as world's economic powerhouse? Decoding how it could happen by 2028
By Team Asianet Newsable | First Published Apr 11, 2024, 12:06 PM ISTAs China's dominance faces challenges and India's potential gains attention, the stage seems set for a shift in the global economic landscape.
With China's economic growth slowing and the Western world increasingly viewing it as a competitor rather than a partner, there's speculation about whether India could step in as the next global growth engine. According to a Bloomberg report, India's stock market is experiencing a surge, driven by foreign investments and new trade agreements initiated by the government.
India's vast population of 1.43 billion, predominantly youthful, is catching the eye of international manufacturing giants, who previously focused on southern China. Companies like Boeing are witnessing unprecedented orders from Indian airlines such as Air India and IndiGo, while tech behemoth Apple Inc. is expanding its production of iPhones in India.
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Also read: World Bank projects Indian economy to grow at 7.5% in 2024
As China's dominance faces challenges and India's potential gains attention, the stage seems set for a shift in the global economic landscape.
Despite the positive indicators, India's $3.5 trillion economy still pales in comparison to China's $17.8 trillion economy. Economists caution that India faces significant hurdles such as inadequate infrastructure, inconsistent education standards, bureaucratic hurdles, and a shortage of skilled labour. They suggest that achieving parity with China's economic might could take decades, if not longer.
What will India have to do to overtake China?
According to the Bloomberg report, there's a significant measure where India could outpace its northern neighbour much faster: as the primary driver of global economic growth.
Optimistic investment banks, including Barclays, are confident that India has the potential to become the largest contributor to global growth during Prime Minister Narendra Modi's next term.
With the Bharatiya Janata Party widely anticipated to win the upcoming 2024 Lok Sabha elections, set to commence in weeks, the stage seems set for further economic reforms and growth.
Bloomberg Economics' analysis is even more bullish, suggesting that India could achieve this milestone by 2028, based on purchasing power parity considerations.
To achieve this milestone, the Modi government must meet ambitious targets in four critical development areas: enhancing infrastructure, upskilling and engaging the workforce, improving urban infrastructure to accommodate the expanding workforce, and attracting more manufacturing facilities to create job opportunities.
According to an analysis by Bloomberg Economics, India has the potential to surpass China and become the world's leading contributor to GDP growth as early as 2028.
China's remarkable economic growth, averaging 10 percent annually for three decades following the reforms of the late 1970s, has been a magnet for foreign investment and has bolstered its influence on the global stage.
However, China's era of rapid expansion, often hailed as a 'miracle,' has now come to an end. The property crisis, coupled with Western apprehensions regarding China's dominance in supply chains and advancements in critical technologies, has sparked concerns.
According to the Bloomberg report, this is where India emerges as a significant player. The Modi government's efforts to enhance the competitiveness of the Indian economy are attracting interest from Western businesses seeking to diversify away from China and tap into a vast pool of affordable labour.
Prime Minister Modi has prominently featured India's accelerating economy in his election campaigns, promising to propel the country to the forefront of the global economy if he secures a third term, as he declared at a rally last year.
The Indian government's commitment to infrastructure development has skyrocketed in recent years, with allocations surpassing Rs 11 lakh crore (Rs 11 trillion) for the fiscal year 2024-2025 alone. When combined with state expenditures, this figure could soar to over Rs 20 lakh crore (Rs 20 trillion).
Modi's ambitious plans include investing Rs 143 lakh crore (Rs 143 trillion) to enhance railways, roads, ports, waterways, and other critical infrastructure over the span of six years leading up to 2030.
Concurrently, the Modi government has taken measures to curb inflation by prohibiting the export of wheat and rice.
Earlier in the decade, the Indian government introduced incentive programs amounting to approximately Rs 2.7 lakh crore (Rs 2.7 trillion) to stimulate domestic manufacturing. These initiatives included tax incentives, reduced land rates, and financial support to facilitate the establishment of factories in India, offered by various states.
In Bloomberg Economics' optimistic scenario, India's economy is forecasted to accelerate to 9 percent by the end of the decade, while China's growth slows to 3.5 percent. This trajectory positions India to surpass China as the world's leading growth driver by 2028. Even in the most pessimistic scenario, aligning with the International Monetary Fund's projections, where growth remains below 6.5 percent for the next five years, India is projected to overtake China's contribution by 2037.
India uniquely stands out as the only country with a population sizable enough to counterbalance the retiring factory workers in both advanced economies and China.
According to Bloomberg Economics, approximately 48.6 million medium-skilled workers, often found on factory floors, are expected to retire from China and advanced economies between 2020 and 2040. Conversely, during the same period, India is projected to add 38.7 million workers of similar skill levels.
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