India on Growth Path to Overtake Most of Europe in 10 to 20 Years

The latest assessment of the major developing world economies by Goldman Sachs holds that India is poised to become the next major economic miracle in the world and will be sporting growth rates of 8% or higher for the next dozen years. At this pace the Indian economy will overtake most of the European states within the next 10 to 20 years. Italy, France and the UK will fall in 10 years, Germany in 12 and Japan in 18. By the year 2042, the US will slip behind India and only China will be a larger economy. According to the Goldman Sachs study, the conditions in India are nearly at a point where even a government policy reversal would be unable to stop the growth. The fear has always been that economic growth would be compromised by the vast and complex Indian bureaucracy and by political factions that demand attention at the expense of the country as a whole, but it now appears that the economy will be able to sustain itself despite these challenges.

Armada Strategic Assessment
India is looking more and more like an emerging power but, like China, it has immense issues to contend with along the way. Many of the problems facing India will be similar to those that continue to plague China. The most important is the sheer size of the Indian population. This density has been both an advantage and a disadvantage in the past but India will have to contend with this in a different way than China has. The Chinese economy has been based on low-wage industrial production, allowing it to become the manufacturer for the world. There is certainly an element of that in India, but this is not the sector that is driving the high growth levels. India has advanced with high-tech, software development and the like, taking advantage of both its educated elite and the vast Indian Diaspora that provides an entrée into global markets. The problem is that India lacks the infrastructure to put most of its billion plus population to work. Even China struggles to find jobs for those seeking them and India will have a much bigger problem. It is estimated that India will still have over 700 million people in abject poverty even after its economy reaches a par with those in Europe. Granted, the Indian middle class is already 300,000 million strong, but the vast numbers of poor will constitute a drain.

India also has the advantage and disadvantage of being a democracy. China is currently dealing with rural unrest with military intervention and strong armed tactics. The population of that country has no means available to shift the government’s emphasis but in India these disenfranchised areas have the ability to send politicians to fight their cause. India thus has a large and influential communist party and many smaller leftist parties. The Hindu nationalists form one of the largest political blocks in the country and regularly challenge the ideas and projects promulgated by Manmohan Singh and the Congress Party. India also must contend with ethnic and religious divisions that China has never been forced to react to. There are hundreds of dialects spoken, dozens of ethnic groupings and the remnants of a caste system that may have eroded in the cities but is still much in evidence in the rural areas. None of these issues will stop India’s development but they and many others will shape it.

India’s economy will also be shaped by external forces to a greater degree than they have been in China. The role of the Indian Diaspora has already been significant and will doubtless grow. Chinese influence overseas was limited to some involvement in small business, but the years of isolation under Maoism meant that overseas Chinese had little connection to the home country. The Indian community is a stark contrast — active in most of the high-growth sectors of the modern world. The millions of software engineers, doctors, financiers and business leaders that hail from India are spread all over the developed world and most have maintained some connection to the home country. They are now the link between India and the rest of the world. India self confidence is growing as well and surveys now show that most educated Indians believe that the next century will be more theirs than the Chinese, Europeans or Americans. The advance of Indian business influence will be faster than was the Chinese development. China had to fight Cold War suspicion and its own isolationist traditions before it could advance. The march to modernity began in the late 1980s in China but took a decade to fully flower. India is already where China was in the late 1990s and will be expanding at a remarkable clip from this point on.

Source: FCIB and Armada Corporate Intelligence

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