China’s economy is struggling, but the other Asian giant, India, is gaining the focus from international investors that it has long sought. The general election to be held in April or May this year, and with Prime Minister (PM) Narendra Modi seeking a third term for his BJP Party, will likely be the largest democratic voter turnout in history. If the first two decades of the 21st century were largely the story of China’s rise, will the next two be the story of India’s?
There are reasons for optimism. India’s population (at 1.425 billion) surpassed that of China last year, and more than half of Indians are under 25. At current growth rates, India could become the world’s third-largest economy in less than a decade (after the US and China), having recently overtaken the UK, its old colonial ruler, for the number 5 spot. India’s equity market has seen eight straight years of gains. Worsening trade relations between the West and China only helps its case.
But India’s path forward is likely to be more challenging than China’s, coming off an extremely low base on a per capita basis, and without some of the advantages that a centralised and planned economy can bring to an authoritarian regime. During Modi’s two terms in office, India has on average been one of the fastest-growing large economies. Between 2014 and 2022, GDP grew at an average of 5.6% in compound annual growth rate terms. An average of 14 other large developing economies had a compound annual growth rate (CAGR) of 3.8% over the same period.
India’s growth rate was even higher from 2000 to 2010, at more than 6% on average. Economists said India’s economy would need to grow faster than its current 6-7% rate to absorb a growing number of entrants into the workforce and meet Modi’s goal of reaching developed country status by 2047.
As noted above, India is coming off an extremely low base. Extreme poverty has continued to fall since Modi took power. The share of India’s population living in extreme poverty has fallen from 18.7% in 2015 to 12% in 2021, according to World Bank data. Urban and rural regions both registered a drop in the share of people living below the international poverty line of $2.15 a day.
The exciting news though is the growth of the middle class. Rapid economic growth has opened the door to the middle class for tens — by some measures hundreds — of millions of Indians over the past decade.
Source: Financial Times
Since Modi took power, his government has taken steps to improve public health and hygiene, including a nationwide campaign to build public toilets. Infant mortality has also fallen steadily, though the improvement predates Modi’s time in office. As of 2020, India’s infant mortality rate was lower than South Africa’s.
While the Modi government has presided over a period of mostly high growth, the economy has admittedly failed to create enough jobs. Unemployment — which has especially hit the country’s youth, the world’s largest population of young people — featured prominently in state elections in 2023 and will be a point of attack for Modi’s opponents in this year’s general election.
Spending on roads, railways and other infrastructure has surged under Modi and has been an engine of economic growth. India plans to allocate 1.7% of GDP to capital expenditure for building roads and railways, up from 0.4% of GDP in 2014, according to calculations by the Financial Times. And India has boasted of its success in bringing nearly a billion people online, promoting its public digital infrastructure as a model for other developing countries.
Source: Financial Times
India’s growth bodes well for Australia, as trade, cultural and political links steadily expand. In terms of bilateral trade, the expansion is phenomenal. India is Australia’s sixth-largest trading partner. Bilateral trade between India and Australia increased from USD 22.2 billion in 2021 to USD 31.4 billion in 2022, a growth of 41%. India’s total exports to Australia grew by 38% from USD 6.3 billion in 2021 to USD 8.7 billion the following year.
The Australia-India relationship was upgraded to a Comprehensive Strategic Partnership (CSP) in June 2020. Most recently, PM Albanese and PM Modi met during the G20 Leaders’ Summit in New Delhi, in September 2023, with Modi visiting Australia in May 2023 and Albanese travelling to India in March 2023 for an Annual Leaders’ Summit.
Indian students are helping to drive the Australian international education sector’s post-pandemic recovery. Their numbers were up 34% in January-August 2023 compared with the same timeframe in 2022. Indian students now represent 17% of all international students in Australia, making them the second largest group of foreign students in the country after China (21%).
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