India’s purchase of a huge batch of Boeing and Airbus aircraft worth hundreds of billions of dollars has once again drawn the attention of economists and businessmen to the potential of the rapidly growing South Asian giant. Some experts even believe that India will soon replace China as the locomotive of the global economy. In the German business publication Manager Magazin, Niels Stieglitz, head of the Frankfurt School of Finance and Management, explains why the importance of India as a trading partner and new site for industrial production has increased so much.
China is still seen by Western countries as the main “workshop of the world,” notes Professor Stiglitz. But industrial countries and investors are increasingly looking to India in search of new growth markets. For example, Indian Railways recently ordered 1,200 locomotives worth 3.25 billion euros from Germany’s Siemens Mobility. It is the most ambitious project in the history of the German company, which aims to completely modernize Indian railroads. At the same time, the Indian airline Air India has concluded the largest deal in the history of aviation, ordering 250 Airbus planes from Europeans and up to 300 planes from their U.S. competitor Boeing for a total of over 100 billion dollars. At the same time, global ocean carrier Hapag-Lloyd acquires 40% of the capacity at Indian marine terminals JMBPL. Furthermore, Apple plans to move a significant portion of IPhone production from China to India.
These examples, says the professor, point to the growing importance of India in developing new markets. The country of 1.4 billion people is still “in the shadow” of its Chinese neighbor, but the situation has changed dramatically in recent years.
In terms of GDP per capita, China is still far ahead of India (12 and 2,000 euros per year, respectively). Only the population of the two countries is comparable – up to 1.5 billion people. However, India’s economy is growing steadily. Having surpassed Great Britain in 2022 in terms of GDP, the country now ranks 5th in the world. India is expected to become the third largest economy in the world by the end of this decade, and it has enough potential to do so.
Whereas in the past Western companies signed relatively small contracts with India, the current gigantic deals with Siemens and Airbus show the amount of money being invested in Indian infrastructure. India is actively developing cell phone networks and building highways. It is primarily about the development of the domestic market, which is increasingly opening up to foreign investors, the country is becoming interesting to them as a trading and industrial site. The desire of many international companies to diversify their production chains contributes to this, and a significant improvement in the business and production environment in India also plays a major role. These two circumstances explain the country’s new role in the international division of labor.
In recent years, India has introduced a unified tax system, as well as simplified digital access to financial services. There have been positive developments in the fight against corruption, although the country is still in 85th place in the world index. The recent de facto bankruptcy of India’s largest industrial conglomerate Adani Group, according to Niels Stieglitz, will not have a significant impact on the long-term prospects of the Indian economy.
At the same time, a thorough investigation of the causes of bankruptcy will be needed to regain the trust of foreign investors. This case shows the need for more transparency and the fight against corruption. Adani Group lost about $100 billion as a result of financial irregularities and stock manipulation.
Although the general trend in the world points to the winding down of globalization, India is still something of an exception. The country also has the advantage of refusing to join any of the opposing blocs in the context of the current confrontation, exacerbated by the conflict in Ukraine. India intends to remain strictly neutral on the world stage in the future.
The Indian economy is expected to grow at a rate of 6.1% in 2023 and 6.8% in 2024. This is more than in most major economies of the world, including China. Professor Stiglitz, for example, is convinced that if this trend continues, India could replace China as the driving force behind the global economy. Its new role will be extremely positive, including in combating climate change.
Today, however, India remains one of the planet’s leading “polluters,” with much of its energy generated from the burning of coal, including by artisanal means. That’s why the country is transitioning to green energy, becoming the world’s third-largest investor in solar panel production. Significant emphasis is also being placed on the construction of nuclear power plants.
India has also become a “startup nation” in recent years, with more than 100 new businesses worth more than $1 billion. Experts distinguish several sectors in this regard. For example, the development of the pharmaceutical industry has made India “the pharmacy of the world,” especially in the production of generics. And finally, the information technology sector, which is developing extremely fast and works in conjunction with the world’s leading companies. While Western Europe is about deindustrialization, India has seen a strong development of the manufacturing sector. The largest industrial conglomerate is the Tata Group, which employs 900,000 people in 150 countries. The Tata Group includes the IT sector, car manufacturer Tata Motors, and steel giant Tata Steel, among others.
And yet the experts of the American economic magazine Wharton magazine believe that India is unlikely to overtake China in terms of economic development in the foreseeable future, citing, for example, such arguments: the country began economic reforms in the early 1990s – almost 10 years later than China. Yet China has managed to attract huge investments in infrastructure – railroads, airports, ports and bridges – and to use this potential effectively. As a result, the PRC has become a true “workshop of the world”.
According to Wharton magazine, India now lags behind China in all major indicators. Industrial production accounts for 30% of China’s economy and only 20% of India’s. China’s infrastructure today is as good as that of the West, while India still gives the impression of being a poor country. If it wants to catch up and overtake China, it will have to increase investment in the economy, improve infrastructure and increase industrial production. It’s quite a challenge. One of the main obstacles for India is “democracy”-a rather decentralized system of government. Whereas in China strategic projects are implemented immediately at the behest of the central leadership, in India excessive federalism prevents their implementation.