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Last Updated: Friday, 2 November 2007, 17:00 GMT
Is India the new China?
Kaushik Basu
By Kaushik Basu
Professor of economics, Cornell University

Indian and Chinese flags
The two countries are becoming Asian and world superpowers

Until a few years ago, the suggestion that India could grow as fast as China belonged to the same category as other incredible pronouncements by 'fact-proof' politicians.

There was little by way of hard data to back up such a claim. But now no longer.

The phenomenal rise of the Indian corporations, the unexpected rise in India's savings and investment rates and the sustained high growth rate of the last five years mean that the comparison with China is no longer ridiculous.

Which of the two countries will be economically ahead in the long run is not clear and is in any case unimportant.

What seems evident now and is good news is that both these nations seem firmly on course to joining the band of nations considered to be developed.

As a first cut, take the current annual per capita income of these two nations.

Correcting for purchasing power parity, India's is $4,100 and China's is a little more than double that.

Indian boy
Even a few years ago, (India) being an industrialised nation seemed a hopeless dream

Using the growth rates of income that these nations have achieved in recent years (around 9% for India and 11% for China) and the current population growth rates, we can make a projection of how the incomes of India and China will grow over the next years.

Using this simple calculation and treating an income of $20,000 for each person every year as the cut-off income of an industrialised nation, it can be shown that China will be an industrialised, developed nation by 2016 and India by 2028.

China has had a track record of high and sustained growth for so long (certainly since 1978) that the Chinese projection does not come as a surprise.

If you made exactly this kind of calculation 20 years ago, you would still reach a prediction in the vicinity of 2016.

Political turmoil

The big surprise is India. Even a few years ago, being an industrialised nation seemed a hopeless dream. The fact that it can happen in 21 years from now is an extraordinary achievement.

But one must not get carried away. What I have just done is a mechanical projection of the current situation into the future.

Sonia Gandhi on the campaign trail
Sonia Gandhi - taking part in top-level talks in China

And there can be many a slip between the cup and the lip.

The increasing strain on the global environment will make this high growth harder to maintain especially for late developers.

China, being ahead of the pack, will probably escape this trap. India will certainly feel the heat. There can be political turmoil, and both China and India are at risk.

Even with all these caveats it is true that what has been happening in India is a fundamental transformation.

CSM Worldwide - an organisation based in Lansing, Michigan, and one of the best-known forecasters of the automobile sector - predicts that next year India will overtake China as the fastest growing car market in the world.

Between 2007 and 2013 the annual growth in automobile sales is projected to be 8.05% for China and 14.47% for India.

One of the reasons for this is that for the first time India seems to be innovating in this sector.

Steep climb

Thanks to major initiatives by groups like Tata Motors, India could become a leading global player for very cheap cars, the "ultra-affordables", that is, vehicles that are priced below $3,000.

As for savings and investment, the nation is now firmly among the East-Asian super-performers with around 34% of national income being invested each year.

India sense touches 15000
India's stock market continues to grow rapidly

And again the corporate sector has played a big role in this steep climb.

One reason why India can step up its growth rate even further - so as to equal or even surpass the Chinese figure - is that the economy still has a lot of slack.

The nation's labour laws are arcane and in need of change (which could help workers even more than the aggregate economy).

The bureaucracy is still huge and obstructive. To clean this up needs nothing other than determination at the top.

There are energy and environmental worries.

If the nuclear deal with the US goes through, this will ease the nation's energy strains to a considerable extent.

India has a lot of unutilised human capital, since over 30% of the adult population is illiterate.

Finally, regional trade between South and East Asia, which was always low, is growing - and mainly between India and China.

Total India-China trade was $1.6bn in 1997-98 and this year it is expected to be anywhere between $15bn to $20bn. Over the last few years, trade between the two nations has been growing at over 40% per annum.

There is scope for further large increases on this count, which will not only contribute to the growth of both nations but also to intertwined economic interests and, through that, greater regional harmony.

The simple arithmetic calculation does not have to be a pipe dream.

If you would like to send a comment about this story you can use the form below these comments.

India will become a super power that is obvious, the question is when. Seems to me that India has a really good image internationally in the way of businesses, corporations etc but at the same time India also has high number of poor people etc. Communal riots happen in alot of countries so I dont think India should be singled out for that although the muslims did start the Gujarat riots in essense.
Dharmesh Agravat, UK

Clearly Mr. Akram does not understand the relevancy of the Purchasing Power Parity system. Lets take a country such as Equitorial Guinea. They have a ridiculously high nominal GDP, perhaps th highest in the world due to their oil boom. However their people live in absolute poverty. Particularly for developing countries, the PPP GDP is a much more valuable piece of data. The PPP/Nominal GDP ratio shows how well a nations economy is organized. Having a large ratio like this, is one of the best indicators of future growth.
Ronen Gusen, USA

Hindi-Chinese bhaibhai, don't hold your breath. Nothing in history has shown that these two countries can trust each other, especially not as long as China is a one party state. India and Japan will always be seen as rivals in Beijing, and China will seek to dominate them. Thats why India and Japan are wise to nurture good relations with the west.
Sanjay Rubinstein, USA

That's and amazing projection. Can't wait until 2028... I will be in by 50s, but many others will be young, hip, trendy and happy. The additional wealth should help with better services and health care for less advantaged Indians. Good news all round.
Sanjay, Manchester, UK

India is home to the largest number of world's poor and its global hunger index is quite depressing. So I am not too sure about these predictions and estimates. It seems to me there might be some erroneous assumptions here...
Madhav, India

A typical South Asia article based more on dreams, aspirations and hype than on reality. By not even mentioning true per capita income nominally, India is actually behind Pakistan. These articles show the author has not compared the GDP of India and even China to that of other nations like Japan, Germany, Russia and Brazil. While India has had some recent successes, most of it is hype rather than reality.
Akram, UK

We may be making progress, but there is an awful lot that still needs to be done. We currently have no electricity in Bihar, no food for Rajasthani kids, no support for the farmers of Andhra Pradesh and no communal justice in Gujarat.
Irfan, India

Indians and Chinese both are capitalists by birth and by nature, and increased prosperity is the key to many issues. The "old enemy" attitude between them no longer works, it only destroys lives, like we see every day in the Middle East. I would say that both these ancient civilisations are about to see their glories restored soon.
Hindi-Chinese Bhaibhai, UK

I agree that both India and China can be prosperous if the geo-political situation, especially in the Middle East, does not get worse. But imagine - in the process of stopping Iran from developing nuclear weapons, there is another conflict which affects oil supplies. Then India and China will be the first ones to be set back by a couple of decades since their economies are more dependent on oil. Let's hope, but let's also keep our feet on the ground.
Vinay, Pune, India

Before the British arrived, India was at the centre of world commerce and accounted for 25% of world trade. She had traded since the first century with Rome, Egypt, the Middle East and China. When the British left, India accounted for almost zero world trade. Now she has started again. Enterprising people have always been there, it's part of India's DNA, so I'm not surprised at India's economic growth in, what is now, a world level-playing field.
Suki Singh, London, UK

Your article shows a surprising lack of breadth in perception and rigour. With 30% of India illiterate and probably a similar percentage functionally illiterate, how would they earn anything remotely close to your cooked-up average of $20,000 a year in 2028? By working as a house-maid, making garments or in the automobile industry making $3,000 cars? The Indian model of growth is considerably less inclusive than China and hence your extrapolation into the future means nothing. It assumes a dramatic growth in basic and higher education which is no-where on the horizon.
Sarma, USA

Quite witty Mr. Basu! However, I think China's sustained economic growth over the last 20 years has given us enough reason to believe that this will continue. India's story has just begun, your article is at least five years premature. You seem overly optimistic to me.
Shreyas Attavar, Bangalore, India

I definitely agree, it looks like India has a bright and shinning future. However my biggest concern is political instability, especially if the aspirations of the poorer classes are not met. Another thing that may affect the situation is ongoing Hindu-Muslim tensions.
Brij Satdev, USA

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