The world’s two fastest-growing major economies are China and India. In 2019, China’s per capita GDP growth was 6.1 percent, and India’s 5 percent based on World Bank data. The two countries also have the most rapid rates of growth of household and total consumption. Both China and India are growing far more rapidly than Western economies.
India joined the global market mostly during the Cold War. Once established in the global market, India became a productive nation and developed several strong working relationships with other countries including the United States. India has created such a healthy relationship with the U.S. that the U.S. is amongst India’s most significant investment and trade partners.
Its relationship with the U.S has substantial benefits because the U.S. is the world’s largest consumer. On top of that, India is looking for investors to help fuel the growth of its economy. The U.S. can offer a significant helping hand by providing investor connections and increasing India’s
Besides trade and investment, the U.S.-India Strategic Dialogue, launched in 2009, provides opportunities to strengthen collaboration in areas including energy, climate change, trade, education, and counterterrorism. Indeed, President Obama has called India one of the defining partnerships of the 21st century, one which will be vital to U.S. strategic interests in Asia-Pacific and across the globe.
Continued growth over the last decade has provided confidence and energy to India’s economy.
Nevertheless, India faces and will continue to face economic obstacles that will need to be overcome, and which have decreased its GDP growth in the past years: Firstly, only 30 percent of its female workforce is employed. Secondly, 70 percent of India’s population, the rural poor, only account for 17 percent of Indian GDP. Thirdly, India has problems with its industrial strategy which currently has no direction.
A primary reason for that is that the strong global competition combined with India’s inferior socioeconomic infrastructure creates little appeal for foreign direct investors. India’s industrial growth has been in the Information Technology (IT) area. But, as the rapidly growing IT sector sets in, India will unable to keep up with the demand for skilled software engineers.
Although India faces significant red tape, corruption, and inefficient politics, Harvard economist Robert Barro agrees that India will grow quicker than China in the third “super-cycle.” A contributing factor to this is China’s decreasing working-age population — due to the Chinese government’s now rescinded one-child policy — and India’s extensive working-age population growth. In addition, many believe that India’s economy will see great success with Modi at the Helm.
India’s Prime Minister Narendra Modi won the elections in a landslide victory. India’s population has high hopes and is providing overwhelming support for its leader. Modi seeks to attract foreign investors and create a state-managed financial system. He wants to create more social programs for low-income families in order to simulate their career opportunities.
Yet, given India’s monstrous size, vast rural areas, and 29 states of varying political stances, the most significant problem India’s elected officials will face will be enacting change and reforms from the center. Nevertheless, making changes in a timely fashion will prove very difficult.
Looking at China, since President Trump took office, China’s growth rates have slowed significantly, in part because of the imposition of tariffs of 25 percent on $250 billion worth of imports from China, while China increased tariffs (ranging from 5 percent to 25 percent) on $110 billion worth of imports from the United States.
The world’s two fastest-growing major economies are both being driven by rapidly rising state investment, with private investment playing a less significant role. Both the Chinese and Indian governments have made it clear that they have deliberately decided to increase state investment to stimulate economic growth.
China, in particular, has carefully stepped up its level of state investment in several areas, particularly in infrastructure. The $700B infrastructure investment action plan included 303 projects covering railways, highways, waterways, airports, and urban rail transit.
However, in the U.S., the idea of state investment is often met with skepticism, and “private” is perceived to be good. Significant state investment is not only rejected on ideological grounds; it is also structurally impractical due to the absence of a significant state sector in the U.S. economy that is capable of delivering a rapid build-up of state investment. Additionally, an emphasis on state investment may not make sense in the U.S. right now since the stock market is making significant gains after, dropping roughly 30 percent in March 2020, and U.S. corporations are reaping large profits as a result.
On a global scale, it appears that state investment fails to rise rapidly to compensate for private investment’s stagnating or falling rates of growth. In contrast, China and India by rapidly increasing state investment were able to achieve far higher growth rates. The role of state investment is therefore clear.
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