Is India a Global Economic Superpower?

The Request for a Column

Last month I received an urgent email from an Indian business magazine asking me to write an article on “India’s forward march as a Global Economic Superpower”. I wrote back:

On your column, please excuse me as I do not agree with the premise of the title. I do not see India as economic superpower in the next decade if by economic superpower you mean per capita income on par with the superpowers today of USA, Canada, Western Europe, South Korea and Japan (35000+). And, I also do not see primary education, sanitation and health care system reaching the capacity of those countries I consider superpowers.

The kind editor wrote back as following:

Thank you for writing back. I wholeheartedly appreciate your honesty. If you wish to diverge, we would be happy to have that as well. So would you like to pen down your thoughts (backed by facts) on why it is next to impossible for India to become a superpower in the next decade or so. Your counter-view will definitely be very insightful for our cerebral readers from across the globe (largely Indian). “

Well, I did submit the column below which for some reason did not eventually appear despite the editor assuring me that two pages in the magazine had been earmarked for me and asking for high resolution pictures after my submission.

The Column

The title, India’s forward march as a Global Economic Superpower, does not make it apparent whether the premise is that India is currently a global economic superpower and is marching forward or is on a journey to that destination. But, it raised two questions. First, what defines a country as a global economic superpower (referred to from now on as superpower)? Second, do we restrict ourselves to economic data to confer this status or is it a perception game? If other countries and multinational companies see you as a economic superpower, well then, perhaps you are.

China and USA

The data is relatively straightforward as there are currently only two contenders to this title, USA and China. Recall, we are designating global economic superpowers, not economic powers. The USA with a 20 trillion dollar economy, accounts for 25% of the world product in nominal terms and is almost twice that of China. Post Second World War, USA has been the global economic superpower. Furthermore, a slow down in the US economy has global implications for the rest of the world’s economic fortunes. Despite the faster projected growth rate for China, the Chinese GDP in 2022 is still expected to be 25% smaller than USA (18 trillion dollars versus 24 trillion).

China’s claim as a global economic superpower rests on purchasing power parity (PPP). Chinese GDP when corrected for PPP ($12 trillion nominal and $23 trillion at PPP) is larger than that of USA. But anyone who has visited the two countries would immediately discern that there is a large difference between the two countries at the level of the individual. What is the value of GDP, if it cannot deliver a better life for the citizens. This brings us to GDP per capita. USA has a GDP per capita of about 60,000 dollars which is far ahead of China regardless of whether one examines it in ($8,500) nominal or ($17,000) PPP terms. The average American is between four to seven times better off than the average Chinese.

Now to perceptions. Last year, Pew Research Centre surveyed people in 38 countries asking them their perceptions of USA and China as the “world’s leading economic power”.  The results were interesting with 42% opting for USA and 32% opting for China. The remaining 28% named other countries (Japan at 7% was the next highest) or none. However, there were striking differences in the responses across countries. South American, African and countries near China (Korea, Japan, Indonesia, Vietnam, and India) clearly viewed USA as the world’s leading superpower. On the other hand, majorities in European countries, Canada and Australia gave China the edge over USA. Predictably, the smallest minority favouring China was in India, where only 11% saw China as the leading economic power compared to 42% viewing USA.

The India Assessment

So, what about India as global economic superpower? India has a nominal GDP of about 2.5 trillion dollars and GDP per capita of 1,850 dollars. So, in absolute terms, India’s GDP is an eighth of USA and less than a fourth of China. But, the average Indian’s income is thirty times less than USA and around one fifth of China. Even if we apply the generous PPP adjustments, the overall GDP is less than half of the two countries.  India’s GDP per capita on PPP terms trails even more compared to China (India is at about one third) and USA (around one eighth).

Another assessment of global economic superpower can be from the multinational corporation perspective. Here for some industries, especially consumer packaged goods, along with USA, China and India are vital to MNC fortunes. Yet, as a consumption engine for global goods, especially luxury brands, China is the economic global superpower. For example, in 2017, Mercedes Benz sold approximately 15,000 cars in India, 340,000 in USA and a whopping 587,000 in China. This is what gives China the hard power, its connectedness with the global economic fortunes of other countries and companies.

Even in the optimistic case that India GDP grows at 8% per annum over the next decade, while China and USA grow at 5% and 3% respectively (unlikely assumptions favouring India), these differences will only narrow the average Indian’s relative fortunes. By 2025, it is hard to see the GDP per capita on PPP basis of India ($7,200) catch up to middle income countries such as Egypt, Jordan, Indonesia, Sri Lanka or Tunisia which hover around $12,000 currently as they will have progressed too. The almost rich countries such as Chile, Malaysia or Turkey at $25,000 currently are out of reach within this timeframe.

More importantly, India lags China dramatically in providing basic services such as primary education, health care, housing and sanitation. While per capita GDP is frequently used as an indicator of standard of living, it works better in a society where the distribution of income and wealth is reasonably equitable. India has been ranked 133rd among 156 countries in the United Nations’ (UN) World Happiness Report 2018, 15 places down from its position in 2015. This is despite India’s per capita GDP and life expectancy moving upwards over the previous three years.  We have a long way to go before we can boast about India as a global economic superpower.

Readers, why do you think this column never ran?

Warmly

Nirmalya

Latest Book http://bit.ly/ThinkingSmart


Magic Dust: The story barely reported by Indian media – BBC

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