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  • Writer's pictureStaff @ LT&C

WSJ: Can India Emerge as a Rival to China?

Prime Minister Fumio Kishida’s visit to Washington reminded Americans last week that Japan has become America’s most important ally. But my visit to the Ananta Centre’s India-U.S. Forum here over the weekend reminded me that the future of the Indo-Pacific rests largely in India’s hands.

The history of Asia can be read in comparing the Indian and Chinese economies. According to World Bank figures in chained dollars, in 1980 India’s gross domestic product was 64% of China’s. By 2001 when China joined the World Trade Organization, India’s economy was only 28% as large as China’s. And, despite several years of rapid growth in the 21st century, by 2021 India’s economy had fallen even further behind and equaled only 17% of the Chinese economy. Even as India has caught up with China in population and built a world-class cyber industry, it has not emerged as the kind of manufacturing powerhouse that could rival China’s economic weight in Asia and beyond.

Uneven development has been a more important driver of world politics throughout modern history than many people understand. Britain’s early lead in the Industrial Revolution made it both the workshop and the master of the world in the 19th century. As the rest of Europe caught up with Britain, Western powers managed to dominate virtually the entire world.

Japan’s early industrial success made it the greatest power in Asia by the end of the 19th century, and Imperial Japan was sometimes called the “Britain of Asia.” Regional supremacy went to the heads of Japan’s rulers, and they embarked on a destructive and ultimately ruinous quest for hegemony. Now China’s success has made it the greatest regional power and tempted some in Beijing to follow the path of Imperial Japan.

If India’s economy had kept pace with China over the past 40 years, India would currently have a GDP of $10 trillion instead of $2.73 trillion. Between the military spending an economy of that size can support and the economic and political clout it would give Indian businesspeople and diplomats, there would be no “China threat” in the Indo-Pacific. When and if the gap between India and China begins to close, the balance of power in Asia will also start to shift, and China will need to rethink its approach to regional and world politics.

America’s problem in Asia is not that China is too rich. It is that India is too poor. In the short to medium term, the imbalance between the two Asian giants requires the U.S. to work with our allies to keep Chinese ambitions and power in check. But even as we focus on the clear and present danger, we must keep the big picture in mind. The U.S. and India have disagreed and will disagree on many things, but America’s national interests are firmly tied to India’s success.

India’s great economic achievement to date has been the development of a world-class information economy. Cities like Bangalore and Hyderabad have become important centers of IT, and the rise of the Indian tech sector has helped build an emerging Indian middle class. Cyber alone, however, won’t be enough to achieve the transformational growth that India needs. If India wants to end poverty at home and emerge internationally as China’s peer, it must become a great manufacturing power.

The World Bank estimates that in 2021 India had more than 360 million children 14 or younger, 112 million more than China. IT will provide jobs for only a fraction of those young people. For the hundreds of millions of Indian workers who do not speak English and have limited mathematical skills, factory work offers the only feasible path out of poverty.

Manufacturing for the world market has not been India’s strong suit. Rickety infrastructure, expensive and unreliable electric power, complicated labor and land laws, and a frustrating bureaucracy prevented India from joining previous waves of Asian industrialization. Japan, South Korea, Taiwan, Singapore, Vietnam and of course China all outperformed India in the race to industrialize.

Today, however, a confluence of international and domestic factors is giving India a chance to catch up. Internationally, manufacturers are looking to reduce their dependency on China. Domestically, the populist government of Prime Minister Narendra Modi wants broader prosperity than the cyber economy on its own can provide. Years of investment in highways, railroads and ports combined with regulatory reforms have reduced if not eliminated the obstacles that long kept foreign investors at bay.

While Indians work on making their country more attractive for foreign investment, American policy makers need to remember that Indian economic growth is critical to American goals in the Indo-Pacific. As American trade policy adjusts to the new era of great-power competition, we need to ensure that made-in-India products have access to American markets.


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