Why Does India Lag So Far Behind China?

[Riaz Haq]

Indian mainstream media headlines suggest that Pakistan's current troubles are becoming a cause for celebration and smugness across the border. Hindu Nationalists, in particular, are singing the praises of Indian Prime Minister Narendra Modi and some Pakistani analysts have joined this chorus. This display of triumphalism and effusive praise of India beg the following questions: Why are Indians so obsessed with Pakistan? Why do Indians choose to compare themselves with much smaller Pakistan rather than to their peer China? Why does India lag so far behind China when the two countries are equal in terms of population and number of consumers, the main draw for investors worldwide? Obviously, comparison with China does not reflect well on Hindu Nationalists because it deflates their bubble. 

Comparing China and India GDPs. Source: Statistics Times

China was poorer than India until 1990 in terms of per capita income. In 2001, both nations were included in Goldman Sachs' BRICs group of 4 nations seen as most favored destinations for foreign direct investment. Since the end of the Cold War in 1990, the western nations, including the United States and western Europe, have supported India as a counterweight to China. But a comparison of the relative size of their economies reveals that China had a nominal GDP of US$17.7 trillion in 2021, while India’s was US$3.2 trillion. India invests only 30% of its GDP, compared with 50% for China; and 14% of India's economy comes from manufacturing, as opposed to 27% of China, according to the World Bank.

 

Manufacturing Value Added as Percentage of GDP. Source: World Bank

A recent SCMP opinion piece by Sameed Basha titled "Is India ready to take China’s place in the global economy? That’s just wishful thinking" has summed it up well: 

 

"Comparing China to India is like comparing apples with oranges, with the only similarity being their billion-plus populations.......China is transforming itself into a technologically driven economy in order to exceed the potential of the US. In contrast, India is attempting to position itself as a market-driven economy utilizing its large population as a manufacturing base to compete with China........In its 2022 Investment Climate Statement on India, the US State Department called the country “a challenging place to do business” and highlighted its protectionist measures, increased tariffs and an inability to adjust from “Indian standards” to international standards". 

Over 1.5 million patent applications were filed in China in 2021, the highest number in the world. By comparison, the patent filings in India were 61,573, according to the World Intellectual Property Organization. China spends 2.4% of its GDP on research and development compared to India's 0.66%, according to the World Bank. 

Top Patent Filing Nations in 2021. Source: WIPO.Int

With growing Washington-Beijing tensions,  the United States is trying to decouple its economy from China's. The Wall Street Journal has reported that the Biden administration is turning to India for help as the US works to shift critical technology supply chains away from China and other countries that it says use that technology to destabilize global security.

India's Weighting in MSCI EM Index Smaller Than Taiwan's. Source: N...

The US Commerce Department is actively promoting India Inc to become an alternative to China in the West's global supply chain.  US Commerce Secretary Gina Raimondo recently told Jim Cramer on CNBC’s “Mad Money” that she will visit India in March with a handful of U.S. CEOs to discuss an alliance between the two nations on manufacturing semiconductor chips. “It’s a large population. (A) lot of workers, skilled workers, English speakers, a democratic country, rule of law,” she said.

India's unsettled land border with China will most likely continue to be a source of growing tension that could easily escalate into a broader, more intense war, as New Delhi is seen by Beijing as aligning itself with Washington. 

In a recent Op Ed in Global Times, considered a mouthpiece of the Beijing government, Professor Guo Bingyun  has warned New Delhi that India "will be the biggest victim" of the US proxy war against China. Below is a quote from it: 

"Inducing some countries to become US' proxies has been Washington's tactic to maintain its world hegemony since the end of WWII. It does not care about the gains and losses of these proxies. The Russia-Ukraine conflict is a proxy war instigated by the US. The US ignores Ukraine's ultimate fate, but by doing so, the US can realize the expansion of NATO, further control the EU, erode the strategic advantages of Western European countries in climate politics and safeguard the interests of US energy groups. It is killing four birds with one stone......If another armed conflict between China and India over the border issue breaks out, the US and its allies will be the biggest beneficiaries, while India will be the biggest victim. Since the Cold War, proxies have always been the biggest victims in the end". 

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[Riaz Haq]

Arnaud Bertrand
@RnaudBertrand
The irony of China supplanting the U.S. as India's top trading partner just as the Americans are doing their outmost to divide both countries...

This is a real and growing weakness of the US: they can't walk the talk economically anymore.

Many people, including Mearsheimer, say that "security trumps economics" and that this is the reason why countries like India or Australia will ultimately choose the U.S. "camp" versus China. I don't think it's logical at all because, as Ukraine is clearly showing, being part of the U.S. "camp" risks triggering a situation where you security is much more threatened than otherwise. So you end up with less security and less prosperity.

That's actually the argument that Hugh White, one of Australia's foremost strategist (former Deputy Secretary for Strategy and Intelligence in the Australian Department of Defence) was making last week about AUKUS (see next tweet), but the same logic also very much applies to India and the whole "Indo-Pacific" region. He was saying that Australia will ultimately only get security and prosperity if they use their statecraft to push the U.S. and China to get along and coexist. If they overtly support the U.S.'s ambition to maintain (or rather restore) their primacy, the region could be engulfed in proxy wars - much like in Europe - to the detriment of all countries (only the U.S. would presumably benefit). As he put it, his words: "not a smart way to go".

So I suspect India understands this. They're increasing their economic collaboration with China and, despite their often very hawkish anti-China rhetoric, will ultimately angle to avoid war in their region and therefore won't back U.S. primacy.

https://x.com/RnaudBertrand/status/1821843253202678224

https://www.business-standard.com/economy/news/india-in-trade-defic...


https://www.ft.com/content/5a2b4491-5687-4b11-872d-a4f51121bbb2