• Paul Atherton

Forget China. Here is why India is the economy to watch

Updated: Dec 24, 2019

For years China seemed to be on track to overtake the USA as the world economic power. But as China continues to struggle with significant debt and an over-reliance on manufacturing, China’s Gross Domestic Product (GDP) has slowed.

This is something I discussed with my friend before the global financial crisis hit.

Now, 10 years later, when I look at the global economy I still see a lot of risk. There is, however, one bright spot that shows A LOT of potential.

So, my question to you: Who do you think will be the real winners and losers of economic growth over the next 10 years? China? USA?

Ladies and gentlemen, I believe India will be the economic growth story we will be talking about over the next few decades. Not China.

Surprised? Here’s why:

1. India has a knowledge economy

India has built an economy that is knowledge-based. A knowledge economy leverages modern communication, connectivity, and computer power. It enables super-smart people to deliver the thought, process, and service work normally done in expensive locations around the globe like London, New York or Sydney.

With modern communication and computers we no longer need people inside the ‘office’. So instead of employing smart but incredibly expensive people in London, companies can employ equally smart but cheaper people in Mumbai. And as the ‘knowledge’ or ‘service’ work is moving up the value chain, the work being carried out in India is increasing in complexity. This increased complexity brings much greater value to India, and makes it a better bet for investors.

India is building (and at pace) a massive knowledge-based economy. And they are very, very good at it.

The great thing about the knowledge-based economy is that knowledge is scalable. Unlike iron ore or car manufacturing, there is no upper limit.

As we’ve seen over the last 10 years, manufacturing is not scalable. China once had a stranglehold on the manufacturing industry but emerging technology has given its competitors the opportunity to cut costs without compromising quality. Just look at how 3D printing has disrupted the industry in such a short space of time. As manufacturing gets cheaper, it will probably become more localised. Why outsource when you can do the same job at home and save on shipping costs?

In turn, skill-based knowledge continues to become more complex. The very same environmental factors that have constrained and challenged the manufacturing industry have powered knowledge-based industries to new heights. Knowledge is scalable and it is an incredibly valuable commodity for those who can develop an effective platform to provide it.

2. Strong leadership = great economic power

The current Indian Prime Minister, Narendra Modi, is one of the most impressive leaders I have seen on the world stage for a long, long time. I think he is unquestionably the best leader on the planet today.

I’ve never seen a man more driven to turn his country into a great nation. Sure, he has his work cut out for him, but, have absolutely no doubt about it – this man is on a mission.

As someone who lived in India for many years, I’m a close observer of Prime Minister Modi. And as time goes by, I only become more convinced of his ability to transform India into a great economic power. He is incorruptible and driven, working more hours than the most hardworking executive. He is eloquent and thoughtful. I’ve read many of his speeches and communications to business leaders and to the average man in the street - they are inspirational. He is willing to take risks, be creative, and most of all, he has an enormous political skill - he has the ear of his nation and together they will make something truly awe-inspiring.

I am convinced that Modi will recalibrate India into a transparent, fair, and prosperous country. And anyone who invests in India is likely to benefit.

3. A young population drives prosperity

As the saying goes, demographics is destiny. I’m a big believer that demographics are extremely powerful.

Look at the people around you as they age. You start getting old. You spend less. You want less. It’s a fact. I can tell you that from personal experience! I just don’t want or need as much stuff as I did when I was younger.

Take a look at the balance sheet of countries with aging populations and you will see a country struggling to generate demand. This causes huge internal economic problems.

India on the other hand has a demographic dream. To be honest, this one statistic alone is all you need to know that India will be the economic winner of the next couple of decades.

In a world where dealing with an aging population is commonplace, India stands out. It really stands out. A couple of facts:

● More than 50% of India’s population is under the age of 25. That’s over 650 million people! And 60% of the Indian population is under the age of 35.

● About 250 million people will enter the workforce over the next 5 years. That is the equivalent of the US population.

● By 2020, the average age in India will be 29. This is significantly lower than its counterparts such as Japan which is expected to have an average age of 48.

With youth comes demand. With demand comes economic prosperity. This is a fact, and one that smart investors can take advantage of.

4. Language barriers are decreasing

English is the language of commerce. Many countries might not like that, but it’s a fact, and one that has not gone away.

With 125 million English speaking people, India is the second largest English speaking country in the world - second only to the United States. It is expected that this number will quadruple over the coming decade and India will become THE largest English speaking country in the world. This provides India with a significant economic advantage.

5. Latent under-investment

The economic prosperity we see in China today was only unleashed after Deng Xiaoping succeeded chairman Mao Zedong.

While Xiaoping was regarded as one of the most powerful figures in China, much of the country’s miracle economic growth was a result of China catching up to where it should have been after being repressed by the previous communist rule. This is known as latent under-investment and is common when a country’s investment in their infrastructure is less than what is required for a country of its size and population.

Japan had the same issue post World War II. Having been faced with the massive destruction of its infrastructure, Japan had a lot of ‘catching up’ to do. Yet most people tend to forget this.

I would argue that India is faced with something very similar. But it’s not war, and it’s not repressive communism it is catching up from. It is (or was) severe and repressive corruption. The dynastic political transitions, nepotism, and cronyism that cultivated grafting and undermined widespread economic investment and growth.

While corruption is beyond the scope of this blog, I would argue that as the cultural tendrils of corruption get unwound, India too will get back to ‘where it should be’. This also, like demographics, amounts to a massive unleashing of economic potential.

So there you have it. Five reasons why India, not China, is the economy to watch over the coming decades. I would take any single one of them as evidence enough. But India has all five economic tailwinds and they are blowing quite a breeze!

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