Monday, August 31, 2015

The dynamics of India’s population growth will push it ahead of China’s in less than two decades.

India still has the world’s largest concentration of poor people, with more than 840 million living on less than US$2 a day and 400 million on less than US$1.25 a day. By 2050, with the world’s largest population, India will face multiple challenges around urbanisation, infrastructure, jobs, drinking water, and food for its citizens. Its size and rising middle-class power has led many to highlight its role in powering the Asian century. It is also embraced, in Washington, Tokyo and Canberra, as a strategic hedge against China’s growing power.

Unless its poor can be included in the process of growth, India’s transition through the middle-income trap will remain a dream. If India is to emerge from lower-income country status and catch up with its BRICS counterparts, it will have to throw off the shackles of outdated development strategies and a culture of bureaucratic inertia.

Located in the right place and at the right time, how can India thrive, alongside its giant Asian neighbour? What opportunities does China offer India and what opportunities will the rise of India offer China? India is bound to a low per capita growth trajectory unless it can lift its annual growth rate by at least 2 to 3 percentage points. Is China a threat to India’s regaining its growth momentum, or does it offer a way out of continuing economic fragility?

The marked slowdown of growth in both China and India in the past few years does not qualify the outlook for China’s and India’s dominance of Asia’s economic and strategic weight. Yet, as Alok Sheel argues, their current growth trajectories suggest both need new strategies for cushioning the impact of the global slowdown. Their current strategies are unsustainable if the drop in demand in advanced economies is permanent, and that might well be the case.

‘Both economies need rebalancing’, says Sheel. ‘China needs to reduce its reliance on foreign demand and domestic investment while increasing domestic consumption. This is what it seems to be consciously seeking to do’, he continues, ‘unlike China, the Indian economy needs to invest more,especially in infrastructure, while also improving the ease of doing business … This would involve shifting public expenditure away from consumption towards plugging growing infrastructure gaps and improving the environment for private investment’. To do this also involves following Prime Minister Modi’s leadership in engaging more deeply internationally.

Re-calibrating China’s and India’s development strategies in this way will, of course, drive their two economies more closely together, not put political or economic distance between them. China needs to invest outwards, and is positioned to be a significant source of investment funding and infrastructure for countries in its neighbourhood, such as India. India needs to lift its competitiveness across manufacturing and other sectors by opening to international trade and investment, and position itself to play a much larger role in regional value chain production networks.

The force and potential of the growing weight in the India–China partnership continues to befuddle analysts in Washington, Tokyo and Canberra. The pace and scale of bilateral trade and investment growth between China and India has been impressive and it is bound to more than match that of India’s other Asian partnerships in the decades immediately ahead given their proximity and economic complementarity.

The inexorable force of India’s and China’s demographic dynamics and growing market size will drive these changes and India’s deeper integration into Asia with China. It will do this by leveraging the two countries’ divergent demographics and their trade and geographic proximity.

In this week’s lead essay, Hugh White examines an alternative conception of China’s and India’s strategic interaction, through the prism of a wider ‘Indo-Pacific’ strategic system, posing the question of how India might play into that to limit China’s strategic weight.

White observes that Prime Minister Modi has encouraged leaders in Washington, Tokyo and Canberra to believe that he shares and wants to help promote their vision of Asia’s strategic trajectory through that prism. ‘But it is equally probable that India will play little role in the power politics of East Asia’, he argues. And if it does, it will pursue Indian interests, which may differ substantially from America’s, Japan’s or Australia’s.

There is little doubt, White argues, that India will acquire the strategic weight to function as a great power in an Indo-Pacific strategic system alongside China, America and Japan. Demographics alone assures its place among the world’s big three economies. India will also remain the preeminent great power in the sub-continental strategic system of which it is the natural centre. But will it function as a great power in a broader strategic system that also encompasses East Asia?

‘Those who assert the existence of a functioning “Indo-Pacific” region think so. But promoting the region as a policy concept risks assuming what needs to be proved’, White concludes.

If India stands aloof from East Asian power politics, and China does not challenge India west of Sumatra, then these two regions could continue, as they long have, to function as separate strategic systems. And proponents of the Indo-Pacific idea, which has gained fashion around the notion that India will be compliant in playing an assigned role in the Western Pacific as well as the Indian Ocean, might need to reconsider what is going on on the ground across Asia, not only in the oceans that surround it.

Peter Drysdale is Editor of the East Asia Forum.


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