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"Elephants" Dance, "Empire" Sunsets: How Did India Overtake Britain as the Fifth Largest Economy?

author:Shangguan News

"Elephants" dance, "Empire" sunsets. Bloomberg said on September 2 that International Monetary Fund data showed that India's GDP surpassed that of the United Kingdom in the fourth quarter of last year to become the world's fifth-largest economy.

Looking back at the world GDP rankings in recent years, India can be described as rapid progress. Indian media said that India was still ten outside 10 years ago, and in 2017, it overtook France to rise to sixth, and now officially ranks fifth. What's more, the "fight" is not over, and India is likely to overtake Germany as the fourth largest economy in 2027.

However, while Indians are cheering, some institutions and foreign media have poured cold water on them, saying that the growth miracle may be only a flash in the pan. Many foreign companies are fleeing.

What is the actual state of the Indian economy? What is the power that helps him "walk like a fly"? And what weaknesses make foreign investors walk on thin ice?

Best time?

India's superiority over Britain is both reasonable and unexpected.

Since the Modi government came to power, india's economy has basically maintained a growth rate of 7.5% to 8%. In dollar terms, the Indian economy has grown at a CAGR of 5.71% over the past 10 years, compared to just 1.76% in the UK over the same period.

But in recent years, the trajectory of India's economy has been frustrating.

As early as 2018 before the outbreak of the new crown epidemic, "Modi economics" has shown fatigue, and the impact of the epidemic has accelerated the bursting of the economic bubble. In April 2020, Bloomberg called the Indian economy a "zero-clear collapse", and in the context of declining external demand, shortcomings such as weak infrastructure and low construction levels were exposed. The economy shrank by 6.6 percent in fiscal 2020-2021.

However, after two years, the Indian economy has not only regained its vitality, but also showed new "muscles".

In terms of speed, India's GDP grew by 13.5% year-on-year in the second quarter of this year, leading the world's large economies.

In terms of scale, after the fourth quarter of last year, India's total GDP in the first and second quarters of this year exceeded that of the United Kingdom. By the end of the year, India's total GDP is expected to reach $3.54 trillion, up from the UK's $3.38 trillion.

The economy that once ruled the Indian subcontinent for two centuries has become India's defeated general, widely regarded as a milestone in India's economic history, and efforts have been made to find the "growth code" of Asia's third-largest economy.

Some analysts believe that India's eye-catching report card benefits from two aspects. Internally, a strong recovery in demand boosted economic growth, particularly in the services sector, with private consumption rising 25.9% from April to June. Externally, the recent decline in international commodity prices has eased inflationary pressures slightly and translated into rising consumer demand.

Hu Shisheng, director of the Institute of South Asian Studies at the China Institute of Contemporary International Relations, pointed out that in the post-epidemic era, india has performed well among a number of developing economies in the context of the global economic recovery. Compared with the United Kingdom, its area is larger, more populous, and its development potential is huge, especially in the era of the advent of the digital economy, surpassing the United Kingdom can be said to be a certain inevitability.

More importantly, Hu Shisheng believes that at present, India is in the best period of economic development and internal and external environment since the end of the Cold War. Domestically, the Modi government has formed a state of "great unification" in politics, the position of the ruling Indian Party has become more and more consolidated, and a pattern of comprehensive control from the central to the local government is taking shape, which provides a political guarantee for India's economic development. Abroad, at present, at the time of the restructuring of the global industrial chain and supply chain, the United States and the West are stepping up all-round support for India, especially the United States hopes to win India over to become an important force in squeezing China's development space. As a result, some Indians believe that the "period of strategic opportunity" for the rise of great powers has arrived.

Lin Minwang, deputy director of the South Asian Research Center of Fudan University, believes that India surpasses the United Kingdom, there is not much suspense, because the economic volume of the two countries is relatively close, and it can be said that it is just around the corner after surpassing France and catching up with the United Kingdom.

"From the perspective of growth model, the Indian economy is different from China's dependence on investment and foreign trade, mainly driven by domestic demand. Therefore, after the cancellation of the epidemic restriction measures, the driving force for the Indian economy to resume rapid growth is in line with external expectations. Lin Minwang said that in addition, in the context of the Russian-Ukrainian conflict, India seized the opportunity to turn the unfavorable into advantageous and become a winner in the international situation.

But then, it won't be so easy for India to surpass Germany's. Lin said Germany's GDP is about $1 trillion higher than India's. It may take a long time for the Indian economy to catch up.

Weak link

Despite impressive economic growth, some observers are cautious.

Some Indian media pointed out that India has fought a "turnaround battle", but it needs to be looked at from multiple angles.

On the one hand, the population gap between the two countries is obvious, which is a major advantage for India. As of this year, the population of the United Kingdom is 68.5 million, and the population of India is 1.41 billion, which is equivalent to 20 times the former. On the other hand, gdp per capita varies widely, with India at just $2,500 and the United Kingdom at $47,000, providing a more realistic income level comparison between the two economies.

More critically, poverty levels are higher in India, where 270 million Indians still live in extreme poverty. From the human development index, which measures the results of economic growth, india will need at least 10 years in terms of health, education, living standards and other aspects to reach the level of the United Kingdom in 1980.

Some foreign media "ridiculed" that India, as "the world's fastest growing major economy", "reputation" is only temporary, because its manufacturing performance is disappointing. Some rating agencies such as Moody's and Goldman Sachs have also recently lowered India's growth prospects for the current fiscal year.

The outside world is curious, what are the vulnerabilities of the Indian economy?

There are several aspects of comprehensive public opinion.

First, economic growth has not actually translated into a significant increase in jobs. With unemployment remaining high and real wages at historic lows, domestic consumption may not be enough to further boost growth.

Second, the RBI's rapid interest rate hike since April has led to a sharp rise in borrowing costs, while a global economic slowdown could hamper demand for domestic goods and services.

Third, the Indian economy is under pressure from the weakness of the rupee, and the twin deficit situation is becoming more serious. India's trade deficit is expected to reach 3% of GDP this fiscal year, putting further pressure on India's currency.

In this regard, Lin Minwang believes that the statistical significance of the unemployment rate is not significant. India's informal economy has many forms, accounting for a large proportion, and cannot be analyzed simply with data. However, the Indian economy does have some internal problems.

Lin Minwang noted that recently, many foreign multinational companies have shown disappointment in the Indian market, either withdrawing from India or reducing the scale of investment and production in India, including Ford Motor, General Motors, Citibank, Swiss Howe and other companies. The reason for this is related to the large-scale increase in tariffs by the Modi government since the end of 2018 and the increasingly oriented economic policy towards "domestic protectionism". After the second term of office began in 2019, the Modi government has adopted various restrictive measures against foreign-funded enterprises on the grounds of national security and tax review. With the deterioration of India's overall business environment, the confidence and willingness of foreign enterprises to invest and operate have been dampened and hit.

Where is the "track"

Some people say that the reason why the Modi government "reversed" in economic opening up is to promote the structural transformation of the Indian economy. Some people also say that this is a long-term drawback that restricts India's economic development, and what a government has vigorously defended may still be the interests of the monopoly consortium behind it, rather than the development of small and medium-sized industries and businesses.

In this regard, the two scholars interpret it from two different perspectives.

Hu Shisheng pointed out that for a long time, the low-end service industry has occupied half of India's GDP, and India is facing the problem of economic restructuring. However, as far as the development of India's manufacturing industry is concerned, it has always been plagued by the poor flow of the "five streams" (material flow, labor flow, land flow, capital flow and technology flow). Nowadays, the internal and external environment is conducive to the development of India's manufacturing industry.

Internally, modi's government is in a solid position and has a greater say. Externally, India is accelerating the in-depth "collusion" between the middle and high-end manufacturing industry and the West, especially joining the various so-called flexible industrial chains and supply chain plans advocated by the United States and the West. With increased cooperation in some core emerging industries, India is trying to get on the "fast track". For example, in the field of mass production of smart phones to form a complete industrial chain; For another example, India continues to make efforts in the field of new energy vehicles and pharmaceuticals. In the field of low-end manufacturing, India continues to take advantage of the opportunity of industrial chain and supply chain restructuring triggered by the Western policy of containing China to undertake more relocated enterprises from the United States and the West.

However, "India's development of manufacturing still faces a question: how big is the window period, and can India catch up with this train?" Hu Shisheng said that since the outbreak of Sino-US trade frictions and the new crown epidemic, unlike the past model of optimized allocation of global resources on a global scale, the entire globalization has shown a different development trend: security is increasingly placed before development. The phenomenon of anti-globalization has emerged as a result of the precondition for "development" in some countries.

In this context, Hu Shisheng believes that India may face the dilemma of "two ends falling short" and cannot find where its "track" is. In the lower-middle manufacturing sector, it may be difficult to break through the competition of China and other developing economies; In the field of high-end manufacturing, it is difficult for it to get the real core technology from the hands of Western countries, or even just become a Western money-making machine.

Lin Pointed out that the Modi government has launched a series of reform measures, the main goal of which is to achieve the integration agenda of the domestic political economy, and to combine the scattered states into a whole. From the objective effect, whether it is "import substitution" or "self-reliance", it is beneficial to the big business behind the ruling party.

In addition, Lin said that India is trying to "take over" the enterprises and industrial chains transferred from China by the United States and the West, seeking to integrate into the US-dominated economic system. But the business practices of U.S. and Western multinationals do not follow geopolitical logic entirely. Even though the United States, Europe, Japan and Australia see India as a strategic partner, their companies do not see India as a good investment market. From 2019 to 2021, FDI inflows to India have not risen but declined, as evidenced by this.

(Edit email: ylq@jfdaily.com)

Column Editor-in-Chief: Yang Liqun Text Editor: Liao Qin Caption Source: Visual China Photo Editor: Zhu Xuan

Source: Author: An Zheng

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