The Indian Economy: A Rising Power

Many Indians work in the informal economy. Photo: Ritesh Shukla via The New York Times

Pushing past the previous economic depression during the coronavirus lockdowns, India hopes to achieve their target of $2 trillion in net exports by 2030, according to the Minister of Commerce and Industry, Piyush Goyal. In the past month, Goyal held multiple discussions with exporters in order to analyze market strategies to ensure that India’s merchandise export fiscal rate and service export rates exceed those of last year. 

Currently, the majority of India’s exports are petroleum products, diamonds, pharmaceutical products, and electronic goods. India’s largest export partners include the United States, China, and the United Arab Emirates (UAE). According to breakdown data published earlier this year, India’s trade exports to the US have increased by about $51.2 billion in the previous fiscal year. 

Recently, India has also entered the Russian oil market, was once dominated by China, taking a record number of shipments of Russian crude oil as the fallout from Moscow’s invasion of Ukraine reshapes trade flows. Economic analysts predict that this sudden increase in oil shipments will take longer to transport but will continue as long as prices remain attractive and there are no trade sanctions blocking such exchange of goods. India has emerged as a key buyer of Russian oil in the wake of the invasion, scooping up millions of barrels of discounted crude shunned by Europe and the US. The Eastern Siberia Pacific Ocean (ESPO) shipments going to India are cheaper than the nation’s usual Middle Eastern grades, and will likely displace some flows from Saudi Arabia and the UAE. Yet, many economists simultaneously speculate that these imports could offset India’s 2030 goal of achieving an increased amount of net exports to $2 trillion.  

India’s recent economic resurgence through both exports and imports has restarted speculations about what exactly accounts for the economic gap that exists between China and India, given that the world’s two most populous countries had similar economic starting points. What exactly can be attributed to China’s economic outpacing of India? 

A job fair in Chennai last month. Credit: Idrees Mohammed/EPA, via Shutterstock, The New York Times

Deputy editor at Foreign Policy Cameron Abadi, highlighted the fact that India’s economy never quite took off the way China’s did, especially between 1980 and 2010. In fact, some politicians speculate that perhaps India’s lack of a true social revolution after its independence from Britain held them back from a popular revolution that could have upheaved India’s social structure and transformed it. These reforms could perhaps even transform certain traditional values such as the caste system, which could have further increased India’s overall workforce and economic productivity. 

Social scientists at the University of Chicago discuss when colonial rule in India came to an end, and how India’s transformation remained oppressive to a certain extent given Gandhi's social movement. Perhaps the preservation of such centralist policies, even post-colonization, could account for the lack of infrastructural and industrial growth that held India back from experiencing economic growth at a similar pace to what China once experienced.

The World Bank Group further analyzed the economic growth disparities that exist between India and China, highlighting India’s lack of social reforms post-colonization meant that China’s economy was privatized faster. Moreover, China’s labor market underwent deeper reforms, and the economy was opened up to international trade and Foreign Direct Investment (FDI) to a greater extent. 

Another aspect that many economists take into account while analyzing differing growth trends between China and India are the contrasting divisions of labor within the agricultural sector. Initially, the agricultural sector in China took off before India, given that China’s fertilizer industry took off before India’s. As the global economy continued expanding into the 1980s, China began developing into a key hub for global manufacturing and investment, fueled primarily by Japanese, South Korean, and Taiwanese companies. 
Unfortunately, India missed such opportunities for global expansion. The International Monetary Fund (IMF) believes that this was a result of their currency overvaluation; creating an economic crisis. Only time will tell whether India’s economic growth will overtake China’s in the future.