JOIN USCan India change the world?
By Nicholas Kristof
Is India the world’s next tiger economy, poised to succeed a slowing China as a pillar of the global economy?
That wouldn’t be anything new, simply a recovery of its traditional position. One economic historian estimates that as recently as 1700, India accounted for about 24 per cent of global GDP, similar to the share now of the United States or Europe. But today India makes up just 3 per cent of global GDP, up from 1 per cent in 1993.
As India overtakes China as the most populous country in the world, and as international companies seek new bases for manufacturing outside China, India has a historic opportunity to recover its mojo in a way that would change the world. But can this lumbering giant of a nation actually pull that off?
Some experts are optimistic. “I fully believe this can be not just India’s decade, but also India’s century,” Bob Sternfels, the global managing partner of McKinsey & Co, told me — from Mumbai, which he was visiting. And Morgan Stanley, the investment bank, says that India is on track “for unprecedented economic growth” that will allow it to leapfrog Japan and Germany to become the world’s third-biggest economy by 2027.
I’m not quite that confident in India’s future, but I do believe it has a fighting chance to soar economically — if it faces up to three major challenges: It needs to improve education, boost women in the labour force and improve the business climate to increase manufacturing.
Let’s start with education, which should be an Indian national embarrassment. In Kolkata, a city renowned for its intellectual tradition, I dropped in on a government school and chatted with some ninth graders.
What is 6 times 9, I asked them. They didn’t understand in English, which is part of the curriculum, so a teacher translated the question into Bengali, their native language. The students still didn’t know. That’s not their fault, but that of an educational system that leaves too many behind.
In rural Rajasthan, I visited an impoverished village and came across a handful of children who simply hadn’t attended school that day. Absenteeism is a national problem, and the school later told me that attendance that day was just 68 per cent. National surveys confirm that even when Indian children go to school, they don’t necessarily learn much. Fewer than half of fifth graders can read a text at a second-grade level.
China has thrived in part because it made enormous investments in human capital and that created a literate, numerate workforce. In contrast, perhaps only 35 per cent of Indian children make it to grades 11 and 12.
But wait! Maybe there’s hope. In the 41 years that I’ve been visiting India, I’ve seen tremendous improvements in education and well-being. Teacher absenteeism used to be routine, and in Bihar I once came across a school that opened only once a year, for exams, which teachers then filled out so that it would look as if students were learning. All that is much rarer today, and the authorities in some states have eliminated book fees, uniform fees and other informal charges that were a barrier to school attendance. Free hot lunches and deworming are now routine, and it’s rare to find young children who are completely outside the school system.
In Rajasthan on this trip, I visited a school that had only two classrooms for eight grades, so some of its classes were conducted outside. But the teachers were qualified, present and engaged. I was impressed that the school had a free pre-K attached to it, open to all — and, most startling, the school provides free sanitary pads to girls to
encourage them to attend school during their periods.
Beyond improving education, India also has to offer opportunities for educated women in the economy. India has only 23 per cent of women in the labour force, compared with 61 per cent in China, and its female labour force participation has actually been dropping for most of the past two decades.
On top of educating its children better and empowering its women, India also needs pro-growth economic policies. The government recognises this and has taken some steps in that direction, and there’s also some healthy competition among the states for investors. Infrastructure has improved enormously and made it easier to do business. Airports once were a nightmare but now are smooth, fast and efficient: I would rather deal today with an average Indian airport than with an American one.
As for the IT sector, it’s dazzling and in some respects ahead of the US. Here in India, digital data on mobile phones is extremely cheap, and digital transactions are everywhere. Nandan Nilekani, a pioneer in information services, says that India’s digital public infrastructure enables a technology-led growth model, and there are indeed signs of a boom in entrepreneurial activity in the tech sector: India had 452 startups in 2016 and 84,000 last year.
But it is export-led manufacturing that traditionally has provided the path for economic breakout in Asia because it can employ an enormous number of people. In India, manufacturing’s share of the economy has stagnated, and international executives share horror stories about red tape and the difficulty of doing business.
India has had false dawns before. For a while in the 2000s, it was enjoying economic growth rates of roughly 8 per cent per year, and it seemed that it might become the next Asian tiger economy. Today India has a new chance to lure manufacturers. China has an aging population, its brand is tarnished by repression, and global companies are eager to find new manufacturing bases. India has English speakers, a familiar legal system, low-cost workers and first-rate engineers emerging from the Indian Institutes of Technology.
Yet India also has air pollution that is a significant threat, it is veering in a more authoritarian and Hindu nationalist direction, and it has relatively high tariffs that make it difficult to import materials used in supply chains. There also seems to be a persistent suspicion in India that foreign manufacturers are exploitative, exacerbating labor tensions.
Ford Motor is the kind of corporation that should be expanding manufacturing in India, to target the large auto market here and to use India as an export base. But after making an effort and setting up dealerships, Ford gave up in 2021 and pulled out of India. General Motors and Harley-Davidson quit the local market earlier.
Arvind Subramanian, a former economic adviser to the government of India who is now at Brown University, is sceptical that India will change its policies enough to seize the opportunity presented by China’s difficulties. But he thinks Apple’s efforts to manufacture iPhones in India offer a ray of hope by encouraging other companies to follow. “The entry of Apple is significant — that is the space to watch,” he said. “If Apple thinks India can be a competitive place from which to export to the world, there could be demonstration effects.”
I’m a bit more optimistic, partly because I lived in China in the late 1980s, when people complained vociferously about how it was impossible to get anything done there. I remember a frustrated foreign executive telling me that he couldn’t even manufacture Popsicles in China because he couldn’t reliably source something as basic as Popsicle sticks. “You need to start by sourcing trees and make your own Popsicle sticks,” he grumbled.
India likewise felt hopeless in the 1980s, as resistant to modernisation as the Hindustan Ambassador cars that were creeping along impossibly winding roads. And then it adopted market reforms in 1991 and changed everything. If India can boost education, free its women to join the labour force and attract the companies that are desperate to find new bases for manufacturing, it can surprise us again. If it can do that, it will recover its historical role as an economic powerhouse, and the past few centuries of poverty will be forgotten — a blink of the eye in the context of India’s ancient civilization. It would again be normal to think of India as a great power and one of the pillars of the global economy, and that would change
the world.