India might take China’s growth crown

China is slowing and Western governments increasingly see it as a rival rather than an economic partner. On its southwestern border, another rising economy is vying to take its place as the world’s next growth driver, Report informs via Bloomberg.

India’s stock market is booming, foreign investment is flooding in and governments are lining up to sign new trade deals with the youthful market of 1.4 billion people. Aircraft makers like Boeing Inc. are taking record orders, Apple Inc. is scaling up iPhone production, and suppliers that have long clustered around manufacturing corridors of southern China are following.

For all the optimism, India’s $3.5 trillion economy is still dwarfed by the $17.8 trillion behemoth that is China and economists say it would take a lifetime to catch up. Shoddy roads, patchy education, red tape and a lack of skilled workers are just a few of the many deficiencies western companies run into when setting up shop.

But there’s one important measure where India could overtake its northern neighbor far more quickly: As the engine of global economic growth. Bullish investment banks, such as Barclays, believe that India can become the world’s largest contributor to growth within Prime Minister Narendra Modi’s next term. His party is widely expected to win elections set to begin in weeks.

Exclusive analysis by Bloomberg Economics is even more optimistic, finding that India can reach that milestone by 2028 on a purchasing power parity basis. To get there, Modi will need to hit ambitious goals in four crucial development areas — building better infrastructure, expanding the skills and participation of the workforce, building better cities to house all those workers, and luring more factories to provide them jobs.

According to a Bloomberg Economics analysis, India could become the world's no.1 contributor to GDP growth as early as 2028.

There is a template. Following reforms in the late 1970s that opened its economy to the world, China’s growth averaged 10% a year for three decades. That made it a magnet for foreign capital and gave it greater clout on the world stage. Every big global company had to have a China strategy.

But the so-called ‘miracle’ phase of China’s expansion is now in the past as a property crisis intersects with growing Western concerns over its dominance of supply chains and advances in sensitive technologies.

That’s where India comes in. Modi’s government is seeking to make the Indian economy more competitive, a shift that’s appealing to Western businesses looking to diversify away from China in search of a deep well of cheap labor. Modi has made India’s accelerating economy a major part of his election pitch, pledging at a rally last year to lift the country’s economy “to the top position in the world” should he win a third term.

he government’s allocation to infrastructure has more than tripled from five years ago to above 11 trillion rupees ($132 billion) for the 2025 fiscal year, a figure that could exceed 20 trillion rupees if states’ spending is thrown in. Modi is projected to invest 143 trillion rupees to improve rail, roads, ports, waterways and other crucial infrastructure in the six years through 2030.

At the same time, his government has sought to tamp down inflation by banning exports of wheat and rice. Earlier this decade, the government rolled out incentive programs of some 2.7 trillion rupees to encourage domestic manufacturing, with companies getting tax breaks, lower land rates, and capital to set up factories in India from states as well.

In Bloomberg Economics’s base case scenario, India’s economy will accelerate to 9% by the end of the decade, while China slows to 3.5%. That puts India on course to overtake China as the world’s biggest growth driver by 2028. Even in the most pessimistic scenario — in line with the IMF’s projections for the next five years in which growth stays below 6.5% — India overtakes China’s contribution in 2037.

India stands out as the sole country with a population large enough to offset retiring factory workers in advanced economies and China. Bloomberg Economics estimates that some 48.6 million medium skilled workers — typically employed on the factory floor — will retire from China and advanced economies from 2020 to 2040. In the same period, India will add 38.7 million such workers.