The fact that India is a promising candidate for a de-risking offensive by the German economy was emphasized several times on the first day of Economy Minister Robert Habeck’s visit. However, it is also clear that there are still several open questions regarding India as an alternative to the People’s Republic of China. One of these is whether the world’s most populous country can even manage the kind of industrial career that China has achieved since opening up its economy – does it even have to?
In her analysis, Angela Köckritz explains India’s potential as China 2.0 and what decisions the Indian government needs to make in order to achieve a rise similar to that of the People’s Republic.
Another unanswered question: What about the region’s security policy? Indian politicians told Habeck, “Your Russia is our China.” In today’s opinion piece, Christoph Heusgen, the head of the Munich Security Conference, looks at the region and its existing and potential hotspots.
German Chancellor Olaf Scholz has also landed in the Indian capital today. Together with Habeck and Siemens CEO Roland Busch, he will kick off the Asia-Pacific Conference. A gala event is planned for the evening. Julia Fiedler shares her impressions of the first day in the Table.Today podcast.
Namasté from New Delhi!
“We Indians love to compare ourselves with China,” writes Ritesh Singh, Managing Director of Indonomics Consulting. However, despite all the great things India has to offer, from an economic perspective, India has long looked bad in this comparison. Yet slowly but steadily, India is making up the ground it once lost to the People’s Republic.
Just 40 years ago, the Chinese were, on average, poorer than their neighbors. In 1984, people in China earned around 250 US dollars a year, compared to 278 US dollars in India. But then, an economic miracle was set in motion in China, the likes of which the world had never seen before. In 40 years, the average Chinese income has grown fifty-fold. Today, it stands at 12,614 US dollars, compared to just 2,485 US dollars in India. In other words, the Chinese economy has grown five times as fast as the Indian economy. Since then, Indian economic planners have pondered the question: Could the country achieve a similar rise?
Things have been looking up recently. In the ten years Prime Minister Narendra Modi has been in office, India has surpassed many other countries. Last year, it replaced the UK as the fifth-strongest economy in the world. The US investment bank Morgan Stanley believes the country could also overtake Japan and Germany by 2027 and become the third-strongest economic power. “We think that India offers the most compelling growth opportunity in Asia in the coming years,” write the analysts.
Growth is currently at seven percent, banks and public budgets are stable, the stock market is booming and new roads, airports and underground railways are being built everywhere. Today, the beaches of Goa are less frequented by Western hippies and more by techies, bankers and lawyers from the up-and-coming Indian middle class in Mumbai, Delhi and Bangalore.
With “Viksit Bharat 2047,” Narendra Modi’s vision has promised his people to be part of the developed economies by the year 2047. Demographics could play into his hands. While Chinese society is set to age very rapidly, India is entering an era ideal for the labor market, with many young people and relatively few old people needing care. This situation will last for around 25 years, at which point Indian society will also begin to age.
India also hopes to attract all those multinational corporations that seek to relocate at least part of their production away from China in the wake of growing geopolitical tensions. The best-known example is Apple, which has moved seven percent of its iPhone production to India.
However, Modinomics, the economic strategy of the ruling Bharatiya Janata Party (BJP) named after Prime Minister Modi, has so far failed to deliver one thing: enough jobs. Millions of young people pour into the job market, but not all of them find what they are looking for. Many analysts do not quite trust the government’s figures, which claim that youth unemployment has fallen from 17.8 percent in 2018 to 10 percent today.
According to a study by the International Labour Organisation, 83 percent of India’s unemployed are young, and most are educated. But even those that do have a job often don’t earn much. 80 percent of the working-age population is employed in the informal sector, where wages are usually much lower.
The crux of the matter: Unlike China, India does not yet have any large-scale industrial economy. China, the world’s former workbench, produces 35 percent of all globally manufactured goods. India, which has replaced China as the world’s most populous country and is home to 18 percent of the global population, produces only three percent.
Industrialization has so far been the only way for countries to create masses of jobs. Almost all developed countries followed this path. According to the three-sector model by French economist Jean Fourastié, the ideal development of an economy towards a service society is one where farmers first enter industrial production. Increasing automation leads to more free time for the labor force, strengthening the service sector.
The textile industry was at the forefront when the Industrial Revolution started in Great Britain in the middle of the 18th century. English manufacturers exported pants and shirts as far as India. Other countries followed the British example, usually with the textile industry leading the way (with one exception being Germany, where heavy industry became the leading industry). The step from agriculture to the factory is a huge cultural upheaval – one only has to read German sources from the 19th century.
The clothing industry is usually at the very start because the workers (mostly women), who often come from agriculture, can be trained relatively quickly and the production processes are reasonably complex. “Asia’s rise has been stitched together by the textile industry,” writes the Economist. Countries that industrialize successfully work their way up the value chain over the years. Textiles, electronics and eventually, high-tech. Workers become increasingly skilled, manufacturing processes become more complex, capital is freed up for new investments and the state has more money to invest in education and research. China, which until recently produced six out of ten clothing items on the global market, is a particularly good example of this.
Why didn’t India follow the path the four Asian Tigers and later China pioneered? In his book “India’s Economy from Nehru to Modi,” Indian economist Pulapre Balakrishnan lists four reasons. He sees the biggest problem in the education system. Although India is famous for its writers, highly educated engineers, IT specialists and doctors, schools in many places are so bad that children fail at the simplest math problems. The infrastructure also often leaves a lot to be desired, and the local authorities place many obstacles in the way of entrepreneurs. Vidya Mahambare, a Professor of Economics at the Great Lakes Institute of Management in Chennai, confirms this in an interview with Table.Briefings. “Compared to service industries, the manufacturing industry traditionally has more problems obtaining various licenses.”
These problems prevent India from stepping into the breach as the world’s second-largest cotton producer, while wages are rising in China and the textile industry is spreading to other countries. Vietnam and Bangladesh are benefiting more than India. This constellation reflects the fundamental dilemma of all countries that industrialized much later than China: Competition has become much tougher. New players are entering the global market and trying to undercut their competitors’ production costs while production is increasingly automated. And no country has the same power as China, which has often been able to shift the rules in its favor.
India may have “missed the manufacturing bus,” says Raghuram Rajan, former head of India’s central bank and now a professor at the Chicago Booth School of Business. Instead, he believes India should concentrate entirely on developing its service industry. This sector is booming, and not just in the digital field. For example, J.P. Morgan employs 3,000 lawyers in India who draw up contracts for the investment bank’s global business. Multinational corporations have also set up their research and development departments in India.
Rajan’s strategy: leapfrogging. This means skipping a development stage. Instead of relying on factories, India should offer the rest of the world highly specialized services such as telehealth, consulting or design. No country has yet to achieve this on a large scale, even though many developing countries face similar challenges. However, Rajan believes India is in a good position to do so. Many Indians speak English very well; remote working has become commonplace since the pandemic, and wages in India are still much lower than in highly developed industrialized countries. However, the government must focus entirely on education for this strategy to work. Or, as Rajan puts it, from brawn to brain.
As if Russia’s war against Ukraine and the Middle East conflict were not enough crises for this world … No, military conflicts could also break out in the Indo-Pacific region at any time. The People’s Republic of China is directly or indirectly involved in most of the tensions.
With Xi Jinping, a ruler is at work who is much more nationalistic and aggressive than any of his predecessors, from Deng Xiaoping to Hu Jintao. The concentration of power in the hands of one person heightens the risk of conflicts breaking out, as we have seen and continue to see with Vladimir Putin.
To start with the (relatively) good news: The border skirmishes between India and China in the Himalayas, which caused dozens of deaths in 2020, have subsided; The Chinese have ceased their provocations. A few days ago, the two countries even signed an agreement.
China probably observes India’s rapprochement with the US with concern, particularly in the Quad format revived by President Biden (together with Japan and Australia), and does not want to encourage it further. And it is detrimental to the credibility of the BRICS organization driven by China if two of its most important members are armed to the teeth against each other.
The détente between South Korea and Japan is also one of the positive developments. But that’s where the good news ends.
The Taliban continue to rule Afghanistan with their medieval methods, and China has become their key economic partner, exploiting the battered country’s raw materials. China is also a privileged partner of the military junta in Myanmar, where civil war continues to boil. There is hardly any mention of the approximately one million Rohingya who have been displaced and fled.
The bad news also includes the perennial issue of North Korea. The revaluation of Kim Jong-un’s dictatorship, which resulted from Russian necessity, has made him more confident and aggressive towards South Korea. Russia is importing weapons and mercenaries from North Korea, and in return, Putin is blocking the UN sanctions regime against the country and supporting its nuclear and space program. (I doubt whether China will like this, as it will lose its privileged position vis-à-vis Pyongyang).
Other bad news includes the People’s Republic of China’s increasingly aggressive policy towards Taiwan. Violations of Taiwan’s territorial waters are increasing and China is using its huge naval forces to blockade the island. The pressure on Taiwan is growing; Xi has announced its incorporation and has not ruled out the use of military force. Beijing is also trying to wear down Taipei with propaganda, legal threats and disinformation campaigns – so far, in vain.
Despite all the saber-rattling, I consider a military invasion unlikely in the foreseeable future. This is because China cannot predict the US reaction and because the potential destruction of the factories of Taiwanese semiconductor market leader TSMC would have dramatic consequences for the Chinese economy. The financial repercussions for the Chinese and global economy would be gigantic; estimates run into the double-digit trillions.
There is an even greater risk of a military conflict breaking out in the neighboring South China Sea. Here, China is systematically trying to expand its territorial waters in a way that cannot be justified under international law. Smaller naval skirmishes repeatedly occur. The most dangerous is the conflict between China and the Philippines.
Even the binding ruling of a UN arbitration tribunal has not deterred the People’s Republic from further provocations against the island state. The USA supports the Philippine armed forces and stations its own troops in the country. Due to the US-Philippine support agreement, there is a genuine risk that the US Navy could become involved if China were to invade Philippine territorial waters again, potentially attacking Philippine ships and killing Philippine soldiers.
To complete the overall picture: The Japanese also know a thing or two about Chinese threatening gestures at sea and in the air: This summer was the first time that a Chinese aircraft violated Japanese airspace.
The USA remains the most important regulatory power in the region. Together with its regional partners, it is working to keep the situation in the region stable and to stand up to the Chinese. The German government’s decision to show its solidarity with Asian partner countries under pressure not only verbally, but also this year by sending its Air Force to participate in exercises in the region and by sending a German frigate to Japan, South Korea and the Philippines, among other places, and above all to sail through the Taiwan Strait, is very much welcomed there.
The delivery of German Taurus missiles to South Korea is also a strong signal that Ukraine is still waiting for in vain. The next opportunity for the German government to show that it is taking security in the Asian region seriously is this week’s government consultations with India.
Christoph Heusgen has been Chairman of the Munich Security Conference (MSC) since 2022. He teaches political science at the University of St. Gallen. Christoph Heusgen was Germany’s permanent representative to the United Nations from 2017 to 2021. Prior to that, and since 2005, Heusgen was a foreign and security policy advisor to former German Chancellor Angela Merkel.
Editorial note: Now more than ever, discussing China means controversial debates. At China.Table we want to reflect the diversity of opinions to give you an insight into the breadth of the debate. Opinions do not reflect the views of the editorial team.
These days, “Herr Olaf Scholz” is everywhere in New Delhi – the part of the city where the German delegations around the Federal Chancellor and the ministers travel is covered with greeting messages to the German head of government, sometimes pictured with India’s Prime Minister Narendra Modi, sometimes alone.
The fact that India is a promising candidate for a de-risking offensive by the German economy was emphasized several times on the first day of Economy Minister Robert Habeck’s visit. However, it is also clear that there are still several open questions regarding India as an alternative to the People’s Republic of China. One of these is whether the world’s most populous country can even manage the kind of industrial career that China has achieved since opening up its economy – does it even have to?
In her analysis, Angela Köckritz explains India’s potential as China 2.0 and what decisions the Indian government needs to make in order to achieve a rise similar to that of the People’s Republic.
Another unanswered question: What about the region’s security policy? Indian politicians told Habeck, “Your Russia is our China.” In today’s opinion piece, Christoph Heusgen, the head of the Munich Security Conference, looks at the region and its existing and potential hotspots.
German Chancellor Olaf Scholz has also landed in the Indian capital today. Together with Habeck and Siemens CEO Roland Busch, he will kick off the Asia-Pacific Conference. A gala event is planned for the evening. Julia Fiedler shares her impressions of the first day in the Table.Today podcast.
Namasté from New Delhi!
“We Indians love to compare ourselves with China,” writes Ritesh Singh, Managing Director of Indonomics Consulting. However, despite all the great things India has to offer, from an economic perspective, India has long looked bad in this comparison. Yet slowly but steadily, India is making up the ground it once lost to the People’s Republic.
Just 40 years ago, the Chinese were, on average, poorer than their neighbors. In 1984, people in China earned around 250 US dollars a year, compared to 278 US dollars in India. But then, an economic miracle was set in motion in China, the likes of which the world had never seen before. In 40 years, the average Chinese income has grown fifty-fold. Today, it stands at 12,614 US dollars, compared to just 2,485 US dollars in India. In other words, the Chinese economy has grown five times as fast as the Indian economy. Since then, Indian economic planners have pondered the question: Could the country achieve a similar rise?
Things have been looking up recently. In the ten years Prime Minister Narendra Modi has been in office, India has surpassed many other countries. Last year, it replaced the UK as the fifth-strongest economy in the world. The US investment bank Morgan Stanley believes the country could also overtake Japan and Germany by 2027 and become the third-strongest economic power. “We think that India offers the most compelling growth opportunity in Asia in the coming years,” write the analysts.
Growth is currently at seven percent, banks and public budgets are stable, the stock market is booming and new roads, airports and underground railways are being built everywhere. Today, the beaches of Goa are less frequented by Western hippies and more by techies, bankers and lawyers from the up-and-coming Indian middle class in Mumbai, Delhi and Bangalore.
With “Viksit Bharat 2047,” Narendra Modi’s vision has promised his people to be part of the developed economies by the year 2047. Demographics could play into his hands. While Chinese society is set to age very rapidly, India is entering an era ideal for the labor market, with many young people and relatively few old people needing care. This situation will last for around 25 years, at which point Indian society will also begin to age.
India also hopes to attract all those multinational corporations that seek to relocate at least part of their production away from China in the wake of growing geopolitical tensions. The best-known example is Apple, which has moved seven percent of its iPhone production to India.
However, Modinomics, the economic strategy of the ruling Bharatiya Janata Party (BJP) named after Prime Minister Modi, has so far failed to deliver one thing: enough jobs. Millions of young people pour into the job market, but not all of them find what they are looking for. Many analysts do not quite trust the government’s figures, which claim that youth unemployment has fallen from 17.8 percent in 2018 to 10 percent today.
According to a study by the International Labour Organisation, 83 percent of India’s unemployed are young, and most are educated. But even those that do have a job often don’t earn much. 80 percent of the working-age population is employed in the informal sector, where wages are usually much lower.
The crux of the matter: Unlike China, India does not yet have any large-scale industrial economy. China, the world’s former workbench, produces 35 percent of all globally manufactured goods. India, which has replaced China as the world’s most populous country and is home to 18 percent of the global population, produces only three percent.
Industrialization has so far been the only way for countries to create masses of jobs. Almost all developed countries followed this path. According to the three-sector model by French economist Jean Fourastié, the ideal development of an economy towards a service society is one where farmers first enter industrial production. Increasing automation leads to more free time for the labor force, strengthening the service sector.
The textile industry was at the forefront when the Industrial Revolution started in Great Britain in the middle of the 18th century. English manufacturers exported pants and shirts as far as India. Other countries followed the British example, usually with the textile industry leading the way (with one exception being Germany, where heavy industry became the leading industry). The step from agriculture to the factory is a huge cultural upheaval – one only has to read German sources from the 19th century.
The clothing industry is usually at the very start because the workers (mostly women), who often come from agriculture, can be trained relatively quickly and the production processes are reasonably complex. “Asia’s rise has been stitched together by the textile industry,” writes the Economist. Countries that industrialize successfully work their way up the value chain over the years. Textiles, electronics and eventually, high-tech. Workers become increasingly skilled, manufacturing processes become more complex, capital is freed up for new investments and the state has more money to invest in education and research. China, which until recently produced six out of ten clothing items on the global market, is a particularly good example of this.
Why didn’t India follow the path the four Asian Tigers and later China pioneered? In his book “India’s Economy from Nehru to Modi,” Indian economist Pulapre Balakrishnan lists four reasons. He sees the biggest problem in the education system. Although India is famous for its writers, highly educated engineers, IT specialists and doctors, schools in many places are so bad that children fail at the simplest math problems. The infrastructure also often leaves a lot to be desired, and the local authorities place many obstacles in the way of entrepreneurs. Vidya Mahambare, a Professor of Economics at the Great Lakes Institute of Management in Chennai, confirms this in an interview with Table.Briefings. “Compared to service industries, the manufacturing industry traditionally has more problems obtaining various licenses.”
These problems prevent India from stepping into the breach as the world’s second-largest cotton producer, while wages are rising in China and the textile industry is spreading to other countries. Vietnam and Bangladesh are benefiting more than India. This constellation reflects the fundamental dilemma of all countries that industrialized much later than China: Competition has become much tougher. New players are entering the global market and trying to undercut their competitors’ production costs while production is increasingly automated. And no country has the same power as China, which has often been able to shift the rules in its favor.
India may have “missed the manufacturing bus,” says Raghuram Rajan, former head of India’s central bank and now a professor at the Chicago Booth School of Business. Instead, he believes India should concentrate entirely on developing its service industry. This sector is booming, and not just in the digital field. For example, J.P. Morgan employs 3,000 lawyers in India who draw up contracts for the investment bank’s global business. Multinational corporations have also set up their research and development departments in India.
Rajan’s strategy: leapfrogging. This means skipping a development stage. Instead of relying on factories, India should offer the rest of the world highly specialized services such as telehealth, consulting or design. No country has yet to achieve this on a large scale, even though many developing countries face similar challenges. However, Rajan believes India is in a good position to do so. Many Indians speak English very well; remote working has become commonplace since the pandemic, and wages in India are still much lower than in highly developed industrialized countries. However, the government must focus entirely on education for this strategy to work. Or, as Rajan puts it, from brawn to brain.
As if Russia’s war against Ukraine and the Middle East conflict were not enough crises for this world … No, military conflicts could also break out in the Indo-Pacific region at any time. The People’s Republic of China is directly or indirectly involved in most of the tensions.
With Xi Jinping, a ruler is at work who is much more nationalistic and aggressive than any of his predecessors, from Deng Xiaoping to Hu Jintao. The concentration of power in the hands of one person heightens the risk of conflicts breaking out, as we have seen and continue to see with Vladimir Putin.
To start with the (relatively) good news: The border skirmishes between India and China in the Himalayas, which caused dozens of deaths in 2020, have subsided; The Chinese have ceased their provocations. A few days ago, the two countries even signed an agreement.
China probably observes India’s rapprochement with the US with concern, particularly in the Quad format revived by President Biden (together with Japan and Australia), and does not want to encourage it further. And it is detrimental to the credibility of the BRICS organization driven by China if two of its most important members are armed to the teeth against each other.
The détente between South Korea and Japan is also one of the positive developments. But that’s where the good news ends.
The Taliban continue to rule Afghanistan with their medieval methods, and China has become their key economic partner, exploiting the battered country’s raw materials. China is also a privileged partner of the military junta in Myanmar, where civil war continues to boil. There is hardly any mention of the approximately one million Rohingya who have been displaced and fled.
The bad news also includes the perennial issue of North Korea. The revaluation of Kim Jong-un’s dictatorship, which resulted from Russian necessity, has made him more confident and aggressive towards South Korea. Russia is importing weapons and mercenaries from North Korea, and in return, Putin is blocking the UN sanctions regime against the country and supporting its nuclear and space program. (I doubt whether China will like this, as it will lose its privileged position vis-à-vis Pyongyang).
Other bad news includes the People’s Republic of China’s increasingly aggressive policy towards Taiwan. Violations of Taiwan’s territorial waters are increasing and China is using its huge naval forces to blockade the island. The pressure on Taiwan is growing; Xi has announced its incorporation and has not ruled out the use of military force. Beijing is also trying to wear down Taipei with propaganda, legal threats and disinformation campaigns – so far, in vain.
Despite all the saber-rattling, I consider a military invasion unlikely in the foreseeable future. This is because China cannot predict the US reaction and because the potential destruction of the factories of Taiwanese semiconductor market leader TSMC would have dramatic consequences for the Chinese economy. The financial repercussions for the Chinese and global economy would be gigantic; estimates run into the double-digit trillions.
There is an even greater risk of a military conflict breaking out in the neighboring South China Sea. Here, China is systematically trying to expand its territorial waters in a way that cannot be justified under international law. Smaller naval skirmishes repeatedly occur. The most dangerous is the conflict between China and the Philippines.
Even the binding ruling of a UN arbitration tribunal has not deterred the People’s Republic from further provocations against the island state. The USA supports the Philippine armed forces and stations its own troops in the country. Due to the US-Philippine support agreement, there is a genuine risk that the US Navy could become involved if China were to invade Philippine territorial waters again, potentially attacking Philippine ships and killing Philippine soldiers.
To complete the overall picture: The Japanese also know a thing or two about Chinese threatening gestures at sea and in the air: This summer was the first time that a Chinese aircraft violated Japanese airspace.
The USA remains the most important regulatory power in the region. Together with its regional partners, it is working to keep the situation in the region stable and to stand up to the Chinese. The German government’s decision to show its solidarity with Asian partner countries under pressure not only verbally, but also this year by sending its Air Force to participate in exercises in the region and by sending a German frigate to Japan, South Korea and the Philippines, among other places, and above all to sail through the Taiwan Strait, is very much welcomed there.
The delivery of German Taurus missiles to South Korea is also a strong signal that Ukraine is still waiting for in vain. The next opportunity for the German government to show that it is taking security in the Asian region seriously is this week’s government consultations with India.
Christoph Heusgen has been Chairman of the Munich Security Conference (MSC) since 2022. He teaches political science at the University of St. Gallen. Christoph Heusgen was Germany’s permanent representative to the United Nations from 2017 to 2021. Prior to that, and since 2005, Heusgen was a foreign and security policy advisor to former German Chancellor Angela Merkel.
Editorial note: Now more than ever, discussing China means controversial debates. At China.Table we want to reflect the diversity of opinions to give you an insight into the breadth of the debate. Opinions do not reflect the views of the editorial team.
These days, “Herr Olaf Scholz” is everywhere in New Delhi – the part of the city where the German delegations around the Federal Chancellor and the ministers travel is covered with greeting messages to the German head of government, sometimes pictured with India’s Prime Minister Narendra Modi, sometimes alone.
