The Daily - Can India Become the Next Global Superpower?

Episode Date: April 27, 2023

This month, India reached a notable milestone. The country’s population surpassed that of China, which had held the No. 1 position for at least three centuries.Alex Travelli, who covers South Asia and business for The Times, examines whether India can use its immense size to become an economic superpower.Guest: Alex Travelli, a South Asia business correspondent for The New York Times.Background reading: Turning India’s vast young work force into an engine for economic advancement will pose enormous challenges.Will this be the “Indian century”? Here are four key questions.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

Hey everybody, it's Sabrina. Before we get started today, I just wanted to let you know that our colleagues over at The Run-Up have started releasing their second season. The show is hosted by Astead Herndon, and every week it dives deeply into questions about American politics. Like this week's show. It's a two-parter featuring back-to-back interviews. First with MyPillow CEO and election denier Mike Lindell, and then with RNC chairwoman Ronna McDaniel. Those conversations give us a look inside the two opposing wings of the Republican Party as they jostle for control going into next year's elections. So that's the run-up. They do a great job. They make a great show. Find them wherever you listen to us. And subscribe.

Okay, here's a great show. Find them wherever you listen to us. And subscribe. Okay, here's today's show. From The New York Times, I'm Sabrina Tavernisi, and this is The Daily. The title of world's most populous country is expected to change later this month. For the first time in at least three centuries, China is no longer the world's most populous country. India is in fact at the brink of hitting a breathtaking milestone. This month, India overtook it. Alongside its population of 1.4 billion,

India's geopolitical and economic footprint is also growing. Today, Alex Trevely, The Times' South Asia business correspondent, explains what that new status means for India's future and whether India will be able to use it, as China once did, to become an economic superpower. So what does this mean when it comes to the influence of India on the global economic stage? I mean, could it surpass China? It's Thursday, April 27th.

So Alex, you've been covering the economy in India for many years now. And I really wanted to talk to you because something kind of remarkable has happened, which is that India has overtaken China as the world's most populous country. According to the UN, there are upwards of 1.4 billion people in each country, with India now a bit ahead. And so all of this kind of begs the question, will India be the next China? That is really the question, Sabrina, that is being asked by so many people, I think more outside of India and China than inside of them, but we're feeling the pressure here too. Will India be China? Well, they have

this incredible thing in common in terms of their population. They're next door neighbors. They both have ancient histories. And a lot of these broad strokes are much more alike than any other country in the world is like either. But as anyone who's visited these places know, they're utterly different. They're almost literally worlds apart. But there's a kind of motivation here to seeing India become China or become like China in some ways.

And that's because of the meaning that China has taken on for the rest of the world since 1990. Since 1990, China has turned its enormous population, the sort of scale that that represents as a country, as a national economy, to its advantage in a way that was pretty much unimaginable before. They turned all of these people into low-cost labor to transform China into becoming the factory of the world. And in so doing,

there's been, by almost any measure, the greatest production of mass wealth over these past 30, 40 years from the Chinese economy that has ever been measured anywhere in the history of the world. The number of people who were deeply impoverished in the China of 1990, people who are now enjoying middle-income lives measured by a global standard, we're talking about hundreds of millions of people. And that's not only a terrific reduction in poverty, such as India should hope to achieve for itself, India still being barely a lower middle income country. This is also what made China an indispensable part of the world economy. Right. And there are various factors around the world right now that have a lot of countries and companies rooting for India to

displace China as a location for production, as a new consumer class, as a new geopolitical force between the Ukraine war, between COVID responses, between tensions ramping up over the tech industry in Taiwan. There is a lot of hope in some quarters, certainly, that India might become the next China in all of these big world-shaking ways. Okay, so what's the answer? Will India become the next China? Like, will they be able to leverage their huge population

in the way that China did? Okay, I don't have a crystal ball, but there are big, big differences between India and China. And some of these differences, three of them I'm thinking of in particular, make us question whether India could ever become something like China, whether there is any other China but China. And for a start, India's economy is just not shaped at all the way that China's is, that China's was in 1990.

In fact, it's not even shaped the way that China's is, that China's was in 1990. In fact, it's not even shaped the way that industrializing economies that we've seen in the past before China's astonishing success were structured. So tell me more about that. Well, at the simplest level, there are not enough good jobs in India. That's not to say Indians are sitting around without jobs or unemployed in great numbers, but they don't have the kind of jobs that you'd need to catch up with China, to catch up with the kind of growth rates that India wants. Now, you've got an unusually, most people would say unhealthily, large reliance on the

services part of the economy. Then you have this traditionally very large part of the economy devoted to agriculture. And then you've got the industrial or manufacturing sector. But that is relatively small, and it's not been growing. It's been stuck around 14%, 15% of the economy for a long time. China's, by contrast, is almost twice as high, and it creates a very, very different sort of economic dynamic. So this relatively small proportion of manufacturing is a problem for India. And the reason is that manufacturing makes jobs, the kind of jobs that bring broader

base of income earning, which means better consumer spending down the line. It also tends to mean exports, which is great for the currency and India's trade balances. There are very few countries in the world that have managed to swing quickly from being poor agrarian societies to being middle-income industrial powers, even high-income, and they pretty much all went this route with export-driven manufacturing taking the lead. Now, India, frustratingly, has kept that at the low constant rate, despite a lot of efforts from a lot of different governments to hike up the mix of manufacturing. And it's especially frustrating for India at this moment, I would offer, because we are talking about the vast number of young people entering the workforce. Meaning? Well,

the vast number of young people entering the workforce. Meaning? Well, it's nominally bigger than China, right, in terms of population. But actually, the graph, the sort of curve of the population by age makes India look even more attractive because it has a huge number of people in their 20s and in their 30s, somewhat fewer in their 40s. And there are a lot of young people who are about to enter the workforce, too. China, by contrast, mainly because of that one child policy, has just gone into population decline. And its population is going to be getting older. India has workers, neither does it have too many children, nor does it have too many retirees. You've really got a population profile that's perfectly aged to enter a bunch of great jobs, and you don't have enough available. Okay, so the problem is not enough jobs,

and in particular, not enough manufacturing jobs. Even though they have plenty of people to fill those kind of jobs, that's the problem right now in India. So why then is it that India doesn't have a big manufacturing sector if they have the workers to fill it? The biggest reason that India is not going to become China in terms of manufacturing right now is that China is China. It's a very difficult competitor for India. There's virtually no way to crack that market the way that there was when China walked in and took the crown. That's really got to be the biggest problem. But then there are other problems. You look and see as labor in China has become more expensive, as the countries got richer, and as manufacturers,

especially of lower value goods, have looked elsewhere, they tend to find what they're looking for more easily in smaller countries, in Vietnam and Bangladesh. And why is that? Why are they more attracted than India? Well, it's a million-dollar question. There are probably a few answers. One is, India is so big that it has a lot of competing interests. It hasn't been able to just concentrate on, like Bangladesh has, garment assembly, okay? In Bangladesh, business and government, everyone is lockstep, and we're going to be a world-beating garments manufacturer. India has a lot of different competing interests. So for example, when foreign companies come in, like Amazon or

Walmart, often they're faced off in their own fierce competitions with other big local companies. off in their own fierce competitions with other big local companies. And then the local partners will go to town seeking advantage with the government. And the foreign company tends to find itself at a disadvantage. Got it. In other words, when a big foreign company wants to come in, local Indian companies can kind of gang up against it like that? Yeah, they can use their pull. Some companies with some connections definitely have advantages. And this is true of whole industries also. But I want to say there are all sorts of signs that things are changing and rapidly. In a country this size, there are so many things changing rapidly all the time, it's hard to know which will stick. But Apple made news just recently,

opening its first retail outlets in India. Never mind the retail outlets, though. They are actually interesting and show signs of promise. But what's really amazing is just how quickly Apple has moved some fraction of its production outside of China. Just three years ago, I think it was that 98% of all iPhones in the world were being made in China. India was making 1%, putting together the actual phone. They very, very quickly turned that up. And last I looked, this year, analysts think that India is producing 7% of the world's phone supply. Big jump.

Yeah. Another 1% for Brazil and all the rest still in China. But it leads some people to say that India might have a quarter of that global market by the end of this decade. There are, at the same time, shoe manufacturers that are bypassing Vietnam as they move from China to India around Chennai. That's happening just now. And the rapid progress, the rapid way in which the world's equation with China is changing, makes it very hard to write off the possibility that India will gobble up a large chunk of that pie. What we can't tell you right now is whether those are symbolic steps towards progress or if it's a wave coming.

Okay, so you said there were three big differences that matter between India and China. What's the next big difference? that matter between India and China. What's the next big difference? Okay, the next one is very striking, although it's a little bit hard to distinguish from the problem with jobs. This is the fact that in India, far too few women are in the workforce. Now, if you look at China, you've got more than 60% of all women of working age are in the formal workforce. That's slightly more than in America. And both of these countries are significantly above the world average. One of the most daunting things about India's situation in the world at this time is that its rate is one of the very lowest in the world.

It's barely 20% of all working-age women who are working. 20% is so low, right? It's so low that there are only a few countries, fewer than a dozen, that have lower rates, starting with Yemen, Libya, and a few countries around the Gulf. There are no serious productive economies that have rates like that. And especially if we're looking at the sort of scale effect that India's possibly enormous workforce is going to give it in decades ahead, it simply can't advance in accordance with its numbers if women are no part of the picture. So why exactly does India have so few women in the workforce?

Well, that's a very tricky question to answer and very important one to get right. The fact is, there are not enough women in the workforce now because there are not enough jobs for them. But then the question is, why are there not enough jobs for women? It's a bit of a chicken and the egg puzzle. If there are simply not enough jobs in the workplace, and at every level of society, starting with the family, women enjoy a lower status, then they're going to be the part of society that's last to enter the workforce. And they're going to enter at the lowest value end of it. Women are working like mad in this country, but they're working on farms, they're working in homes, they're working in piecework that doesn't get picked up by the economic measures of formal employment. So that means that India's workforce, its total stock of jobs, would need to increase many times before we started to really pick up that very, very low 20-some percent rate of female participation in the workforce.

Right. So in other words, women are last in line for formal jobs. That's right. They're last in line for formal jobs, and it looks like a very, very long line. But that's not the only reason that we don't have lots of women working in the formal economy. There's this other amazing fact, and it's kind of disheartening. The richer India has gotten, the rate of women in the workforce has actually gone down, not up. You'd expect it to go up. It went up in these other countries we're looking at. So the rate of women working has gone down, not up, as India has gotten richer. Why is that? Well, we don't really know. There are competing explanations. Some of them take into account various cultural factors. One thing right off the bat is that for some families,

it's regarded as being prestigious to have a woman working at home, or at least it's the opposite of prestigious to have her out working in the market. So once a family can afford to keep a woman at home, whether she's a wife, mother, daughter, they might pressure her to instead do work at home and stay away from the grubby marketplace. At the same time, it's very clear that the role of women in society has been improving in many ways in India. It's gotten better in that women are filling up colleges and universities, earning degrees at almost the same rate that men are in many important parts of the education ecosystem. But that's not really the part that's going to make up the bulk of the workforce.

Got it. What's the third and last difference between India and China here? Well, that would be the political transformation underway in India. This is a big one, and it's kind of a wild card. We'll be right back. Okay, so politics. So India is, of course, a hugely different place than China politically. It's the biggest democracy in the world.

China is not. Talk to me about that difference and why that difference matters when it comes to their economies. Okay. Well, let's talk about India and China as two independent sovereign nations. As it happens, they both started life at about the same time, 1947, 1949, let's say, as the People's Republic of China. And they've been totally different ever since. India is the world's biggest democracy. China, apart from not being a democracy,

has this consolidated communist authoritarian state. So it's just a very different process. It has a different process for making decisions, gathering information, executing decisions. And that matters because when making big, painful decisions and imposing them on the country, a government like China's has a much easier time and acts with much greater speed. So, for instance, what we used to call land reform was a very important part of China's economic development a generation or two ago. That meant going to the landlords with big estates, breaking up their properties and handing them off to peasants. That required government acting with decisiveness and brutality that's very hard to muster in a democracy. Today, the spirit is much less

one of land reform than of commissioning highways, dams, infrastructure projects, or just setting aside land for a factory. In China, the People's Republic is theoretically the owner of all land in the country. It can just decide what to do and it gets done. In India, politicians are falling down all over the place trying to wheedle bits of land that will be useful for whatever kind of development priority, and it takes them forever to do so. Cannot steamroll the same way. Yeah, not at all the same way.

I mean, look, in 1979, China more or less invented Shenzhen, which was then a dismal little village next to Hong Kong. Now it's a city of, I think, 17 million. It's one of the most expensive and prosperous in the whole country. India also has what are called special economic zones, but they're the size of villages. They're in the middle of nowhere. You can hardly name the biggest one. There's no Shunzhan being invented by the government snapping its fingers.

And labor laws, for instance, are equally malleable in the hands of Chinese leadership. laws, for instance, are equally malleable in the hands of Chinese leadership. 996, that is, for blue-collar and white-collar workers alike, working from 9 a.m. to 9 p.m. six days a week is a norm in the most bustling parts of China. You won't find that anywhere in India except where all kinds of laws are being broken, and those are not pretty places. Okay, so India's political reality for decades, and really since its modern founding, right, in an economic context is just much harder than China's. Yeah, but we now have an Indian government under Prime Minister Modi that is more ambitious than any that's come before it, at least for generations. And what it's trying to do is really remake India in a whole lot

of ways. What they never quite say, but what a lot of people suspect, is that India's leadership has been very impressed with what China has done over the past 30 years, and that Mr. Modi is very envious of what Xi Jinping is able to do. And he is, at any rate, whatever the inspiration, consolidating power like no Indian leader has, at least since the 1970s. For instance, state governments in India are very powerful. Mr. Modi has made it a priority for his party to win as many state governments as possible. When they can't win them, they often buy the opposition politicians so that they change party and his party ends up controlling those state governments anyway. And there are other sneakier things that are nonetheless at this point quite obvious. A lot of the courts make judgments that are very favorable to Mr. Modi's government. A lot of newspapers are owned by businessmen with whom he's friends.

A lot of institutions that sit outside of those spaces find themselves subject to special police raids, to having foreign funding cut off, to being shut down. The traditional checks on executive power in India are falling away. It certainly, despite its continuing elections, got a lot of the hallmarks of a country that's becoming less democratic, less indecisive in the way that democracies are. Mr. Modi is essentially trying to reshape Indian politics, to give more power to the central government, to give more power to himself and his party, which would look more and more like China, right? But is reshaping the Indian government to look more like China's going to work? I mean, at least in terms of its ability to control the economy? terms of its ability to control the economy? Well, there's one more factor that we have to add, one more part of the new India as envisioned by Mr. Modi that we have to take into account and that makes India very different than China. The program, the ideological program that Mr. Modi and his colleagues come to power with sees the Hindu population of India, its 80-some percent majority, as being the primary India. And in particular, the Muslim population, which is the largest minority, about 14% of the country,

is being shown its way to second-class status. Now, that presents all kinds of problems. India is a much more diverse country than China at that ethnic level. So re-envisioning India as an ethno-nation, that is a very hard thing to imagine. It opens the door to an unknown, which we don't have in the Chinese case. So you're saying that part of Modi's ideology is, of course, the centralization of power, but also advancing a Hindu nationalist vision for India, despite what that might mean for the economy. Yes, I think despite what that might mean for the economy, although Prime Minister Modi and his champions might say that there's no reason to think that it's going to pose any problem to the economy. After all, the state which he governed before he came to govern all of India had tons of problems between the Hindu majority and the Muslim minority. And yet its economy has boomed throughout with really admirable GDP growth. And now liberals have decried the rise of Hindu primacy and the degradation of some minorities as they

see it. But it's not yet clear that that's an economic hurdle as such. There's a comparison you might draw to the position of the Uyghurs and Kazakhs and other Muslim minorities in China's Xinjiang region, who have been quite horribly and obviously persecuted in a number of ways. But that represents a tiny fraction of 1% of China's population. In the Indian case, we're talking about an aggrieved minority, which adds up to something more like one in six, one in seven of all Indians. Oh, so much, much bigger. It's a much bigger minority. And the number of aggrieved citizens that you're making as you embark on this project is just much greater.

It's a different kettle of fish entirely. Okay, so it's possible Modi's commitment to a Hindu ethno-state and making Muslims second class could represent a kind of unknown vulnerability. But it's also possible that it wouldn't have a negative impact on the economy, right? Like, yes, bad for democracy. No, not necessarily bad for the economy. That, I think, is certainly the case. It is the case, in other words, that we don't know what effect that'll have on the economy. And I think, frankly, that when America, its State Department, its business interests look at India, hopefully,

as a possible partial replacement for China, they don't want to think about these questions to do with the state of India's democracy or India's minorities. They're content to concentrate on economic progress, the rebuilding of the infrastructure, a lot of old hurdles being overcome, and set aside the questions about political liberties and the nature of the democracy. We don't really know how those are going to affect the economy. I just want to flag that it's a great big unknown. India is changing in this way. It's changing from its script of the past 75 years, and that opens the door to all kinds of uncertainties. Right. So that's why you said earlier that India's politics really is a wild card.

Yeah, exactly. So, Alex, all of these factors that you've outlined kind of make me think that we already know the answer to the question we posed at the top, which was, will India be the next China? And the answer, it feels like to me, is no, right? Well, yeah, I think that's true. There's a lot of reason to think that India will not be the next China.

In fact, when you look at either of these countries or both of these countries in much detail, the question seems almost absurd. But I want to say, for all these two countries have in common, and for all they don't have in common, the world all they don't have in common, the world is no longer 1990. So nobody is going to do what China did starting in 1990. India is not going to do that in 2023, nor would it want to. The world is a fundamentally different place now than it was those 33 years. And in a lot of ways, for better and for worse, from India's point of view. Now, for one thing, becoming the world's factory is no longer quite the brass ring that it was back then. Manufacturing is a less important part of the world than it was in 1990.

The shape of the world is different. In fact, services, which we sometimes look down on because many of them are low down the food chain, used to be the case you couldn't export any of them. They're a very different part of the world economy than they used to be. The prospect of Indians doing tons of work for the rest of the world, both from India and abroad, sending home remittances, is much more plausible now than it would have been a generation ago. The internet has made that possible and the shrinking workforces and the developed economies to use just a couple of examples. And it's got this extremely what they call an aspirational class of young people who want to go abroad, who want to do these service

type jobs. And you've got a lot of entrepreneurs also who are very good at chiseling out niches around the world's economies. So I think it's fair to say India is not going to follow the tracks laid by China. And I think that is seeming clearer to me every year. But that's not to say that it will not experience tremendous growth. In fact, it may very well experience tremendous growth. We've got to hope so. Those hundreds of millions who have yet to leave some level of poverty, those many, many millions of young people who need better employment,

they all need India to grow, to grow quickly. There's not a lot of time to waste. But whatever form of growth India takes, it will be its own thing. Like China, India will be big, important. When India shakes a leg, the world will feel it. Of that I'm convinced. We just don't know what shape the country will be like, but we can say with some confidence it won't be just China all over again. Alex, thank you. Thanks, Sabrina. We'll be right back.

Here's what else you should know today. On Wednesday, the House narrowly passed a Republican bill to raise the debt ceiling and cut government spending in an effort to force President Biden to negotiate over slashing the budget or risking a debt default. The legislation would raise the debt ceiling into next year in exchange for a nearly 14 percent cut in Biden's landmark spending programs. The action was largely symbolic. The bill will not pass the Democratic-led Senate, but it was seen as an effort by Republicans to strengthen their negotiating position over the debt limit. Without action by Congress to raise the limit, the U.S. government faces a default as early as this summer. And Disney sued Florida Governor Ron DeSantis, claiming he had used his power to punish the company after it had opposed legislation in Florida that banned classroom discussion of sexual orientation and gender identity.

The lawsuit, filed in federal court, made a First Amendment claim, accusing DeSantis of a, quote, to weaponize government power against Disney in retaliation for expressing a political viewpoint. Today's episode was produced by Asa Chiturvedi, Alex Stern, Stella Tan, and Rob Zipko. It was edited by Paige Cowett, contains original music by Marian Lozano and Alicia Bietube and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsberg of Wonderland. That's it for The Daily. I'm Sabrina Tavernisi.

See you tomorrow.