Can India be the next China? Via Investing.com

Investing.com — India’s rapid economic growth, coupled with China’s recent economic challenges, has fueled debate about whether India could become the next global economic power, similar to China’s transformation in recent decades.

China and India, two of Asia’s largest economies, have seen their economic trajectories diverge in recent years. “China’s economic recovery has been weak after the pandemic, while India’s has been strong,” said analysts at UBS Global Research.

“China also faces many structural challenges, including a rapidly aging population, while India has a relatively young and growing workforce and a much friendlier external environment,” the analysts said.

This divergence has raised questions about whether India can replicate China’s success as a global manufacturing and consumer market center and whether it can exert a similar influence on global commodity and energy markets.

One of the key aspects of China’s economic growth has been its transformation into a manufacturing powerhouse. By 2023, China accounted for nearly 30% of global manufacturing value added, while India’s share was only 3%.

Despite India’s favorable demographics, with a younger and growing workforce, it remains unlikely that India will challenge China’s manufacturing dominance in the near future.

India’s manufacturing sector currently contributes only about 13 percent of its GDP, compared with China’s 32 percent in 2000, UBS added. This structural difference in their economies suggests that while India may increase its manufacturing output, it is not positioned to replace China as the world’s factory any time soon.

However, India has the potential for rapid manufacturing growth, supported by abundant cheap labor, improving infrastructure and favorable foreign investment policies.

India’s domestic market, which is equivalent in size to that of China in 2006-07, presents significant opportunities for growth. Household consumption in India has doubled over the past decade, and UBS expects India to overtake Japan by 2026 to become the world’s third-largest consumer market.

If India maintains its current rate of economic growth, the size of its domestic market could reach China’s current level before its GDP.

The creation of high-quality jobs will be crucial for sustained consumption growth in India. As the country grows, demand for durable goods and modern automobiles is expected to increase, further fueling economic expansion.

China’s economic growth has had a profound impact on global energy and commodity markets, driven by its industry-intensive and capital-intensive growth model. India, on the other hand, is less focused on industrial growth and is unlikely to replicate China’s demand for global resources. Although India is a large importer of oil and coal, its growth is expected to be less energy-intensive than China’s.

India’s unique resource availability and urbanization patterns suggest that its demand for base metals such as iron ore may differ from China’s. While India is expected to grow rapidly, its impact on global commodity markets may be less significant than that of China.