India: The Next Superpower

Updated: Jun 3, 2020

In the last quarter of 2019, India is the world's 5th largest economy by GDP, according to the IMF.

The home of 1.339 billion people, India has not always been the economic power house it is today. What's more, India has good chance to become the next global superpower, certainly leaving the slowing economy of China in the dust.

British Rule (1858-1947) and Independence

India was under direct rule by the British Empire for nearly a century (1858-1947). However, the Indian subcontinent had been subject to European colonialism for over three centuries, with Dutch, French and Portuguese influence.

For anyone in the dark about British imperial rule in India, then this podcast with Dr Shasi Tharoor, author of Inglorious Empire, could not explain it better.

The negative effects of British rule are not to be ignored. Statecraft will discuss the horrors of colonialism in a full article at some point, however it will not be a main issue of discussion today.

Becoming a federal parliamentary democracy in 1950, India emerged in the post-War period with extensive infrastructure such as railways and power grids left behind from centuries of colonial rule. This infrastructure was now in the governments toolkit.

Protectionism

Protectionism is the practice of shielding a country's domestic industries from foreign competition by taxing imports. For the Indian government in the 1950s, public investment in the steel industry and in heavy machine tools was a high priority, pushing a "take-off into self-sustained growth".

However, protectionism had averse effects. For example, India's economy stagnated from 1950-1980s at around 3.5%, whilst per capita income growth stayed around 1.3% .

By 1991, India had implemented mild reforms to overcome stagnation related to protectionism. The collapse of the Soviet Union, one of India's largest trading partners at the time, had detrimental effects on the Indian economy. This was coupled with Iraq's invasion of Kuwait in 1990 leading to a spike in global oil prices. Notably, 1991 was India's lowest year of GDP growth in the country's history - 1.1% (see below).

Modern India

Today, India, is far removed from it's protectionist past. The country underwent massive economic liberalisation in the 1990s after receiving an equivalent of $1.8 billion in structural adjustment loans from the World Bank.

Economic liberalisation is the process of lessening government regulations in an economy in exchange for greater participation by private entities and foreign investors.

As a result, India's total GDP has grown at an almost miraculous rate since 1991 (see below).

India is now an established technology powerhouse. Bangalore has emerged as a leading technology city ahead of Silicon Valley and is now the fastest growing start-up ecosystem in the world, after Berlin.

Additionally, according to the World Intellectual Property Organisation (WIPO), India is the top exporter of IT in the world and is 8th in the world for science and engineering graduates. A workforce of 520 million, the Indian work force is the second largest in the world.

Future India

Here's a prediction: India will be the the next superpower. Here's why:

1. English is the de facto lingua franca.

There are 22 regional languages spoken in India. However, many non-Hindi speakers use English as the de facto lingua franca. At 125 million, 10% of India's population, this makes India the second largest English-speaking population in the world, behind the United States. By contrast, less than 1% of China speak English. So, why does this matter?

English, particularly Business English, is the international business language. Not only this, English is the preferred language in international diplomacy, international air traffic control and international commerce.

Multinational corporations - Airbus, Daimler-Chrysler, Fast Retailing, Nokia, Renault, Samsung, SAP, Technicolor and Microsoft - are mandating English as the common corporate language. Whilst this may not remain true forever, it will certainly be important in the coming decades.

The international preference of English creates less friction across borders, cultures and industries. With 10% of Indian's speaking English, Indian industry may be the preferred choice for international firms, over China.

2. India has a legal system that resembles a Western democracy.

India, as a federal parliamentary democracy, with a legal system that protects intellectual property rights, is likely to be a huge pull factor for Western corporations in years to come.

For corporations, business in India is safer. They know that business contracts will likely be respected, trade disputes will be settled fairly and intellectual property rights will be protected. India's legal system is far from perfect. Corruption is still a problem in the country. However, for many companies, corruption can be dealt with as long as the positives are present.

China, for example, steals billions worth of intellectual property rights from the US each year.

3. India has a strong defence policy.

India has the element of security to match it's economic ambitions. A nuclear-armed state with a triad nuclear defence program: land-launched nuclear missiles, nuclear-missile-armed submarines and strategic aircraft with nuclear bombs and missiles.

It is also one of four countries (China, India, Russia and USA) to have hard, dedicated, anti-satellite weapons capability. In 2019, it shot down one of it's own retired weather satellite s.

Additionally, at 1,444,500, it has the second most active military personnel in the world.

Does defence matter?

Benoit (1973, 1978) argued that there is a positive causality running from military spending to economic growth. Chang, Lee, Lee & Hung (2012) however, argued that whilst higher defence spending does not lead to direct economic growth, it certainly contributes to preserving trade and protecting assets in both military and diplomatic terms.

A Superpower Emerges

Global superpowers are linked to strong international influence through economic, diplomatic, cultural and military means. India ticks all these boxes. However, standing in it's way, is China. As it's geopolitical rival, China poses the biggest obstacle to an Indian status of superpower.

India is in a very similar economic situation to China 15-20 years ago. India, however, has advantages that were not present in China at the time: the English language and a democratic legal system that is attractive to Western economies.

This, tied with it's enormous labour force and industrial leadership, is the merit on which this article argues that India will be the next global superpower. It is already predicted to be the world's second largest economy by 2050, dragging the standards of living of hundreds of millions of Indians up with it.

The decline of the West and rise of developing nations such as Brazil, Russia, India and China (BRIC) will likely see technology and development sweep around the world on a wave of globalisation. A new era may be imminent.