TBL Thinks: India to Overtake China by 2037

Jun 21, 2024

Dear Readers,

It’s Thinking time. This week we turn to India. More specifically, we cover if India will help the US to tech victory over China, J.P. Morgan’s $40 billion investment in Indian bonds, and Bloomberg’s analysis on India becoming the next global growth driver. Projections are that in less than 15 years, India’s economy will be larger than China’s.

TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.

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India to the Rescue?

India Could Help the U.S. to Tech Victory Over China (WSJ) National security adviser Jake Sullivan’s recent visit to India resulted in the White House highlighting areas of US-India cooperation on “critical and emerging” technologies, including semiconductors, fighter jet engines, space flight, telecommunications, biotechnology, and artificial intelligence.
US concerns about China are well-founded, as the communist country has cemented itself as a science and technology powerhouse. The Economist magazine recently declared China a scientific superpower, going on to say “the old science world order, dominated by America, Europe and Japan, is coming to an end.”
As the US continues to work with its allies in Western Europe and East Asia, its partnership with India raises some questions. Not a single company among the top 100 tech companies by market capitalization is Indian. The country’s private and government sector combined spent less on research and development than Huawei or Microsoft alone spent on R&D in 2021. So why, then, India?
India boasts a vast pool of engineers, success in space exploration and digital infrastructure for electronic payments, and a budding tech startup industry. A strategic partnership with India could also make it harder for China to break into the Indian market, and also strengthen Indian military capabilities and military cooperation in the Indo-Pacific.
Russia’s growing dependence on China has also led to India seeking allies in the West and signaling to a US-aligned technology bloc has only grown stronger.
Whether the US-India tech partnership will lead to success remains to be seen. For this new tech collaboration to achieve its potential, India will need to reassure skeptics that its future lies with the democratic world. India is quickly becoming the next story in geopolitics.

A Very Strong Case for India

JPMorgan Ignites $40 Billion Rush Into Indian Bonds (BBG) Investors are turning to India. With the world’s fifth largest stock exchange in market value, India is now getting attention for its $1.3 trillion sovereign debt as fixed-income investors seek an alternative (discussed below) to Russia and China.
On June 28, JPMorgan Chase & Co. plans to add Indian government debt to its biggest emerging-market bond index. Goldman Sachs predicts this move could provide a boost of up to $40 billion in global investment in Indian debt as financial firms adjust their books to reflect the recommended mix.
Overseas investment in Indian sovereign bonds has increased by $10 billion, following net outflows from 2020 to 2022, ever since JPM announced its decision in September.
The Indian rupee has emerged as the best-performing currency in emerging Asia against the dollar in 2024 even as the USD gains global strength.
For global investors seeking diversification, India’s robust economic expansion makes it a prime candidate, with favorable demographics and a vigilant central bank only adding to its appeal.
The outlook for foreign investors, however, is not entirely rose-tinted. India’s complex documentation and tax rules—the tax on interest earned on bonds can be up to 20% along with double-digit levies on any capital gains—will prove to be large challenges to overcome, even as Indian authorities work to reduce disclosure requirements and speed up reporting timelines on holdings.

India or China, who will be King?

How India Can Take China’s Growth Crown (BBG) With its economic growth slowing, and more Western governments viewing it as a rival as opposed to an economic partner, China now also faces pressure from a rising economy to the south of its border.
With a booming stock market, an influx of foreign investment, and governments lining up to sign new trade deals with it, India has everyone’s attention as it makes moves to be the world’s next growth driver.
It is an irrefutable fact that India’s $3.5 trillion economy pales in comparison to the size of China’s at $17.8 trillion. It also cannot be denied that Western companies face several challenges when setting up shop in India. So why then would anyone expect India to be the engine of global economic growth?
Bloomberg analysts believe India needs to hit ambitious goals in crucial areas of development—better infrastructure, expanding skills and participation of its workforce, and better cities to house workers and lure factories to provide jobs.
The current government in India is seeking to make the Indian economy more competitive, making it all the more compelling for Western businesses looking to diversify from China. The government’s allocation to infrastructure has more than tripled from five years ago.
The government is projected to invest heavily in improving railways, roadways, waterways, ports, and other crucial infrastructure by 2030. The government has also rolled out incentive programs to encourage domestic manufacturing.
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%, putting India on course to take over China as the world’s biggest economic driver by 2028. Even in the most pessimistic scenario, in which growth stays below 6.5%, India is projected to overtake China by 2037.

Until next time,

TBL Thinks