Over the past two decades, the Indian economy has made a quantum leap. The country has come a long way and is becoming the new China.
Demographically, it’s already done. India’s population surpassed that of China last April, according to the United Nations (UN) count.
It should be the same this year. India’s gross domestic product was up 7.8% in the first quarter, on track for another better performance than the rest of the world.
Meanwhile, China’s growth is slowing and could even drop below 5% in 2024. China’s population is aging as 65% of India’s 1.5 billion people are under 35 years old.
At this rate, India will become the world’s third largest economy in 2028, according to the International Monetary Fund, behind the United States and China.
Demography is a powerful economic driver, but it does not explain everything. The country has made enormous strides in public infrastructure, education and poverty reduction.
Today, 99% of the population has access to electricity, following significant investments in rural areas.
Poverty is far from having been eradicated. It has declined significantly over the past 15 years, according to UN indicators, but the economy operates at two speeds. There is a world of difference between the countryside and the city, where the working age population is young, more educated than ever and fully engaged in the digital world. She also masters the language of globalization: English. All it takes is to attract the attention – and investments – of countries that want to reduce their dependence on China.
Even Canada quite recently discovered a new interest in India and wanted to make it the pivot of its Indo-Pacific strategy, the unofficial objective of which is to bypass China.
This strategy has fallen into disarray since the Canadian Prime Minister accused the Indian government of having sponsored the murder of an Indian national on Canadian soil.
In the short term, the conflict will not have a significant impact on the Canadian economy. Trade between the two countries is not enormous: a little over 8 billion dollars currently, representing Canadian exports of 4 billion and imports from India to Canada also of 4 billion.
Canadian pension funds have had the longest interest in India. The Caisse de dépôt et placement du Québec made a significant and unfortunate investment in Azure Power, a renewable energy producer.
Foreign investment has grown dramatically over the past 20 years, but Canada’s share remains marginal, at 0.5% of the total.
The country is attracting more and more multinationals like Apple, which has started to transfer its global iPhone production there. Outside of the IT sector, already well developed in India, business interest is growing.
The manufacturing sector is still relatively underdeveloped in India. It represents 18% of the economy, compared to 54% for the services sector. Manufacturing activities, however, have room to grow, thanks to the large labor pool, which is expected to grow further with the inclusion of women in the labor market.
It should come as no surprise that countries friendly to Canada want to stay away from the political conflict that has just erupted. If India becomes the world’s next factory, it is better not to close the door in advance.