Introduction
Can India become stronger than China? What do I mean by becoming stronger? Simple: have a bigger economy. The goal of this lecture is to explain why I believe India can have a bigger economy (indeed the biggest economy in the world) and how India can set about achieving it.
I will divide my lecture into three parts. In part I, I will explain why I am confident that India can have the largest economy in the world. In part II, I will explain the principles India can take to become number one. In part III, I will also suggest some concrete steps India can take to develop an economy bigger than China’s.
Part I: Why I am confident
There are two reasons why I am confident. The first reason is historical evidence. As British historian Angus Maddison has documented, from year 1 to 1820, the two largest economies of the world were always China and India.
What happened after 1820? The British arrived. As Shashi Tharoor, a distinguished citizen of Kerala, has documented, when the British arrived, India’s share of Global GNP (nominal) was 23 percent. When they left in 1947, the share fell to around 3 percent. Today, India’s share remains at about 3 percent. India’s share of the global population is 18 percent. Hence, its share of global GNP should also be 18 percent, if you assume that the average Indian is as intelligent and capable as the average human being.
This is the second reason why I am confident. The average Indian is clearly as intelligent and as capable as other human beings. I hope that this is an uncontroversial statement. But I would also like to make a controversial statement: the average Indian can outperform the average citizen of other communities. You can see why such a statement is inherently controversial. Hence, let me back it up with some evidence.
The most competitive human laboratory in the world is the USA. In an article I wrote for McKinsey, I said, “It’s so easy to grasp the gap between India’s potential and its performance because you can see the potential of what an ethnic Indian can do in the most competitive human laboratory in the world, which is the United States of America. And when the Indians arrived in America, they thought they might be number five or number six in terms of per capita income. They ended up being number one.”
Today, the average per capita income of the Indian residing in the US is US$ 55,298. If Indians in India can achieve the same per capita income, the total GNP of India would be around US$ 71 trillion, making it the largest economy in the world, larger than the US at US$ 21 trillion or China, at US$ 15 trillion. If this figure is unimaginable, let’s imagine that the average Indian in India is half as smart as the average Indian in the US. Then India would still have a GNP of US$ 35 trillion, still larger than that of the US at US$ 21 trillion and China at US$ 15 trillion.
Why do I highlight all these figures? I do so because I only want to emphasize one big point at the beginning of my lecture: the country with the biggest gap between its economic potential and its economic performance is India. India’s GNP today is US$ 2.6 trillion. It should be at least ten or twenty times larger.
Let me deal with one objection immediately. The argument can be made that the super-smart Indians ended up in the US. Hence, they ended up with super-high per capita incomes. Even if I acknowledge this as true, how about comparing the per capita income of Indians in India with Indians in other countries? I don’t have the data for all overseas Indian communities. However, I have travelled all around the world and met Indians in all corners of the world. Without fail, in almost every country I have visited, the overseas Indian communities have done well and are thriving.
So, why are they thriving? The answer could be complex but let me mention one key factor: Indians are naturally competitive economic animals and thrive in economic competition. In this regard, they are very similar to the Chinese. This brings me to the second important point I want to emphasize in my lecture: the economic fortunes of the Chinese turned after the key reformist leader of China, Deng Xiaoping, asked a very simple question: why were the Chinese people successful in every economy except in China itself? The answer was a simple and obvious one: the Chinese were allowed to compete economically in every country in the world except China. Hence, Deng Xiaoping did the obvious thing: he opened up the Chinese economy and allowed all Chinese, 1.4 billion of them, to compete.
So what were the results? Deng Xiaoping started to open up the Chinese economy in 1980. 1980 is a significant year. In 1980, the size of the Chinese economy (US$ 191 billion) and the Indian economy (US$ 186 billion) were about the same. Today, the size of the Chinese economy is US$ 15 trillion, over five times the size of the Indian economy at US$ 2.6 trillion.
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