India is a classical textbook case. Well above half its GDP—nearly 58 per cent—is consumed by over a billion people (another 11 per cent is consumed by the government), giving it the kind of organic strength that transformed the economies of the US, UK, Germany and Japan. Like China, India saves nearly 40 per cent of its GDP, but the bulk comes from households. India’s resource consumption has decreased for every incremental dollar of GDP since 1991 (as against China, which was using three times more resources per dollar of GDP than India).
India’s economy is healthily private, with state-owned corporations accounting for less than a tenth of the output. Its stock exchange was set up in 1875, the oldest in Asia—it is also perhaps the most digitized in the world. Indian banks had virtually zero exposure to the sub-prime paper that ravaged America and Europe. About 40 per cent of the economy is exposed to global trade (exports and imports)—low enough to escape world crises, yet high enough to remain an open, competitive economy. The Indian rupee largely floats against world currencies, in contrast to China’s yuan, which is globally pummelled for being artificially undervalued.
If 200 years of economic theory is sound, then India simply must succeed in creating an America and Japan-like miracle.
Continuing to infuse physics into economics, India’s growth is like the ‘wave theory’: closer to the epicenter, the waves are tiny, densely packed, and look really small. But as they spread outward, they pick up cascading strength, making larger and stronger concentric ripples. It starts as an undetectable wobble, but soon becomes a ring of thrusting circles, growing in size and strength with each outward lunge. That could be India’s model—dotted with micro changes, the atoms picking up energy from each other, pushing and jostling those around them to move faster, until all the particles begin whizzing around kinetically, pumping up a balloon of spreading prosperity. So, if China’s got the all-new, not-yet-fully-tested model of ‘escape velocity’ capital investments, India’s going with the rather established ‘wave theory’ of inaudibly permeating growth.
Adapted from the book SUPERPOWER? The Amazing Race Between China’s Hare and India’s Tortoise by Raghav Bahl, on-sale this month by Portfolio, a member of Penguin Group (USA), Inc., Copyright © Raghav Bahl 2010.”