While the global forecasting community expresses skepticism about China’s ability to make even its reduced 5 percent real growth target for 2024, India’s economy has surpassed expectations.
Every major international institution—from the International Monetary Fund to the World Bank to the strategy makers at the world’s large banks and financial firms—has signaled that China may fall short of its growth target. The opposite story has emerged for India, which is a matter of concern for Beijing.
India’s most recent statistics are truly impressive. They show real economic growth of 8.4 percent over the four quarters of 2023, an acceleration from the 8.1 percent recorded over the four quarters that ended with 2023’s third quarter. To be sure, India has a long way to go to catch up to the overall size of China’s economy, but the differential growth pictures surely must disconcert the leadership in Beijing. After all, New Delhi is delivering on its implicit promise to bring its people prosperity, but Beijing is falling short of that same promise to its people.
Aside from the overall growth figure, other economic indicators suggest an even more impressive Indian performance. According to the Society of Indian Automobile Manufacturers, auto sales were some 37.3 percent above year-ago levels in January. The International Monetary Fund has raised its real growth projection for 2024 to an admittedly conservative 6.5 percent, while the Indian government has offered the entirely plausible projection of 7.6 percent.
Inflation remains a problem for India’s economy at 5 percent, but it has begun to moderate. In any case, too much inflation, although it carries economic ills, is preferable to China’s deflation problem. Inflation at least spurs growth by inducing people and businesses to spend now in order to avoid higher prices later. Deflation retards it by inducing people and businesses to delay spending and investment in the hopes of getting lower prices in the future.
What must chagrin Beijing especially is that India’s growth owes much to the kind of infrastructure spending that once worked so well in China but seems to not work so well now. Much of the difference reflects different states of development between the two countries.
As was once true in China, India’s relatively underdeveloped state makes obvious what it needs, such as paved roads, better housing, expanded ports, and the like. Spending on these, as China found out years ago and India enjoys now, offers huge economic returns in growth and living standards. It also suggests that the Indian government’s budgeted $134 billion for infrastructure, up 11 percent from last year, will continue to have a powerful positive effect on growth. China’s now developed state precludes this kind of success. Relatively advanced development makes less obvious what needs to be done, and because so much has already been developed, the return is less dramatic even when the planners decide what can help.
As India develops more completely, such infrastructure efforts will have a less dramatic economic payoff, as China has discovered recently. But in the meantime, the economic gap between the two countries will close, and as it does, Beijing’s economic, political, diplomatic, and even military calculations will have to change. India will become more of a presence and will make Beijing look back over its shoulder more than it does now, especially as Beijing looks out into the Pacific and plots its economic, diplomatic, and military contact with the United States.
