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Why Indian Tiger Could Roar as Chinese Dragon Cools

Back in mid-August when I was in India, markets world over were rattled by concerns of a Chinese slowdown and yuan devaluation. Though a Chinese slowdown may bring some headwinds for global markets in general, some emerging market (EM) economies can withstand this turmoil better than others. Below I highlight why the Indian tiger could roar at a time when the Chinese dragon’s fire cools.

Indian Model: Sustainable Debt Levels with Demographics & Households Driving Consumption-Led Growth

At the Fiscal Level: Chinese debt has been steadily increasing, and years of state-driven investments have created excess capacity in several sectors. While Chinese gross domestic investment (as a percentage of gross domestic product (GDP) for years has been above 40% and as of 2013 stood at 47.6%, India has always been below 40% and as of 2013 stood at ~32.5%.1 This could imply that China has much less space for further state investment. India, on the other hand, could easily invest billions of dollars in its public infrastructure without having to worry about overcapacity.

  • Demographics: India has a much younger population, and with an economic size equal to the number of workers times their productivity, this bodes well for economic growth. By 2050, India is projected to have a staggering workforce (i.e., people between the ages of 15 and 59) of 940 million, growing from the current 674 million, compared to the Chinese workforce, which could shrink from 930 million to 817 million in the same time frame.2 This could potentially also drive up labor costs in China—a dent to its competitiveness.
  • India Has Most-Local-Consumption Economy: One of the economic stories of the times is China trying to rebalance its economy from a massive state-controlled infrastructure and investment-led economy to more consumption led...