Friday 22 Mar 2019 | 11:14 | SYDNEY
Friday 22 Mar 2019 | 11:14 | SYDNEY

Does India matter?


Mark Thirlwell

10 November 2009 14:36

Short answer: Yes. Slightly longer answer: Yes, but much less than China does and not as much as the 'Chindia' rhetoric would seem to imply.

Australian-based answer: While it doesn't matter as much as China, India still matters a lot for Australian trade. India is now our fourth largest export market – having overtaken the US this year. It is also closing in on Korea in third place:

Much longer answer: India's population in 2008 was about 1.1 billion people. That's about 17% of the world's population. Not a bad starting point to answer the question, but not enough on its own, either. So let's look at the economy.

In 2009, India is likely to be the 4th largest economy in the world, accounting for about 5% of world GDP (PPP-basis). That would be about 80% the size of the Japanese economy, 40% the size of the Chinese economy, and about a quarter the size of the US economy. So a big player, but not in China's league (let alone that of the US).

On the other hand, if you were to measure GDP at US$ rates, India would slip down the ranking to something like 12th place, with an economy around a quarter the size of Japan's, and less than 10% of the US economy (depending in part on what happens to the US$ between now and year-end).

India's huge population means it is also much poorer than the other big 3 economies. It's a whole world away from the US and Japan, but it also seriously lags China. GDP per capita in China is about $6000 using PPP rates. In India, it's about half that. India also lags China badly on other development indicators: life expectancy is 65 years versus 73 in China; infant mortality rates are 54/1000 live births versus 19 in China; the $1.25 poverty headcount ratio is 42% in India versus 16% in China.

India accounts for less than 2% of global manufacturing value added: that compares to more than 11% for China, more than 16% for Japan, and more than 23% for the US.

The Indian economy is not only smaller but less open than China's, which means its international economic influence relative to China is even smaller than the GDP rankings would imply. So in China, trade (goods and services) is equivalent to 63% of GDP, while in India the share (of much smaller GDP) is 54%. If you look only at goods trade, the gap is even larger: for China 59% of GDP, for India just 39% of GDP.

You can see the impact of this in export and import values. Last year, Chinese merchandise exports were US$1428 billion, or about 9% of the world total, making China the second largest goods exporter in the world. India's exports were US$177.5 billion, or about 1% of the world total, making India the 27th largest exporting economy, just behind Thailand. Indian exports were about 12% of China's by value.

The gap is not quite as big on the import side, but still dramatic: Chinese merchandise imports were US$1204 billion (about 7% of the world total, making China the world's third largest importer) while India's were US$293 billion (less than 2% of the total, putting India in 16th place).

What about commercial services, which pick up India's back office role? Here the gap is much smaller: China's services exports in 2008 were US$146 billion, about 4% of the world total, making China the 5th largest services exporter. India's were US$103 billion, 2.7% of the total, putting India in 9th place.

India is a significant factor in energy security and climate change: India consumed just less than 3.5% of the world’s oil last year. That makes it the world's fourth largest consumer, but well behind China (9.6%) and the US (22.5%). India was the fourth largest emitter of CO2 last year (4.5% of the global total) – although arguably only two countries — the US (20.2%) and China (21.8%) — really matter.

India now has a substantial role in the international economic architecture. It's been a major player in the WTO and the current Doha Round (if often an obstructionist one) and is of course a member of the G-20.

Finally, there's the question of economic and political models. If the Indian development model works, it says that economic growth and development is compatible with democracy. If it fails, then we are back to thinking that authoritarian regimes (China, early Korea, etc) are the way to go. I think the answer to the question of whether democracy can deliver for low income countries matters a lot – and that means India matters a lot too.