Running head: INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

Mario Bernardi
ESL 408 Class L.06
University at Buffalo
The State University of New York

Instructor: Miss Letchimi Veeron Karuppiahya

13 April 2016

INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

Most people regard China as the main driving engine in the Asian economy, and also in
the global stage. With the number of population of over 1.3 billion, it has an abundant of
workforce ready to contribute to the economy. Therefore, it is not surprising that based on the
Gross Domestic Product (GDP), China secures the second place, only topped by the United
States (Li, 2012). However, there is one Asian country most people often overlook: India. India
is a very promising country with a large population, abundant natural resources, and rich in
cultural heritage. In addition, India is currently ninth in the GDP size worldwide and on its way
of becoming a major exporter in manufactured goods (Li, 2012).
When determining a countrys contribution to a larger scale of economy, there will be
certain criteria that plays pivotal roles. These aspects in turn, are crucial to a countrys success in
the overall look of the world economy and its national stability moving forward. If there is one
country which will emerge in the next five to ten years, India will be the next China within the
next decade. It has an immense population with a robust emphasis on education and convenient
geographic location as an exporter. Furthermore, India is now regarded as a potential source of
regional economic growth and demand after China (Rada & von Arnim, 2014). That is why
Indias prospect as the leader of global economy is promising.
A country which has a clear understanding of their financial, economical strengths and
weaknesses has an advantage of channeling its perks effectively and attaining global applaud. In
contrast, India, as a country, has not fully utilized its advantages and thus cannot separate itself
from other countries dominance. Nonetheless, in the face of global economy, India has a bright

INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

future to compete with China and be the next driving engine in the worldwide economic
standings as it is expanding on its world trade, service sector, and immigrant labor force.
First and foremost, India has a very promising expansion on its developing international
trade. Global trade is critical to Indias prosperity as now its manufacturers and producers can try
to contribute more to the countrys profit by selling their products in an expanded market, not
just in the domestic production and consumption market. Currently, India is now focusing on its
multilateral trade with Latin American countries. Why Latin countries? It is because some of the
richest countries in natural resources are there. Take an example of Venezuela and Brazil.
Venezuela is regarded as one of the biggest oil producers in the global market and Brazil is the
most dominating coffee-producing country. Fortunately, now those Latin American countries
global trade and investment have radically shifted over the past decade, as the region has
dramatically expanded its economic relations with the Asia-Pacific countries, particularly China
and India (Li, 2012, p.29). Even though it seems that China is the main beneficiary of this
multilateral trade, the odds speak not in favor to China. In fact, According to Direction of Trade
Statistics Yearbook in 2011 (as cited in Li, 2012), even though Indias trade with Latin America
countries remains modest compared to Chinas, the gap is likely to narrow, having grown
eightfold from 2000 to 2009. In a way, India is using this opportunity to expand its market across
the globe and generate more profitability. Yet, now India faces a tough question: how is it going
to repay the investments and natural resources those Latin American countries have supplied?
Certainly, India is not the first country people would think of when it comes to natural resources.
Nevertheless, India is affluent in human resources and it plans to disperse those abundant labor
forces to Latin American countries. For the most part, India can contribute to Latin America by

INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

utilizing its successes in elite college education, aerospace, microfinance and pharmaceuticals
(Moreira, 2010). Thus, international trade future in India is ready to compete in the bigger stage
against Chinas.
Second key factor which looks favorable to India in the long run is its growth in the
service sector. Recently, there has been a massive increase in the demand for Indias service
sector, for it provides a lot of countries with quality manpower to work in their factories and
markets. Hence, Barry Eichengreen and Poonam Gupta (2011), a professor of Economics and
Polictical Science and Senior Economist in the Development Economics Vice Presidency of the
World Bank, respectively, pointed out that modern services in India will soon emerge and
become large enough to make a profound impact on macroeconomic level. The biggest reason of
this emergence in modern services is actually the realization of technology transfers
importance. For most countries, technology transfer is vital as it allows national properties
currently being researched to be marketed into public consumption. Whereas for India, due to
technology transfer, productivity in the industry and service sectors grows rapidly and attracts
labour from agriculture (Kotwal, Ramaswami & Wadhwa, 2011, p.1154). With the service sector
being saturated with a lot of working force, companies in the sector surely cannot hire the total
working force in India, as the number is just too astounding. For this reason, it is to be expected
that the evidences of parents in India spending substantial sums on opportunities for children
with only high-school education on the acquisition of English, computing and other basic skills
that enable them take advantage in the service sector are arising (Eichengreen & Gupta, 2011,
p.19). The growing service sector is certainly one factor India needs to emphasize if it is going to
overtake China in the long run.

INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

Last but not least, the third ingredient for Indias success in the global economy will be
its expansion on the working labor force. India, as many people know, is the second largest
population in the world, with an eye-popping number of over 1.2 billion, and is only topped by
China. Moreover, India has an astronomical number of 500 million workforce, second only to
China. Still, for China, people do not take into account that China has been around as the
dominant labor market over the last ten to twenty years. Seeing that Chinas labor force has
emerged from quite some time, within the next fifteen years, it is predicted that Chinas
population of working talents is going to decrease, especially in the case of migrant workers. As
Arvind Panagariya (2011), a renowned Professor of Economics from Columbia University
explains, with the Chinese population predicted to age as well, India is left as the only large
country capable of filling the void. There is this mind-blowing fact that the working population
in India will be younger as compared to Chinas. Between the years of 2010 and 2025, China
will have a 63 million decrease of workers aged 20 to 49 years. However, Indias figure will rise
by 131 million (Panagariya, 2011, p. 208). Then again, a question needs to be asked for India:
why does it choose the range of 2010 to 2025? Why has India not started focusing on their labor
force, which was already abundant, from long time ago? It turns out that India, during the years
of 1970s and 1980s, was trying to liberalize their economy from its previous state of being one of
the most heavily protected and regulated economies across the globe. Since the reformation,
further policy changes in several of sectors emphasized to liberalize the economy for private
sector and foreign investment (Majumdar, 2008). In recent times, Panagariya (2011, p.209) also
added this statistics of India being accounted for 19 percent of the world working population,

ranging from ages 20 to 49 by the year of 2025. As for other developed countries and China, only
14 and 17 percent, respectively. Overall, India
INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

has a commanding lead in their labor force and it is in its best interest to actually utilize the
upper hand that it has to compete against China.

In spite of all these competitive advantages India has, some economists are still skeptical
on how India will turn their current state to the economically-dominant country it should have
been, especially concerning Indias industrial, combined with economic and social potential
growth instabilities. Financial experts are anxious about these asymmetries and instabilities as
during the past times, India showed that it cannot sustain growth in the long run. The asymmetry
between capital accumulation and growth is not a transient phenomenon but rather is structurally
embedded in the growth trajectory initiated by the liberalization measures after 1991. If this
asymmetry keeps on going, industrial growth will remain highly prone to instability ( Mazumdar,
2008,pp. 68-69). On the other hand, instabilities in the economic sector are also looming India,
making analysts even more unconvinced of Indias direction of growth. The gap between Indias
skilled and well-paid on the one hand and those unskilled and mostly poor on the other hand has
been increasing. This phenomenon can lead to dire implications for the social milieu (Rada &
von Arnim, 2014,p.3). Rada and von Arnim (2014) added that even though Indias economy is
growing, the growth is rather negligible and the impact on global stage is even smaller. Lastly,
pessimists of Indias emergence also pointed out the agricultural instability occurred in the past
years. They argued about the Green Revolution technology, as the main cause of the asymmetry
happening in the agricultural sector. To give some background, the Green Revolution technology

actually came into realization as the solution for concerns in the agricultural development in
India, especially about the increasing demand for food. Indian government at the time
implemented
INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

improved agricultural practices such as utilizing high-yielding varieties, measures for protecting
plants, fertilizers, chemicals and mechanization from around 1965 to the early years of 2000; as a
result, these practices are known as Green Revolution technology (Larson et al, 2004). Despite
the government efforts to implement Green Revolution technology, researcher alike feel that the
increased instability in food grain production India is mainly attributed to the prevalent adoption
of the technology ( Mehra, 1981; Barker et al., 1981; Ray ,1983; Singh, 1989, 1998 as cited in
Larson et al, 2004). To further add, if the agriculture instability keeps on continuing, it may
adversely affect the growth in various sectors, such as investment, consumption, production,
income distribution and employment, which ultimately will impede the economic and growth
development of the country. (Abler et al., 1994; Eicher and Staatz, 1998 as cited in Larson et
al.,2004). Doubters are very aggressive in standing up for their contention about Indias
instabilities, as Indias future may go haywire if these vulnerabilities are not settled in one or two
years.
Nevertheless, the doubts coming out of those skeptics are actually flawed and shortsighted. These pessimists overlook the fact that China, which is now considered as a developed
nation in its economy, also had its fair share of instabilities in different areas during its
development and emergence years. As David Shambaugh (1994), a professor of political science
and international affairs at George Washington University articulated, China is actually an
extremely fragile country with significant risks for foreign investors, traders, and neighbors in

Asia, especially during the years of early 1980s. This fact may raise a question mark: why a
country as strong as China had its instabilities in the 1980s? What caused these instabilities to set
in? It turns out that over the course of the 1980, China did some major capital expansion to boost
its
INDIA AND ITS EMERGENCE IN THE GLOBAL ECONOMY

economic growth and stability. And yet, regardless of this effort by the Chinese government to
improve Chinas economic condition, converse effect started to take place. With Chinas
unrestrained capital expansion combined with the running high inflation really made consumers
expressed their great dissatisfaction over the ruling Communist party and government body
(Shambaugh, 1994 , p.41). Furthermore, the looming unemployment rate, huge internal
migration pressures demanding for taxes from urban governments, rampant crime and
corruption, and social stability dystopia pressurized the government to be decisive in ensuring
the future integrity of the nation-state (Shambaugh, 1994, pp. 41-42). All of these instability
happened quite some time ago, but now China is having another major issue, for China is having
a problem finding its own identity. It usually think about other nations and international issues,
while considering on its evolving role as a major power in world affairs. As a result, now China
has multiple and conflicting perspectives of its own identity. China has no single international
identity, but rather a series of conflicting identities (Shambaugh, 2011). Compared to the
problems India is having right now, Chinas are more detrimental, as it involves not only
instabilities, but also an international identity crisis.

That all being said, even though instabilities may loom India during its growth and
emergence, other dominant forces in the global economy such as China also had its hands full of

instabilities during its emergence period. It is crucial to understand that India has all the key
factors in becoming a successor of China not just in the Asian economy level, but also in the
global stage. Only time will tell how far India will grow stronger and more independent over its
economic performance.

References:
Eichengreen,B. & Gupta,P. (2011). The service sector as indias road to economic growth. NBER
Working Papers, 16757, 19. (n.p): National Bureau of Economic Research.
Kotwal,A., Ramaswami,B.,& Wadhwa,W (2011). Economic liberalization and indian economic
growth: whats the evidence?. Journal of Economic Literature, 49(4), 1154. Retrieved from
https://www.aeaweb.org/articles?id=10.1257/jel.49.4.1152
Larson et al. (2004). Instability in indian agriculturea challenge to the Green Revolution
technology.
Food
Policy,
29(2),
257-273.
Retrieved
from
http://www.sciencedirect.com.gate.lib.buffalo.edu/science/article/pii/S0306919204000296
Li,H.(2012). China and india, latin americas new friend from the east. NACLA Report on the
Americas, 45(2), 28-30.
Mazumdar, S. (2008). Investment and growth in india under liberalisation: asymmetries and
instabilities.
Economic
and
Political
Weekly,43(49),
68-77.
Retrieved
from
http://www.jstor.org/stable/40278268
Moreira, M.M. (2010). India: latin americas next big thing?. Inter-American Development Bank.
Retreived from https://publications.iadb.org/handle/11319/413?locale-attribute=en
Panagariya,A.(2011). India: a global economic power? revisiting the past and contemplating the
future. Journal of International Affairs, 64(2), 207-209. New York City, NY: The Trustees of
Columbia University.
Rada,C.,& von Arnim,R.(2014). Indias structural transformation and role in the world economy.
Journal of Policy Modeling, 36, 2-3. Retrieved from sciencedirect.com/science/journal/01618938
Shambaugh,D. (1994). Chinas fragile future. World Policy Journal, 11(3), 41-42. Retrieved from
http://www.jstor.org/stable/40209361
Shambaugh,D. (2011). Coping with a conflicted china. The Washington Quarterly, 34(1), 7-27.
doi: 10.1080/0163660X.2011.537974