India will be a great power?

Although China and India both are already major players in the world, both have been embarked on diametrically opposed development model. Particularly the political system is totally different, while China has an authoritarian system, India is the best example of pluralistic democracy around the world, however despite of these differences, both have the fastest growing economies in the world.

In the present article I use some economic theories with very useful framework, not only to understand the performance of India, but also to make prediction for the future performance. Thus, according the convergence theory (the most important economic growth theory), in the capitalism system there is a convergence among all the countries in term of Gross Domestic Product (GDP) per capita.

This theory predict that in the long term the GDP per capita of all countries tend to be similar, because for countries with high GDP per capital such as USA or European countries it is difficult to maintain high economic growth rate due to they have already grown, while countries with very low GDP per capita such as India and China there is a lot of room to maintain high economic growth rate, because there are very poor and have space for private and public investment.

The empirical evidence confirm this theory. Thus, developed countries such as the previous mentioned have had low economic growth rate, while developing countries such as India has had very high ones. Even, the International Monetary Fund (IMF) predictions by 2050 China and India will be the first and second economic power on the world.

Characteristics of India, China and USA

Source: IMF, CIA

The most important and distinctive characteristic of India and China is the size of their population. Thus, China with a population of 1 337 millions of people, and India with 1 189 million s of people are the most populated countries around the world. The third country is USA with a too much less population of 313 people.

Then, it is easy to deduce that, according convergence theory, India and China will be necessarily the first two power in the world. Firstly, both GDP per capita of US$ 3 248 and US$ 5 963 are very low in comparison with USA of US$ 46 436, therefore these two countries evidently have a lot of space to maintain growing. Secondly, whether all GDP per capita tend to be similar the huge populations of these two Asian countries assure them to have the biggest power in the world in terms of total GDP, even much more greater than USA.

India would have followed the model of the Tiger of Asian in the sense of application of competitive advantage. Thus, it focus in its information technology sector (service sector), taking chance of opportunities such as IT wave, the expansion of high-speed Internet and related communications networks, skilled and low-cost English speaker an d son on.

But, aside from the general theory, of course it is necessary to evaluate the specific constrains to the Indian development policy until now. For example its liberalization process started very late at the beginning of the nineties. India for long time has maintained its austere Gandhian principle of swadeshi (self-reliance) and Keynesian import substitution, even still a largely closed economic. Moreover, there are serious problem such as a modest national saving, bad infrastructure and probably the worst a lack of human capital, since a lot of brilliance people prefer go abroad.

Despite of these constraints the empirical evidence show us the high economic growth of India until now, as well as positive perspective in that sense. This article allow us to note that, although India has the similar problem of any developing country, its huge population make possible to became in a great power, and suggest that this property make possible to finance all kind of problem such as poverty, bad infrastructure, human capital and so on.