Is India the New China?
By
Nicholas Eberstadt
AEIdeas
February 09, 2024
If there is such a thing as fashion trends for global investors, then India looks like their new “it” girl. A
slightly breathless piece in
Bloomberg News earlier this week informs of a “gold rush” underway—a “momentous shift” in global capital markets, with international investors “pull[ing] billions of dollars from China’s sputtering economy” and betting instead on India. According to the article, “Wall Street giants like
Goldman Sachs Group Inc. and Morgan Stanley [are] endorsing the South Asian nation as the prime investment destination for the next decade.”
Global investors interviewed by Bloomberg see great profit potential in the India market—and of course they may be right. Their play is on India’s financial economy.
But that is not quite the same thing as making a bet on India’s real economy—the prospects for national GDP, the summary measure of a country’s value added from goods and services. Students of foreign policy and international security are more likely to be interested in the latter, since it relates more directly to such things as India’s national power, or its attractiveness as a potential ally.
It is true that depopulating China faces increasingly serious economic headwinds, and that India recently surpassed China in total population. But that recent demographic crossover does not imply that an economic crossover is in the offing—or in fact anywhere on the horizon, for at least as far as a demographer can see.
For economies like China and India—i.e., countries without large endowments of natural resources—long term economic prospects depend very largely on human resources on the one hand, and “business climate” (which can help “unlock” the value of human resources) on the other.
AEI’s Derek Scissors
has written all too persuasively about India’s uninspiring business climate. (For what it is worth,
India’s ranking in such measures of business climate as the
Index of Economic Freedom is actually slightly lower today.)
With regard to human resources, the most important thing to recognize is how surprisingly—astonishingly—poor India’s profile looks in international perspective.
Most of us in academic and policy circles have been dazzled at one time or another by the remarkable talent we have come across from India—scientists, professionals, intellectuals, businessmen. India has an extraordinary cadre of highly trained men and women, and there are millions of them.
But at the other end of the distribution are many hundreds of millions of people—men and women, boys and girls, who have never been to school at all, or who have been to school and come away with almost nothing to show for it.
While India’s “nation building” strategy successfully focused on creating an impressive cadre to govern the country and staff the upper reaches of the economy, it neglected mass education.
Consequently, educational attainment for the population as a whole is dismally low—comparable,
as I showed in a paper a few years ago, to sub-Saharan Africa, a region where upheaval, war, and misrule constrained educational possibilities for two generations.
The woefully low level of educational attainment for India’s working age population can be seen here (drawn from the admirable work of the Wittgenstein Centre):
As of 2020, nearly one in four working age Indians had never been to school, thus presumably illiterate. Yes: India appears to be at least half a century behind China in eliminating illiteracy.
And that would be assuming India’s schooled population had actually learned how to read, tell time, do sums etc. But such a presumption would seem to be badly wrong.
Economist Lant Pritchett pointed this out a decade ago, in a
wonderful book subtitled
Schooling Ain’t Learning. Even in the state of Tamil Nadu—famous within India for its relatively high levels of health and literacy—pupils performed disastrously on international standardized academic achievement tests.
And now, sometime AEI colleague Eric Hanushek, the Stanford-based educational economist, has (with co-authors Sarah Gust and Ludger Woessmann) published an
important paper surveying global deficits in basic skills for pre-college pupils, using test data and enrollment ratios to estimate the proportion of youths who do not attain even primary-school-level basic skills in math and science.
The findings for India are devastating. Well over 80 percent of India’s enrolled students failed to meet this minimum threshold. Add the share who were not in school at all, and the total with less than basic skills comes out to
almost ninety percent (88.8 percent).
The chart below puts India’s human resource gap in international perspective.
Prime Minister Modi envisions India as a “developed nation” by 2047.
To go by these figures, though, it may be decades before India’s population reaches even the current “basic skills” levels of the OECD’s newest, poorest, and least developed members—and generations before it can hope for levels comparable to currently developed OECD countries.
