Head-on | India must leverage its geo-economic strength

When the International Monetary Fund (IMF) projected that India will soon be the world’s third largest economy, there was an immediate riposte: but what about per capita income?

India’s nominal per capita income is barely $3,000. By purchasing power parity (PPP), India’s per capita income is still only a modest $9,000.

There is a story behind India’s penury that few add as a caveat. Per capita income in the Indian subcontinent before the advent of British colonialism was $650 (in today’s inflation adjusted money), roughly similar to per capita income in Western Europe.

But by 1947, India’s per capita income had fallen to a fraction of per capita income in Western Europe and the United States. India had been reduced to penury by 190 years of exploitative British colonialism and 50 years of Congress-Left socialist economic policies. During two centuries of British colonial rule, Indian GDP stagnated. Population rose. Per capita income plunged. It recovered slowly after Independence under socialist Congress governments but not quickly enough to significantly reduce poverty.

India’s poverty rate in 1947 was 80 per cent. Famines were endemic during British colonial rule but there have been none after Independence. Poverty in India has reduced to around 10 per cent today and continues to fall every year as GDP rises.

That is why GDP is an important economic metric. With India’s population plateauing at 1.50 billion, all future GDP growth will go straight towards increasing per capita income.

As a result, there are now key geo-economic leverages India can deploy in a complex world order.  President-elect Donald Trump has pledged to raise tariffs on Chinese imports by 25 per cent. China has retaliated by banning the export of critical rare earth minerals gallium, germanium and antimony that have widespread military applications.

Reuters reported: “Gallium and germanium are used in semiconductors, while germanium is also used in infrared technology, fibre optic cables and solar cells. Antimony is used in bullets and other weaponry. China accounted last year for 48% of globally mined antimony, which is also used in infrared missiles, nuclear weapons and night-vision goggles. This year, China accounted for 59.2% of refined germanium output and 98.8% of refined gallium production, according to consultancy Project Blue.”

Under pressure from Washington, European allies have meanwhile slapped up to 36 per cent import duties on Chinese electric vehicles (EVs). China says it will impose retaliatory tariffs on European exports to China.

Amidst this high-stakes battle for economic and technological supremacy between the US and China, India is emerging as a balancing pivot.

With tensions easing at the LAC, restrictions on trade with China have moderated. Beijing knows there is no other large and growing single market that can absorb some of the production it can no longer sell to the West

At the same time, Trump’s presidency will deepen US security collaborations with India. Trump’s position on Russia’s invasion of Ukraine is more nuanced than outgoing President Joe Biden’s

The Biden family has a long history with Ukraine. Biden’s son Hunter served as a highly paid director on the board of Ukraine’s controversial energy company Burisma. The US has sent over $100 billion (Rs. 8.5 lakh crore) worth of weapons to Ukraine since the start of the Russian invasion in February 2022.

Trump is likely to bring the war to an end by simply stopping delivery of future weaponry to Kyiv. Without US weapons, Ukraine will have to accept peace on Moscow’s terms.

Doval in Beijing

India’s National Security Advisor (NSA) Ajit Doval’s visit to Beijing on December 18 to meet his Chinese counterpart Wang Yi has meanwhile been closely followed by Washington. The Doval-Wang meeting is the first formal Special Representatives (SRs) dialogue in five years.

India’s ministry of external affairs (MEA) issued this statement following the dialogue: “Both SRs underlined the importance of maintaining peace and tranquillity in the border areas to promote overall development of the India-China bilateral relationship. They emphasised the need to endure peaceful conditions on the ground so that issues on the border do not hold back the normal development of bilateral relations.”

Beijing’s readout in Mandarin was more explicit. It said China and India had “extensive and in-depth exchange of views on bilateral, international and regional issues of common concern, emphasising the importance of a stable, predictable and good China-India relationship to ensure international and regional peace and stability.”

Significantly the two sides agreed to resume the Kailash Mansarovar Yatra, transborder river cooperation and the Nathula border trade.

Trump’s transition team has noted the thaw in India-China ties. It has also noted soaring Apple iPhone production in India. By 2027, India is set to account for 30 per cent of total global iPhone production. China’s share is estimated to fall to 55 per cent with the rest split between Vietnam, the Philippines and Mexico.

Just five years ago, China accounted for 90 per cent of global iPhone production.  India accounted for almost nothing.

Trump’s transition team has observed the growth of nearly 2,000 Global Capability Centres (GCCs) in India, including from several Fortune 500 companies. These are not back office centres but innovation hubs for engineering, R&D, software development and artificial intelligence (AI).

India’s military expansion, space programme and startup ecosystem are being noticed globally. While European stock markets are stagnant, India’s stock market saw the launch of a record nine IPOs this week.

The view from Washington and Beijing of India has changed. India’s per capita income may still be low. But despite being reduced to penury during colonial rule, the fact that India will soon be the world’s third largest economy offers a glimpse of a future world order with India as a balancing geo-economic pivot between superpowers US and China.

The writer is an editor, author and publisher. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.