China and India – two competing nations for the status of a superpower..
It is a foregone conclusion that America will have to give up its sole superpower status within the next 2-3 decades, at least in the economic field… It is just a matter of time.. Two nations with a population of over 1 billion each are surging ahead..
But who will replace USA? India or China?
China – with a population of 1 billion has world’s largest forex reserves today, its exports are moving all around the globe.. cheap exports.. due to a weak chinese currency controlled by the Chinese government.. China is also the world’s largest autocracy with a dictatorial communist regime.. See Tiger Vs Panda
India -with a population of 1 billion again.. but with a difference.. Indian population is much younger compared to the Chinese. Chinese population will comprise mostly of retired people in the next 1-2 decades.. India is the youngest country in the world with over 70% of its current population being below 35 years of age! What’s more, India is the largest democracy in the world! Unlike Chinese currency, Indian currency is controlled by the open market..
So let us see where does the road lie ahead for India to become a superpower..
The Chinese economy is export oriented.. China is making money by its Cheap exports.. The day other countries come up with even cheaper alternatives to Chinese goods, or the day the true value of Chinese currency is enforced in the markets , Chinese exports will be hit and so will be the Chinese economy…
Indian economy needs to grow in an opposite direction.. Instead of being export oriented nation, India has to become consumer oriented.. India has a population of 1 billion.. It is 1/6 of world’s market.. the world’s largest youth population exists in India.. This market has to be tapped by Indian industries and the government should encourage consumption within India…
The American Angle
Note that America did not become a superpower by exporting its cheap products.. In fact American products were costly due to a strong USD in the earlier decades..
Instead Americans encouraged a consumer based economy inside USA. Americans used to buy everything on this planet.. So the companies there also started manufacturing everything on this planet.. the consumer oriented nature of its economy lead to more technological innovations.. by maintaining a stronger USD against other countries, the american government also ensured that its hungry consumer society got products from all over the world at a lower price. Which is also the reason why other countries exporting their products to USA ended up with inflation within those countries, while the american dollar remained stable! The very reason why american dollar never faced a huge inflation in US was because the rest of the world was exporting cheap goods to USA, thanks to their weak currencies against USD.
The lesson India needs to learn from this consumer oriented chapter of american economy is that India should move towards becoming a consumer based economy where even Indian companies start producing world class products which first gets sold in India and anything extra gets exported. For this India needs to have a very strong rupee first. Because when the rupee is stronger, it means you will get very little in return for exports.
Suppose 1 Indian rupee = 1 USD, then why would Indian manufacturers want to export their goods, because either way the returns are the same!
Even more, suppose 1 Indian rupee = 2 USD, well in that case the Indian manufacturers will prefer to sell their products within India instead of exporting it to US. This will increase the standards of life inside India. Infact, a rupee stronger than USD will mean that american companies will line up to export their products to India!! Just imagine in that case how the standards of living will go up in India. Well, yes there is also an energy angle to this!
Today what is happening is the best of the products manufactured inside India are exported and whatever is left is made available to the Indian consumers. Reason, exports bring more money than selling within India! This is exactly how americans got best of the products worldwide sold to Americans by maintaining currencies of other countries at a lower level than USD.
For instance today, best of the breed of Indian mangoes are exported to America! They are not available to Indians even though they are grown in India! This is just a simple example.
How about a stronger rupee? The price of a big 5 bed room house in USA for instance is about 4,50,000 USD ! Imagine buying a big 5 bedroom house in USA for 4,50,000 rupees!! In that case every young Indian IT professional today can buy about 10 such 5 bedroom houses in USA
Inspite of a strong american dollar, the current US national debt is about $28000 per head! India, inspite of its weak rupee has a national debt of about 20000 rupees per head! Just imagine how the situation would reverse further as Indian rupee becomes even stronger.. The Indian average debt would come down to as low as about 2000 rupees per head without even having paid back a single penny, just because of a stronger rupee!
The best way ahead right now for India would be to use its heavy forex reserves for large scale infrastructure development projects within India, and this has to be done well before USD falls even lower. So let India not keep its forex reserves tied up inside the bank lockers..
The issue is that Indian IT industry will be hit if it continues to depend on a weaker rupee for its profits. Indian IT instead has to concentrate on developing core system products which has market both inside and outside India. In the next 10 years millions of new computers would be added in India thanks to more Indians coming online. If Indian companies can manufacture operating systems, compilers, databases, browsers, media players and what not.. just imagine the size of the market they can rule! This is just an example alternate approach I am suggesting for all similar export oriented industries – make use of the vast Indian consumer base.
To become a true superpower, India needs to concentrate on expanding its own consumer based market within India, there by making available best of the products to its own people..
Just by increasing forex cash reserves like China, no country can become an economic superpower. Just imagine what will be the status of China if the value of dollar crashes tomorrow? What will happen to its forex reserves of 1 Trillion USD?
So Indian economy needs to become a self sufficient economy with minimal dependency on exports. The government needs to encourage more spending within the country, than to solely depend on more selling outside the country.