Will India Replace China as the Engine of Global Growth?
India’s economic rise is reshaping the global landscape. With unique strengths and emerging opportunities, its growth path will differ from past powerhouses. However, significant challenges remain, leaving its long-term impact uncertain yet full of potential.
India's economic trajectory is strong, making it the fastest-growing major economy in the G20, with a projected 6-7% annual growth rate over the coming decades. By 2027, it is expected to overtake Germany and Japan to become the world's third-largest economy, and by 2050, it may reach economic parity with China. However, India's growth model differs significantly from China's. While China’s rise was driven by export-led manufacturing, India’s economy is fueled by domestic consumption and services such as IT, telecommunications, and software. Unlike China’s high savings and investment-driven model, India’s consumption-heavy economy is already increasing demand for global goods and services, positioning it as a key market for future trade.
Demographics play a major role in this transformation. India has a much younger workforce, in contrast to China’s shrinking and aging population. As urbanization accelerates—currently at 32% compared to China’s 64%—it is expected to drive infrastructure spending and boost economic activity. However, urban governance challenges such as congestion, inadequate planning, and weak local governance could pose risks to sustainable growth.
India's services sector already contributes 50% of GDP, and the country has established itself as a global hub for technology and digital services, particularly in semiconductor chip design, AI, and software development. This aligns well with a global shift toward services-driven economic models, where high-value production increasingly relies on design, software, and cloud-based industries rather than physical manufacturing. Geopolitical trends also favor India, as Western economies seek alternative supply chains to reduce reliance on China, while restrictive immigration policies in the U.S. and Europe are leading more skilled Indian workers to remain in India, strengthening its domestic industries.
Despite these advantages, India still lags behind China in trade and investment influence. China remains the largest trading partner for 120 countries, while India does not hold this position for any nation. Over the past 20 years, China has attracted $4 trillion in foreign direct investment (FDI), while India has received less than $1 trillion. Additionally, India has been reluctant to engage in global trade agreements, withdrawing from the Regional Comprehensive Economic Partnership (RCEP) and maintaining limited participation in major international economic institutions. China, by contrast, is actively expanding its role in trade agreements such as CPTPP and institutions like the Asian Infrastructure Investment Bank (AIIB).
China’s structural slowdown is inevitable, with growth expected to decline to 2-3% after 2035 due to a shrinking labor force and reduced productivity. While this may create an opening for India, China remains deeply embedded in global supply chains, and its manufacturing and trade dominance is unlikely to fade quickly. Furthermore, automation and AI could mitigate the economic impact of China’s shrinking workforce, reducing India’s comparative advantage in labor-intensive industries.
India still faces significant structural weaknesses, including a highly informal labor market where 85% of jobs are low-wage and unregulated. The country has not undergone the large-scale industrialization that transformed China, leaving its workforce largely stuck in low-productivity sectors. Income inequality in India is higher than in China, exacerbated by persistent caste divisions and barriers to economic mobility. Without stronger investments in education, healthcare, and job creation, India’s growth may remain concentrated among the elite, failing to create broad-based prosperity.
Looking ahead, India will not completely replace China, but it will become a key player in a multipolar global economy. Unlike China, which has been the "factory of the world", India's strength lies in services, technology, and consumption-driven demand. Its role in driving global growth will look different—less about exporting manufactured goods and more about creating a massive consumer market and a hub for digital services.
Sources
- Asia Society (25.02.05)
Images on this site are licensed under Creative Commons (CC) or public domain, unless stated otherwise. Some images were generated using AI tools. See individual image attributions for details.