Progress report: India vs Asia over the past decade, in 5 charts
Summary
In the last 10 years, India has progressed well across many measures. However, relative to some of its Asian peers and competitors, India has been lagging.
As the global economy shows signs of recovery, the attention has turned to India, which grew by 7.2% in 2022-23, beating estimates. Morgan Stanley India chief Ridham Desai recently called India “a growth outlier", while releasing a report that argued that the country had undergone a transformation in the last 10 years. By many key metrics, India has grown in the past decade. However, it’s also key to compare growth across countries to see how India has performed relative to other large economies and its competitors in Asia.
Growth Engines
Of the nine Asian countries in our set, three stand out on GDP growth: Vietnam, China, and India. China has been steadily growing in the past few decades, thanks to past capital investments, which boosted its productivity. In the past decade, China was helped by its push towards newer technologies using, as Oxford University’s Fu Xiaolan described it, “a combination of state and the market". That momentum helped it despite the friction caused by its “Zero Covid" policy during the pandemic. Among this set, Vietnam grew the fastest. It attracted investments from a clutch of global players, including Nike and Adidas, in the initial years, seeking low-cost labour. They were followed by high-tech companies seeking an alternative to China, such as Apple (through Foxconn), Dell and HP. Among the rest, there are those that turned in middling growth (The Philippines, Indonesia, and Malaysia) to low growth (Taiwan, South Korea and Thailand).
People Factor
Similarly, India comes third after China and Vietnam on growth in per capita income in the past 10 years. India’s per capita income rose 65% between 2013 and 2022, on a low base. Its per capita income was the lowest in the set in 2013, and remains the lowest in 2022.
On growth in absolute dollars, India is ranked eighth. Taiwan showed the biggest jump in absolute gains, followed by China and South Korea. The absolute gain is a better indicator of purchasing power, be it machinery, oil or consumer goods.
India, which is now the world’s most populous country, still has advantages. Its median age, at 28.2 years, is below China’s (39 years) and even Vietnam’s (31 years), indicating it could benefit longer from a productive population. However, productivity gains are also a function of investments. While China’s total investments were in the range of 42-45% of GDP in the past decade, India’s ranged between 29 and 34%.
Export Thrust
In the first half of the past decade, combined goods exports from these nine Asian countries grew at an average pace of 4.6% per year. In the second half, this dropped to 4.08%, mainly due to the global slowdown during the pandemic. The metric is key for Asian economies because they have traditionally been dependent on export-led growth, a key development pathway for India, too. In the second half of the decade, India was among the four countries for which average growth fell. In contrast, Taiwan’s export growth picked up during the second half. In the past few decades, Taiwan has established itself as the world leader in some categories of hardware, especially semiconductors. As the demand for electronic goods picked up across the world, during the pandemic and after, investments made by Taiwan helped.
Production Shift
Of the nine countries, only two—Vietnam and Malaysia—saw the contribution of manufacturing to GDP increase in the past decade. In Vietnam’s case, its investment and trade policies, free trade agreements and export push helped raise the contribution of manufacturing to GDP from 20.7% in 2012 to 24.6% in 2021. Many Asian countries have been trying to move people from agriculture to manufacturing. Agricultural productivity tends to be low, and high-paying services, such as software development, are harder to tap for a majority of the population compared with manufacturing. For India, the share of manufacturing fell from 15.8% in 2012 to 14.0% in 2021. It is trying to boost this through initiatives such as the production-linked incentive (PLI) scheme, but these are early days and more needs to be done to increase manufacturing jobs. China saw a decline, too, but its manufacturing sector contributes almost double to its GDP compared with India’s.
Labour Pangs
India's unemployment rate came down marginally in the second half of the past decade to an average of 7.88%, from 7.90% in the first half. Yet, among the nine countries, it has had the highest joblessness rate. Of these countries, Thailand has the best record, but it was hit by the pandemic as tourism either stopped or slowed. However, as the pandemic receded and its main industry picked up, its jobless rate has gone down, too.
India’s unemployment rate has since fallen as well. In May, it was 7.7%, according to the Centre for Monitoring Indian Economy. However, the drop was due to a decline in the labour force participation rate (people who are working or are actively seeking a job). CMIE has also been highlighting the decline in women’s participation. India might have to fight on multiple fronts to address the unemployment problem.
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