We’ve all heard about China’s rapid growth over the past few decades. It passed Japan to become the world’s second biggest economy back in 2010. Most economists say that it will continue this trend, replacing the United States to be the largest by 2030.
However, some experts think that India will be the world’s largest economy over an even longer timeframe. Analysts from Citibank say that India will leap forward from its current spot at number seven, passing the GDP of all other nations on the planet.
It’s hard to predict what will happen 60 years from now. Countless economic and political changes have happened since the 1960s which no one from back then could even dream of. So you’d be correct to view this claim with some amount of skepticism.
There’s several reasons why India could become the world’s largest economy over the long-term though. It might not happen by 2080, but it probably will by the end of this century. Here’s why.
Rapid Population Growth
First, India’s population will grow while China’s begins to slow. Birth rates and life-expectancy aren’t hard to extrapolate over the long-term. All indicators show that India will have a population of around 1.7 billion people by 2050, rising from the current 1.3 billion.
India will also have the largest working age population on the planet by 2050. More than 800 billion people in the country will be between the ages of 15 and 64 by then. This means India will be more productive and less bogged down by an elderly population in need of pensions and social welfare.
Meanwhile, China will see a demographic crisis as its population begins to shrink. It already has among the lowest birth rates in the world. The country’s one child policy is to blame.
The one child policy stopped in 2015 but its effects will be negative and long-lasting. Chinese couples could only have a single child from 1979 until the policy’s termination. Yet two people must give birth to at least two children for a population to be replaced.
Couples who gave birth under the one child policy are now starting to reach retirement age. As a result, the elderly dependency ratio is rising. China’s population will then rapidly decline once this generation starts dying about 20 years from now.
India doesn’t have the same problem, needless to say.
India’s long-term population growth vs. China.
Second, India’s economy in general has a lot of room to rise. It grew by 7.1% in 2016 and the World Bank expects an even quicker pace in 2017. A large amount of deregulation is expected by the end of this decade. Foreign direct investment is already starting to boom.
Compare India vs. China where economic growth is shrinking. The country’s GDP growth was a healthy 6.7% in 2016 but will only be slower from here. The demographic crisis explained above hasn’t even started, yet the Chinese economy is already showing weakness because of different reasons.
Or compare this to the United States’ economy where GDP hasn’t risen above 7% per year since 1984.
India viewed from space in 1984 compared to 2010.
How to Invest in India
Unfortunately, it’s not easy to invest in India. Foreigners can’t own property, while running a business there is bureaucratic to say the least. The government is intent on making things easier but it will take time.
Trading on the stock market is the easiest way to invest in India – but not directly. Foreign individuals are not allowed to invest in India stocks, but institutional investors can. Therefore, you can buy an ETF which owns stocks in India such as the iShares MSCI India ETF (BATS:INDA) with a U.S. brokerage account.
Buying shares in an ETF or starting a company in India are practically the only two ways to invest there. Running a business in India can be a headache. But that’s not necessarily a bad thing if you’re willing and able to put in the work.
Either way, India is set to grow immensely over the next few decades. The country is not without its challenges, but long-term investors might want to invest in India soon. The early bird gets the worm, after all.
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