India’s rising power benefits the Indo Pacific

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India’s inevitable regional and global leadership provides a welcome new opening for the country and the region in their security calculations. It remains the region’s most important Asian partner in providing the economic and security fallback that is based on values, trust and proven expectations.

India’s External Affairs Minister S Jaishankar recently completed a tour to Southeast Asia – Singapore, the Philippines, and Malaysia – as he sought to bolster the strategic presence in the region with China in mind. The commemoration of the first decade of the Act East Policy first launched in 2014 marks a critical shift in security and economic crossroads for New Delhi, especially in bolstering ties with current partners, mitigating risks with old allies and weighing the options with new potential supporters in getting both the buy-in and a trust based urgency of common security threat setting.

The Act East Policy provides the credence to India’s vision of Indo Pacific cooperation. This includes the Indo Pacific Oceans Initiative (IPOI) of India launched by Modi in 2019, in seeking to synergise and empower regional maritime resilience. This complements the ASEAN Outlook for the Indo-Pacific (AOIP) and contributes to the realization and implementation of the Indo-Pacific Economic Framework (IPEF).

The biggest piece of the puzzle that is missing is India’s role as both the balancer and the primary power challenger to China’s regional hegemonic dictate. Beijing’s rapid ascendency in the past three decades have transformed the entire power and economic equation in the region, and until recently, there is no adequate power balancer to this new power dynamic apart from the West.

In comes India, a power that has been largely ignored or confused by other players as to how to properly respond or engage. A confluence of different forces and factors are set to transform India’s economy over the next decade and change the lives of 1.4billion people. This inevitably changes the balance of power in Asia. Among the exciting indicators involved are the technological leaps, the energy transition and geopolitical shifts in creating new opportunities for India.

Over the past decade India has outgrown most other big countries, despite persistent structural challenges in the economic elevation.

New economic powerhouse

India has consistently surpassed expectations and is ranked as one of the fastest-growing economies in the world. India became the 5th largest economy (GDP of US $3.75 trillion economy) by September 2022, rising from 10th position in 2014 to 5th largest in a span of nine years.In latest projections, India is set to become the world’s 3rd largest economy by 2027 in the next three years, providing the critical buffer and alternative to the Chinese led dominance in supply chain, critical minerals and core economic fundamentals of the market, consumerism, trade and digital, technology and innovation led economy.India’s stock market became the 4th largest in the world last May in 2023. It will remain as the fastest growing major economy, expanding three times the pace of the global average with a growth rate of 6-7 per cent until the end of this decade.

The National Bureau of Economic Research Cambridge has produced the projections and simulations for the next century that by 2100 India is set to become the world’s second largest with 16% of 2100 world GDP.If recent productivity continues and demographic projections prove accurate, India will become the world’s largest economy accounting for one third of world output in 2100.

The number of ultra-rich Indians with a net worth of at least $30 million will rise 50 per cent over the five years to 2028, the largest increase globally. In serving as the next investment and economic hub in the region, Modi’s government has been actively courting multinational firms to invest more in the country, supported by Modi’s infrastructure push that is spending billions to upgrade roads, ports, airports and railways.

As the country emerges from the pandemic, a new pattern of growth is getting more visible. India has rolled out a national “tech stack”with rapid digitalisation and connectivity that have transformed the nation, shifting from an informal cash economy into a new century of technology and digital driven reform and advancement. This new core has turbocharged India to be the world’s third-largest startup scene after the United States and China.

Rapid growth in the past several decades has seen the acceleration in urbanization, industrialization, and household incomes.Policy reforms undertaken by Modi have seen several long term strategic action plans in place, from Smart Cities Mission to Digital India and Make in India initiatives.

Startups, digital creators, unicorns, gig economy , these are the new vocabulary of the “New Bharat”, as argued by Modi and the dream of the next 1000 years hinges on the chess moves set by Modi in his reform drive and in tackling core fundamentals, including poverty, housing, and income levels.

The rising internet penetration has seen the number of internet users increase to 840 million, having among the cheapest broadband prices in the world.

The same trend can be observed in the new energy transition. India ranks third in solar installations and is pioneering green hydrogen. This is further bolstered as global players continue to lessen the supply chain dependence on China, and India’s attraction as a manufacturing fallback support has risen. This is being capitalised on by New Delhi through a $26bn subsidy scheme. The West has been courting this new effort in forging defence and technology overtures.

Why is India poised to be the next power in the region that will change the regional power landscape? Modi’s government has also got a lot right, and that provides a positive change to India’s prospects. Modi has backed the tech stack and direct welfare, and has found pragmatic fixes for some of the country’s chronic problems. These include purchases of solar power by the central government and a kickstart of renewables. Others include financial reforms that have made it easier to float young firms and fix the bad ones. The digital welfare system has paid $200bn to about 950m people within 36 months, in a model of redistribution.

India’s digital economy grew 2.4 times faster than the economy between 2014 and 2019 generating around 62.4 million jobs. The size of the digital economy has grown from $108 billion in 2014 to $223 billion in 2019.

As the US rebrands and transforms its infrastructure and domestic hard asset development, India is overhauling its local infrastructure domain in a massive leap of physical development. Highways are built at a rate of 28 km a day, and railways at 12km a day. The number of airports has doubled in the last 9 years to 148 now.

The need to undertake policy reforms is critical in improving the ease of doing business and a greater investment inflow, which has seen reforms in land acquisition, labor laws, and regulatory frameworks being simplified.

The Make in India initiative that was launched in 2015 covered 27 sectors of the economy, and the manufacturing sector in GDP is set to increase from 13 per cent to 21 per cent of GDP by 2031.

Energy transition and new energy drive have been the core of regional geopolitics, driven by the scramble for energy and food security and assurances in supply chain and maritime domain security. India’s role in the global energy transition is increasingly clear. For the next 20 years, 25 per cent of the increase in global energy demand is going to come from India, with the target of net zero emissions by 2070. New Delhi is ranked 3rd in the renewable energy country attractive index.

Innovation remains the periphery of India’s new economic drive, and is now home to the world’s third largest Startups at 119,000 at present from a mere 600 in 2016, with about 111 unicorns valued at about US$ 350 billion, as of late last year. It presently has the third-largest unicorn base in the world.

A New India

Modi senses the new potential for India. For it to grow at 7 per cent or 8 per cent for years to come would signal a new opening and create a credible alternative economic force to Beijing. It would lift huge numbers of people out of poverty, generate a vast new market and a base for manufacturing and critical industries for the global business, and perhaps topple the Chinese economic hegemonic force in the not too distant future.

Going by current projections, this new lead is for Modi’s to lose. However, he would need to address current structural economic, demographic and geographical fault lines that stand in the way.

South India has long been richer where the southern five of India’s 28 states (Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Telangana) contain 20 per cent of the population, but account for 30 per cent of its loans and for 35 per cent of the flow of FDIs. In 1993, the South contributed 24 per cent of India’s GDP. The latest figure is 31 per cent, further accentuating the north-south development gap.

Most of the business and investment opportunities go to the South. A total of 46 per cent of India’s electronics exports are from the South; a similar 46 per cent of tech unicorns are southerners, especially from Bangalore. The five southern states provide a total of 66 per cent of the IT-services industry’s exports.

Geographical tensions remain a barrier, and a resilient national single market remains crucial for India’s sustained future growth in allowing firms to achieve economies of scale, allowing for a more efficient distribution and allocation of resources ranging from labour to energy. However, Modi has succeeded in creating a solid nationwide infrastructure, ranging from a unitary tax system to transport and digital-payments schemes.

Modi aspires to turn India into a vishwaguru, or “teacher to the world”. In this sense, technological prowess is his answer. The digital transformation has produced life changing impact and changes to the people where digital payments can now be accepted, with direct benefit transfers and slashing corruption. Estimates are as such that this has helped to save $34bn, or 1.1 per cent of GDP, from 2013 to 2021.

As powers rise, obligations and responsibilities to other nations and the world see a similar rising projection.The One Future Alliance serves to offer solutions in leading the Global South in addressing the world’s most pressing challenges.

The ‘Aarogya Maitri’ project will see India provide essential medical supplies to any developing country affected by natural disasters or humanitarian crisis, further reinforcing its role as the leader of the Global South in filling the gap and fast becoming the source of trust and confidence to other developing and less developed countries.

One of India’s greatest future potential and strength is its demographic advantage. It is now the most populous nation on Earth with a population of 1.4 billion. Most importantly, the median age is just around 28 years, and a rising population of about 900 million in the working age (15-60 years).It remains a relatively young nation with 65 per cent below the age of 35 years.

This carries a significant weight and implications for the next century in the region, especially when compared to the declining demographic advantage of China and other regional neighbours including Japan. Europe will also see a similar decline in demographic advantage but India and the US will both reap the fruits of their young working population and a rising productive segment.

About 25 per cent of the incremental global workforce over the next decade will come from India. The blossoming higher education returns in terms of producing productive and skillful graduates in serving economic and industrial needs are reflected in the adding of 2.4 million graduates every year with the largest pool of graduates with a Science, Technology, Engineering and Mathematics (STEM) background.

The dividends in demographic advantage for New Delhi have not only created a reliable and consistent productivity and innovation level for India to assume the role of regional leader, but most importantly, the ready capacity and pool of skilled and productive workforce and human capital will create a more potent and comprehensive military and security resilience.

While China has been leading the drive to record the world’s largest poverty escape over the past decades, the overlooked fact remains that 248 million people have come out of multidimensional poverty in the last nine years in India.

Power balancer

The Indo Pacific is home to more than 64 per cent of the global population and contributes over 60 per cent of global GDP. At the centre of its future projections is India’s similar rise and prospects. For Malaysia, India remains as an indispensable partner, despite the rollercoaster ride in the bilateral ties under different premierships.

For Malaysia to escape China’s economic trap, India remains the most critical partner in providing both the economic and security deterrence and a strategic partnership rooted in historical and cultural ties.

India’s peaceful rise has often been underappreciated. India’s inevitable regional and global leadership provides a welcome new opening for the country and the region in their security calculations. It remains the region’s most important Asian partner in providing the economic and security fallback that is based on values, trust and proven expectations.

(The author is a Kuala Lumpur-based strategic and security analyst. Views are personal. He can be contacted at collins@um.edu.my)

(This article appeared online on southasiamonitor.or April 2, 2024. Used under special arrangement with South Asia Monitor.)