India is at a critical juncture

Horizons article
May 24, 2023

As Western relationships with China become tenser, India is often mentioned as an alternative. India’s neutral geopolitical stance, combined with its large labor force, provide the country with opportunities, but it is by no means close to take over China’s strong position.

Geopolitical neutrality offers opportunities for ethical leadership, which may provide economic benefits.

Historically, India has pursued a non-alignment policy. By maintaining friendly relations with various world powers (including the US, Russia, and the EU), India is not bound to any specific military alliance or political bloc. In his book The India Way, Indian Foreign Minister Subrahmanyam Jaishankar argues that because India is not seen as a threat, the country will use its position to promote an ethical, rules-based order at a time when the US, the EU, and China are unable to do so. Moreover, its position as a neutral actor could turn India into an alternative for Western companies that want to become less dependent on Chinese supply chains. Nevertheless, China is still ahead in terms of government and production efficiency. Apple, for instance, is increasing production in India, but experienced setbacks with lower production quality and efficiency compared to China. Meanwhile, India is working on addressing the major deterrents that keep companies from moving to India. It is addressing bureaucracy, improving its digital infrastructure, and working on widespread infrastructure upgrades to highways and public transport.

Broaden your horizons
  • Many countries do not want to take sides in the confrontation between the West and the Russian Federation and the competition between the US and China. This article describes the Non-Aligned Movement and the role India is playing in it.
  • A range of countries are strengthening their ties with India to diversify their supply chains away from China.
  • This Newsweek article discusses the tense relation of India and China and India’s policy of ‘strategic autonomy’.
Before it can realize its potential, India will face big challenges.

Last month, the UN estimated that India’s population increased to 1.4 billion people and overtook China as the world’s most populous country. Both countries have wildly diverging demographic futures; India’s population is still growing whereas China’s is in decline. With over 500 million people employed, India has one of the largest labor forces in the world. Moreover, the country has more people in the working-age group than in the dependent population group (children and elderly). This results in a declining dependency rate, a unique situation compared to developed countries, which face a reverse situation (see graph). Nevertheless, India will have difficulty to harness this demographic dividend. The country does not have enough jobs to absorb its growing labor force. Its unemployment rate hovers around 8% and is even higher among young people. Most people work in low-paid jobs in the informal sector. Even those with a degree often fail to find a job due to the low quality of India’s education system. Despite government efforts to create more jobs and improve education, India runs a high risk of missing out on its potential.


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