In a world characterised by shifting geopolitical dynamics and economic fluctuations, India has emerged as a beacon of growth and stability. As it assumes the presidency of the G20, India’s journey from battling poverty, drought, unemployment and economic volatility a mere fifteen years ago to becoming the world’s fifth-largest economy is nothing short of remarkable. In 2014-15, India was ranked as the 10th largest economy and today, it proudly holds the fifth spot, with an impressive average annual GDP growth rate of 6.5 percent from 2014-15 to 2022-23. Prime Minister Narendra Modi’s ambitious vision has India vying for the third-largest economy by 2027. One of India’s most significant assets is its burgeoning working population. Agriculture, the bedrock of India’s economy, has witnessed nearly 4 percent annual average growth, while inflation has been maintained at a manageable 5-6 percent since 2014. Rural consumption has been instrumental in expanding banking facilities to the financially vulnerable, with 78 percent of the population now having access to banking services, up from less than half just a decade ago. Interestingly, India’s exports, traditionally not the primary driver of growth, saw a remarkable surge during the Covid-19 pandemic. In 2021-22, exports grew by an impressive 45.13 percent, signalling India’s renewed vitality in the global market and posing challenges to smaller ASEAN nations.
Conversely, China, once the epitome of economic growth, is now grappling with a progressive decline. Economic woes, including an aging population, a rural-urban divide, an underdeveloped financial system, a real estate bubble burst, elevated youth unemployment and the deterioration of political relations with the West, have cast a shadow on its prospects. The IMF reports that China’s GDP growth fell to 3 percent in 2022 and is projected to further decline in 2023. The uncertainty gripping Chinese households has resulted in reduced spending and increased bank deposits, echoing Japan’s past experiences of recession. Japan, despite its historical roller-coaster relations with China, has long relied on its neighbour for economic growth, following a “hot politics, cool economics” mantra. In 2022, China accounted for approximately 20 percent of Japan’s total trade, with machinery being the largest product group imported. However, Japan has begun to reevaluate its dependency on China. Building on the legacy of Abenomics, Japan incentivized manufacturers to diversify away from China and toward ASEAN and domestic production. A gradual shift is evident, with imports from ASEAN growing by 18.6 percent in 2022, compared to a mere 2 percent increase from China. This decoupling trend is reflected in Japanese investment, which fell by 25.2 percent in China in 2022. Yet, Japan remains cautious about fully committing to ASEAN. While ASEAN has shown resilience with GDP growth of 5.6 percent in 2022, it is expected to decelerate to 4.6 percent in 2023, raising concerns about its long-term stability.
In contrast, India presents a more promising alternative. Despite a moderate 13.4 percent decline in Japanese investment in 2022, India’s strong economic fundamentals make it a reliable choice. With an expected annual average growth rate of 6.5 percent, India’s shining growth has earned it accolades from JBIC as the most promising destination for Japanese business in consecutive years, surpassing China and the USA. In this ever-evolving global landscape, Japan should indeed give India a fresh look at the G20 summit and embrace a new chapter in its economic relationships, one that includes India as a key player in its future.