India: The Next Economic Superpower

this is India India is soon to be home to the largest population of citizens on the planet and as of 2014 it is the fastest growing major economy in the world stealing the title of the slowing economy of China this country has had an amazing journey to get to where it is today and with the right management it is very likely to become one of the world's most powerful economies very soon but it's not quite there yet the total economy of India is still smaller in GDP terms than the economy of California over half of the nation's population still works in agriculture and poverty is still a very prevalent problem it is on the up and up though and throughout the past two decades it has seen unbelievable levels of growth that has among other things pulled hundreds of millions of people out of poverty although to properly understand how this country is going to get to where it is going you must first understand where it has come from after over a century of servitude to the British under colonial rule and many many decades of assertive efforts India claimed its independence in August of 1947 for many nations this often saw a sharp downturn in economic prosperity because while colonists were oppressive and undeniably exploitative of their host nations they did ensure that they were able to effectively extract every bit of economic value they could from their colonies India was a bit different though it had learned well from past lessons and actually ran a pretty effective economy once they were free from colonial rule in the years after the war India developed a very protectionist economy protectionism is the policy of a nation to favour the goods produced by the nation over those produced abroad now all nations to some extent will have a level of protectionism this can be seen in things like tariffs charged on the import of raw materials or import quotas limiting the amount of foreign cars that can enter a country in a given year the severity and extent of these policies will determine how protectionist an economy is a small side note is that this issue of protectionism has been in the news a lot recently with the US and Chinese trade war this is ultimately a back and forth of protectionist policies that will work to favor the products of their respective local countries rather than the imports from abroad by artificially raising the prices of foreign goods with these import taxes countries will do this for many reasons primarily it will be to protect their local industries and jobs from cheaper foreign competitors with lower wages sometimes it will just be political chest feeding and sometimes it's just another geopolitical negotiating strategy in India's case though it had a very different reason to adopt this protectionist policy India had experienced firsthand what colonialism and early global trade had meant for the countries on the bottom of the industrial ladder it decided that instead of potentially subjecting another nation to the same kind of hardship did it experienced it would rather just do everything itself the way it set out to achieve this was through a series of five-year plans which through regular channel viewers or savvy students of history sounds like the type of economic planning associated with a certain type of economic system hmm to top this off India effectively nationalized most of its major industries in the mid 1950s and onwards and its biggest trading partner at the time was the Soviet Union and it had typical Soviet esque style laws around pretty much everything called the license raj which was pretty much just a big book of bureaucratic red tape for anybody that wanted to do anything in the economy so india was a communist country well no it had a lot of the central planning characteristics of a communist nation and it traded with communist nations but it really wasn't a communist nation itself india still supported free trade outside of its core industries of the nation if you want to open a restaurant and turn profit you could if you want to work your way up a corporate ladder you could so long as you were here to the licensing raj which was easier said than done you were in business so it kind of was just a weird mix of both the worst of communism and the worst of capitalism beyond this India in the early years of the cold or tried really really hard to stay neutral eventually though it did actually lean more towards the Soviet Union and 1971 India and the Soviet Union signed the Indo Soviet Treaty of friendship and cooperation which was just a very public way of saying that they would keep on trading and cooperating as they had been for the decades beforehand this was all well and good but the country really didn't do that much economically it grew in line with similar communist economies in the region and remain primarily agricultural with a side emphasis on government-run heavy industry but this was all about to change up until the 90s the Soviet Union was India's major trading partner but then in 1991 the Soviet Union collapsed and with it India lost a majority of its trade and a large portion of its industrial support for those of you who have watched the video last week of North Korea you will know that this collapse was not great news for some nations that were kind of reliant on the Soviet Union it also wasn't great for India 1991 was the slowest growth year the country had experienced since its independence this was paired with a spike in oil prices that the growing economy relied so heavily on all of this culminated in India facing the very real possibility of defaulting on its heavy debt burden it found itself in in a last-ditch effort to avoid the fates of economies in similar positions at this time the Indian government reached out to the International Monetary Fund for a 1.8 billion dollar bailout loan the International Monetary Fund is an international organization that consists of 189 member countries and try to basically act as an intermediary to get everybody to do business with one another it raises money by basically charging membership fees to member states that will then use that money to lift up struggling economies like India's in 1991 the International Monetary Fund is worth it for member states like the USA for example because it promotes global trade monetary cooperation and sustainable economic growth all things that are really important for a world power like the US India on the other hand had up until this point shunned international trade grasping onto their protectionist policies and state-run enterprises the International Monetary Fund agreed to loan India the money it so desperately needed if India agreed to deregulate and open up its economy since the agreement with the International Monetary Fund India has gone through a bold period of embracing free enterprise it's once government-run industries have been privatized it's very very strict trade policies have been relaxed the country has opened itself up to business from around the world and the extremely limiting license raj that book of bureaucratic red tape that had rules about everything has since been thrown in the wood chipper this was followed by an explosion in growth within the economy of India the country has effectively doubled in size every five years since its turnaround in 1991 which for a major economy is a growth rate that has only ever really been rivaled by nations like China and Japan which are today the second and third largest economies in the world respectively these economic miracles are becoming more and more common around the world though it has impacted large nations like the ones mentioned earlier but many many Eastern European and Southeast Asian countries seem to be going through these massive industrial revolutions all together in a very short space of time the first Industrial Revolution took place in England and started around 1760 the process took many decades and the nation wasn't really a fully industry iliza nation until the mid 1800s the technology of steam and water power eventually overflowed into other european economies that slowly started to go through their own industrial revolutions changing from primarily agricultural nations to industrialised nations these early European revolutions took many many decades to fully get to the point where they could be considered an industrialized nation though but recently this process has become a lot faster China went from a primarily agricultural nation to a primarily industrial nation and then on to a primarily service-based nation all in the span of about 20 years Thailand did the same in around five years the process of industrialization is getting faster and faster for every economy that goes through the transition and here is why back in the 1760s when the first steam-powered textile factories were springing to existence these factories literally had to reinvent the wheel the best layout for a factory floor or the best way to design everything from bolts to assembly lines was a little bit of an unknown this inevitably slowed down the whole process just a little bit in today's world we already have the knowledge on how all of this industrial business should be done so nations making the transition from agriculture to industry don't have to reinvent the wheel oftentimes they can just buy machinery directly off established nations to carry out their business effectively from the get-go and this brings us neatly on to the second point the world is now a large interconnected global economy with large businesses looking for new opportunities as soon as a nation shows promise in industrializing itself international support tends to flock to these new nations in the form of multinational investment normally this takes the form of investment into industries to take advantage of the cheaper labor of developing countries which one could argue for or against what it does mean though is that these nations get the investment they need to hit the ground running as an industrialized nation India is already a very very large economy simply by virtue of its resources its immense population and favorable environmental conditions the nation is already the fifth largest economy in the world as of late 2019 and it has achieved this ranking while still having a majority of its population working in agriculture but this is all changing uncertainty and the rising cost of doing business in China is making the global business community look for a new base of its industrial operations for low-cost manufacturing India is the ideal economy to take the rain for a number of reasons and these same reasons are why India is likely to be home to the biggest and most rapid economic boom yet India is a former British colony and while the country is much better off now as a free and independent state it did take some of the best bits Britain had with it namely its laws and its language language is actually normally seen as a pretty big hindrance to the Indian economy because of the vast array of dialects spoken within the country that makes internal business a little bit difficult what it does have going through it though is the second largest english-speaking population in the world falling only behind the USA now I know I am going to get a lot of heat for this but English is the language of international trade and business having ten percent of your population being able to speak English is a huge plus for when India fully steps out onto the world stage for reference in China less than a percent of the population speak English which does create frictions in international business and could potentially just make India the easier option in the future already India has benefited from this by being the world's home of service call centres the stereotypical Indian call centre is kind of a thing that we make fun of in the West but to the Indian economy it means relatively good-paying jobs that can be done by people of any age in an industry that is worth tens of billions of dollars this is just one small example of an industry that India has been able to monopolize that other industrialized nations would not have had the opportunity to because of their language barrier the other big consideration is the Indian legal system India does have its own system of government although it is a system that basically reflects a Western democracy India has a president as the head of state and upper and lower house of governments to pass laws and a ranked court system this again doesn't sound like a huge deal but to international businesses shopping around for a new base of operations this is huge to companies having a legal system similar to their Western home countries where trade disputes will be settled fairly business contracts will be honored and intellectual property laws will be enforced is a very very big deal and it is not something that multinationals have the confidence in with countries like China now it must be noted that Indian law is not all roses and sunshine it does have its problems with corruption but corruption tends to be something that international corporations can deal with as long as all that other stuff stays intact to protect them okay I am NOT a futurist I am despite what some commoners might think an economist so I do my very very very best to ever be put in a position where I am going to predict the future mostly because it gives me an opportunity to be proven wrong which economists hate more than anything but what this all means is that India is likely on the cusp of an unbelievable economic boom it is in the same position that China was 15 years ago but it has a few big things going for it that China did not if India is able to capitalize on the raw manpower and business attractiveness of the country it is likely that the country's economy will continue to double in size many times over this does not only mean that India will soon give China and the USA a run for their money but on a smaller scale it will also mean that living conditions for hundreds of millions will be dragged up along with this economic explosion hi guys I hope you enjoyed the latest video if you did please consider liking and subscribing for the first hour after this video goes up I will be hanging out on the voice chat of our new discord server to answer any questions that you may have otherwise if you leave a comment in the video description I do my very best ear back to all serious questions there thanks guys bye

Channel: Economics Explained

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Id: P0O8jrbB6xg

Length: 14min 49sec (889 seconds)

Published: Thu Oct 10 2019