The Week: Does the future belong to India rather than China?

Martin Wolf wrote in this week’s Financial Times that ‘the future might not belong to China’. Is he right?


  • India has been growing at 7-8% with the effect of reforms still to be felt.
  • Prime Minister Modi looks set to be returned to power in the general election next year
  • But Janus Henderson’s Mike Kerley asks if we can trust the numbers

Wolf said global investors may be focusing their attentions on the wrong superpower and that India was the major economy to watch, with its punchy demographics, its population growth and its technology edge. 

Certainly, its recent growth rate has been enough to excite investors. GDP has been growing at 7-8%. This growth does not yet fully reflect the reforms of Prime Minister Nahrendra Modi. This has brought a new goods and sales tax, steps to curb the black economy and raises taxes, plus changes to land and property rights. 

These reforms have helped unclog India’s bureaucratic infrastructure development process, seen as a key hindrance to economic development. If, as expected, Modi is re-elected next year, he will have a mandate to do more, as the economy reaps the benefits of his work to date. 

However, Mike Kerley, director of pan-Asian equities at Janus Henderson, is wary of the Indian growth story. He believes raw data from India does not support a GDP growth rate of 7-8%. Job creation is lagging, while private sector spending is muted. At the same time, next year’s general election presents a ‘major event risk’, he says. Modi has, he believes, lost the support of a number of the all-important regional governments, which makes implementing India-wide reforms more difficult. 

Top of Kerley’s concerns is the price of Indian shares. India’s stock market has seen exponential growth in recent years, and was even relatively resilient in 2018. This has left valuations looking high. India runs twin deficits and, as such, is not immune from a weakening global economy. With this in mind, valuations look stretched. Also, he notes, India starts from a far lower per capita GDP figure than China. In this context, a 7-8% growth rate isn’t as impressive. 

Ultimately, it doesn’t have to be China or India. Both countries have their problems. To some extent, the most exciting growth, the real Asian story, isn’t found in either of these two behemoths, but instead in areas such as Vietnam, Malaysia or Indonesia. Pan-Asia holds much more excitement for those willing to think more broadly.