Britain's Prime Minister Theresa May stands amidst Hindu priests after offering prayers to the Hindu deity Lord Shiva during a visit to Someshwara Temple in Bangalore on November 8, 2016. (MANJUNATH KIRAN/AFP/Getty Images)
As Theresa May returned home from her unsuccessful visit to India, she would bear witness to another relegation for the UK: India’s economy will be larger than the UK’s, for the first time in more than 100 years. This dramatic shift has been driven by India’s rapid economic growth over the past 25 years as well as Britain's recent woes, particularly with the Brexit. Once expected to overtake the UK GDP in 2020, the surpasso has been accelerated by the nearly 20% decline in the value of the pound over the last 12 months, consequently UK’s 2016 GDP of GBP 1.87 trillion converts to $2.29 trillion at exchange rate of ~GBP 0.81 per $1, whereas India’s GDP of INR 153 trillion converts to $2.30 trillion at exchange rate of ~INR 66.6 per $1. Furthermore, this gap is expected to widen as India grows at 6 to 8% p.a. compared to UK’s growth of 1 to 2% p.a. until 2020, and likely beyond. Even if the currencies fluctuate that modify these figures to rough equality, the verdict is clear that India’s economy has surpassed that of the UK based on future growth prospects.
This marks a significant landmark in India’s economic history, whose story over the last 150 years can be split into three parts: a period of divergence, of relative stagnation and a period of convergence with respect to the economy of the UK. Divergence begins with the UK’s industrial revolution in the 18th century to India’s independence in 1947 when the UK’s growth significantly outpaced India’s. The period of stagnation extended from 1947 to 1991 where both India and the UK grew at roughly the same rate. This was despite India being independent, and was predominantly due to India’s misinformed choice of pursuing a closed, centrally planned, socialist economy. Convergence began in 1991, when India finally implemented market reforms, and continues to this day. During this period India has experienced much faster economic growth than the UK and has finally in 2016 overtaken it in absolute terms, although is still less than one-fifth that of the UK in per capita terms.
History teaches us that milestones are important, that they can help clarify and bring to light underlying long-term trends, as well as encourage people to shed their biases. Japan’s victory over Russia in 1905 is an illustrative example: The event helped break the conception of the inability of the East to militarily defeat a western power and also highlighted the economic rise of Japan that had gradually taken place over the second half of the 19th century. India’s overtaking of the UK’s GDP in 2016 could serve as a similar moment.
This surpasso has three important implications. First, it highlights India’s arrival on the global stage and a significant change in power dynamics between India and the west. The effects of this are already being witnessed in India’s repudiation of a trade deal with the UK, where it stood firm in its ask for more favorable immigration for Indian nationals. Another example is the failure of May to secure a meeting with the Tata Group, who has 4,000 British employees at a steel plant in Port Talbot, that could potentially be shut down. Second it should give India the ability to shed any residual notion of colonial inferiority and enable it to have a more open mindset and look at alternative nations to emulate. For example, India could increasingly look at China, a country of similar population and closer to India’s own cultural tradition, as a model for its own economic growth. Lastly, it should redouble India’s efforts towards furthering market reform given that India’s per capita GDP is still less than one-fifth that of the UK, highlighting the tremendous scope for further convergence.
1947 gave India agency to chart its own path; 1991 broke India out of its mold; and hopefully 2016 shall give India conviction and help it redouble its efforts towards convergence after celebrating a historic and emotional milestone of economically overtaking its former colonizer.
GUEST POST WRITTEN BY
Akshay Shah
Mr. Shah is a Schwarzman Scholar at Tsinghua University specializing in economics and a former McKinsey consultant.
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