India is as the world’s most populous democracy in the heart of the rising Indio-Pacific region a critical stabilizing actor in an increasingly fragile geopolitical system.

There is a growing recognition that Taiwan has to rebalance its economic relationships in the global economy, given its very large exposure to the Mainland.

One of the key economic partnerships that will need to strengthen is India. In fact, India is already the 5th largest economy in the world and is poised to overtake Germany and Japan within this decade to become 3rd behind the US and China. Firstly, India has a large and growing labor force to emerge as one of the future alternative suppliers of manufacturing goods, which many are hoping to reduce the world’s reliance on Chinese exports, especially as it concerns the energy transition. Secondly, India has rapidly rising energy needs and thus has to be part of any realistic solution to the global climate challenge. Finally, India is as the world’s most populous democracy in the heart of the rising Indio-Pacific region a critical stabilizing actor in an increasingly fragile geopolitical system.

Despite these reasons for seeing India as a crucially important partner, the starting point remains dominated by the India of the past. Views of India are shaped by impressions of poverty, weak infrastructure, coal-based energy systems, government regulations strangling private enterprise, trade barriers, food insecurity, and strengths in back-office IT services but few modern opportunities elsewhere.

As a result, most countries’ policy engagement with India also follows the patterns of the past: Trade policy is focused on access and visas for Indian workers are still very hard to obtain. Economic development advice is focused on making them more like us, concentrating on market opening, institutional reform, and skill upgrading. Security policy is focused on the moral argument to stand on the side of the west and against the autocrats of the world.

This approach to engaging with India is not likely to be successful. It fails to appreciate that a new India is emerging and has been for some time. In fact, India has often been characterized as an economy of the future, but the reality is that India has already delivered one of the most impressive growth stories of the recent past. India is one of the ten countries globally, that have over the last three decades up to the pandemic achieved average annual prosperity growth above 3% while never falling below 2% CAGR for any 5-year period. Second, it is important to note that India’s successful delivery of growth has helped her change in the process. In fact, India has become more open to the world, from low initial levels. The share of Indian exports to GDP is now higher than for China or Japan, despite low dynamism since 2015. Between 2007-2019, the value of Indian exports has grown at a higher rate than China’s. Even FDI inflows as % of GDP are now above China, and above both middle income and lower-middle income country averages. India’s skill-intensive services now account for more than 20% of total value added in the Indian economy and dominate service trade. Skill- and capital-intensive manufacturing industries have grown as well, while labor-intensive manufacturing has stagnated as a share of national GDP. India has, for example, become a major production site for mobile phones[1]. India has now more “Unicorn” start-ups than the UK or Germany[2]. These changes are the result of a broad-based reform agenda. The state of physical infrastructure has improved significantly, especially in terms of electricity supply and to some degree also transportation (roads, airports). India has now enough electricity generation capacity to meet its national demand. More than 50% of the increase in total generation capacity over the last five years has come from renewables, especially solar. India has made significant strides in digitalization with mobile penetration is above 80%, and the price of mobile data being one of the lowest globally.

While India has achieved remarkable progress over recent years, the country has still retained some clear features of a developing economy: Modest levels of productivity and prosperity, a young but on average poorly educated workforce, high levels of informality in the economy, a dominance of small, subsistence-oriented firms, and a large role of agriculture in the economy. The pandemic was a reminder of how close many Indians remain to poverty, and how inadequate the government system is in providing basic services at a time of crisis. The country is also struggling with many reminiscences of the “old” socialist India. The financial system remains dominated by state-owned banks, and poor governance of credit markets has led to the emergence of a balance sheet problem that has weighed heavily on credit growth and investment in India. The judicial system is independent, but enforcement is ineffective, subject to improper influence, and slow. Labor mobilization is low, and even falling, which matches the profile of the Arab world. India’s high levels of inequality are reminiscent of resource-dominated economies. Notwithstanding these problems, India’s biggest opportunity is its demographic profile with a growing working force for decades and in stark contrast to China.

Taiwan can have a stake in India’s success. An economically successful India will be a stabilizing factor in a fractured geopolitical world, and an alternative supplier of many goods and services. An India that grows its supply of affordable energy while reducing its CO2 footprint will be a critical pillar of any global strategy to realize India’s COP26 commitments. Eventually, a growing India will also play an increasing role as a market. Against such backdrop, Taiwan should pursue policies that can help India succeed. Too often, however, the approach towards India is driven by a narrow view on what type of short-term benefits can be extracted. What is needed instead, is an approach that looks at opportunities for both Taiwan and India but also the world, especially on the climate change front.