In 2006, Indian Prime Minister Manmohan Singh heaped considerable praise on the so-called Beijing Consensus approach to economic development, arguing India could learn much from China in terms of reinventing, rebuilding and rediscovering itself.
With the Chinese economy now stumbling, Julia Gillard is desperately hoping India can take up some of the slack, declaring that her goal is to double bilateral trade between Australia and India to $40 billion by 2015. For that to occur, India needs to reject the Chinese approach and look instead to its vibrant private sector to lead the country into the future.
Like China, India has an economy that is too big to ignore. With two-thirds of the population still in rural areas, it has a faster rate of urbanisation than China at 2.5 per cent a year. With a population that is set to exceed China's within the next two decades, and an age demographic that means it will remain a young country well into the middle of this century, it has an economy that has been expanding at about 7 per cent a year since the early 1990s.
This means a rapidly growing India will need even more of our coal. It will need huge quantities of food for its growing population. As a consumption-driven economy with a more sophisticated services sector than China, English-speaking India should welcome Australian services expertise. And to top it off, it is surrounded by weak or small states, meaning India will need to look further afield for meaningful economic partners during the next few decades.
In theory, this all bodes well for an advanced, resource-rich and agriculturally strong economy such as Australia. But there is no such thing as inevitability when it comes to continued economic growth and reform. A telling signal of how a country is really faring is what private entrepreneurs are doing with their capital. In the latest figures available (2010-11), outward investment from India more than doubled, while inward investment plunged. If India is well on its way to becoming an Asian economic superpower, the $US20 billion net outflow from an economy that desperately needs investment does not make sense.
A closer reading of why Indian and foreign entrepreneurs are investing abroad rather than in Asia's second fastest growing economy is troubling. India is in a weaker structural position now than it was several years ago. An entrenched socialism, combined with widespread admiration for the Chinese approach, has meant the re-emergence of Indian economic statism, the conviction that the government needs to take the lead in steering economic development into the future.