India and Indonesia: The Race to Becoming the Fastest Growing Economies

India and Indonesia: A Comparison

This transcript compares India and Indonesia, two countries with vast land masses and diverse landscapes located in different regions of the world. The transcript highlights their similarities and differences in terms of economic growth, infrastructure, education, healthcare, and politics.

Economic Growth

• India and Indonesia have a combined population of 1.7 billion people, with a median age younger than China.

• Both countries have maintained steady growth over the past decade.

• According to the IMF, India and Indonesia are expected to have the fastest-growing economies among the top 20 economies in 2023.

• Achieving this growth will be challenging due to deglobalization, automation, geopolitical tensions, and energy changes.

Infrastructure

• Compared to developed countries, both governments have smaller budgets for public spending.

• Trade accounts for approximately 40% of their GDP while foreign investment comprises around 1.5% of their GDP.

• The majority of their workforce is employed informally.

Education

• Both countries face challenges in providing quality education due to inadequate funding and poor infrastructure.

• However, both governments are taking steps to improve access to education through policies such as free primary education.

Healthcare

• Both countries face challenges in providing quality healthcare due to inadequate funding and poor infrastructure.

• However, both governments are taking steps to improve access to healthcare through policies such as universal health coverage.

Politics

• Both countries are led by charismatic leaders who were first elected in 2014.

• India's prime minister, Narendra Modi, and Indonesia's president, Joko Widodo (widely known as Jokowi), both began their political careers at the local level and are known for their ability to get things done.

• Both countries will face elections next year.

India and Indonesia: The Next Manufacturing Giants?

This section discusses the potential of India and Indonesia to become manufacturing giants, their current infrastructure, and their advantages in different sectors.

Infrastructure

• India has built 10,000 kilometers of highways annually and created a national digital infrastructure that includes a biometric identity system and a national payments system.

• India has a larger technology sector than Indonesia with several world-renowned companies in software development, information technology outsourcing, nuclear technology, and space programs.

Manufacturing

• Both countries have seen booming manufacturing in the past but it has fallen steadily over the past 20 years due to political and economic turmoil as well as competition from other low-cost manufacturing centers in the region.

• Both countries need to attract some of the manufacturing investment that is moving out of China to other developing countries. So far, little seems to be coming.

Exports

• India's leading export sector is its technology services making it the fifth-largest exporter of services globally.

• Indonesia's advantage lies in abundant natural resources such as coal, palm oil, iron, steel, nickel which make up most of its exports.

Industrial Policies

• India's new industrial policy focuses on promoting startups in every district creating startup innovation zones in urban areas and creating premium international brands for Indian specialty products.

• Indonesia's main industrial policy called "downstreaming" aims to push multinationals to build refineries locally by banning exports of selected raw materials.

Foreign Investment

• Both countries need foreign investment to grow their economies faster. Geopolitics plays a crucial role in determining the inflow of FDI.

• Geopolitical tensions threaten financial stability through a financial channel. The imposition of financial restrictions, increased uncertainty, and cross-border credit and investment outflows triggered by an escalation of tensions could increase banks' debt rollover risks and funding costs.

China and India: Economic Giants of Asia

This section discusses the economic relationship between China and India, highlighting their differences in dealing with Chinese companies.

China's Impact on Indonesia and India

• China's sanctions could hurt Indonesia economically.

• Frequent border intrusions and clashes between India and China have increased the risk of an all-out conflict between the two Asian giants.

India's Response to Chinese Influence

• In 2020, India banned several Chinese apps, including TikTok, as part of its industrial strategy to attract Western firms seeking to diversify away from China.

• The US sees India as a strategic partner and a potential counterbalance to China's growing power in the region.

Common Economic Problems Faced by Both Countries

• Cronyism and corruption are common problems faced by both countries where political connections often determine who gets contracts and permits leading to wealth concentration in the hands of a few powerful families.

• Transparency International's 2021 corruption rankings placed India at 85th out of 175 countries while Indonesia ranked 96th.

Development Models for Both Countries

• Both countries have development models that depend on a particular sector of the economy leading the way, with wealth trickling down through informal economies or government welfare schemes.

• Health and education are essential factors for improving living standards in both countries.