The Equation That Builds Nations — And the One That Will Decide India’s Future
- AltG Investment Research Lab
- Oct 10
- 5 min read
Every economy runs on the same grand arithmetic.
GDP = C + I + G + (X - M).
The standard formula uses Consumption (C), Investment (I), Government Spending (G), and Net Exports (X - M), where X is exports and M is imports.
It’s deceptively simple — a formula that captures how a country turns its savings, trade, and spending into growth. Yet within that equation lies the secret of why China surged ahead for two decades — and why India’s next phase will depend on what kind of “intellectual property” it learns to export.
India’s Equation: A 20-Year Balancing Act
For most of the last twenty years, India’s growth engine has relied on consumption and investment, not exports. Household spending accounts for roughly 60% of GDP, a pillar of stability that kept growth steady even during global shocks. Investment — peaking above 35% of GDP in the mid-2000s, dipping in the 2010s, and now climbing back to about 33% — has been the second engine.
Government spending stepped in after 2019 as private capex stalled, with record public infrastructure outlays propping up the investment cycle. Yet the same cannot be said for trade. India’s net exports have remained negative — we import more than we sell abroad. What keeps the current account from blowing out entirely are services exports, led by IT and professional services.
📊 Chart 1: Composition of India’s GDP (% of total, 2005–2025)
60% ┤ ┌────────────────────────── Consumption
│ ┌────┘
50% ┤ ┌─────┘
40% ┤ │ ┌────────── Investment
│ │ ┌────┘
30% ┤ │ ┌────┘
│ │ │
20% ┤ │ ┌────┘ Govt + Net Exports (combined)
└─────┴──┴───────────────────────────────────────────────
2005 2010 2015 2020 2025
That story — of engineers and coders exporting skill instead of steel — defined the 2000s and 2010s. Even today, India earns about $32 billion a month from services exports. But the winds are shifting. Protectionism is rising, global clients are consolidating vendors, and new AI productivity tools are beginning to compress billing rates. In short, India’s services surplus is flattening just when it needs to rise.
China’s Equation: The Industrial Flywheel (1990–2005)
China’s version of the same equation during its take-off years looked completely different. In the 1990s, investment was off the charts — over 40% of GDP — while net exports turned strongly positive as the country became the world’s factory. Consumption, by contrast, remained low.
Beijing orchestrated the perfect machine: state-led capital formation, relentless manufacturing capacity, and a managed currency that made exports unbeatable. Special Economic Zones, foreign direct investment, and disciplined fiscal policy turned China into the single greatest compounding story of modern economic history.
That model is now running out of road. With demographics turning, debt surging, and trade partners diversifying supply chains, China’s next decade will not resemble its past. Its growth will depend more on productivity and technology, not on sheer export scale.
Two Equations, Two Destinies
India never replicated China’s mix. Its domestic market was too large, its democracy too noisy, and its comparative advantage too different. Where China sold goods, India sold brains. That made India less vulnerable to global manufacturing cycles — but it also meant slower accumulation of hard export power.
Today, India’s composition looks like this:
Consumption: ~61% of GDP
Investment: ~33%
Government spending: ~10%
Net exports: still negative
It’s a respectable balance sheet — but not transformative. If India wants to grow at 7–8% for another generation, the next surge must come from exports of something the world can’t replicate easily.
The IP Question: What Can India Sell That Scales India's Future?
Intellectual Property is the missing term in India’s equation — the invisible export that turns code into royalties, data into products, and science into assets. Globally, payments for IP use are a trillion-dollar flow every year. India, for now, is a net payer in that balance: we buy patents, we license technology, we rarely collect the rent.
That must change.
India already has the foundation. It exports nearly $190 billion worth of computer and software services annually. But most of it is labor revenue — hours billed, not IP owned. The next phase is to convert talent into assets: build, patent, and license.
What might those exports look like?
AI Systems with Domain Depth: Not just generic models, but specialized AI stacks for banking risk, medical diagnostics, and telecom optimization — tuned on Indian data, licensed globally.
Software-defined Hardware: Industrial automation code, digital twins, and control systems for manufacturing — the software inside every machine.
Financial and Payment Infrastructure: Open-source rails like UPI, but sold as licensed technology for other emerging markets.
Healthtech and Biotech IP: AI-enabled diagnostics, indigenous drug molecules, low-cost devices with proprietary firmware.
Semiconductor Design IP: RISC-V cores, DSP blocks, and verification IP — invisible chips that power the visible world.
📊 Chart 2: India’s IP Balance (2023)
$ Billions
60 ┤ █ Royalty Payments
50 ┤ █
40 ┤
30 ┤
20 ┤ █ Royalty Receipts
10 ┤ █
0 └────────────────────────▶
Source: RBI BoP Data 2023
Each of these represents royalty flows — steady, compounding, exportable income that doesn’t rely on headcount or wage arbitrage. It’s how a services superpower graduates into a knowledge-asset superpower.
The Next Growth Equation
Global geopolitics will favor India for the next decade — but geopolitics alone doesn’t close current accounts. To turn opportunity into compounding growth, India must re-engineer its capital-surplus equation:
GDP = C + I + G + (X - M).
That means investing in research, not just roads; in algorithms, not just assembly lines. It means building ecosystems that reward patent ownership, software productization, and cross-border licensing. And it means recognizing that in the coming age of compute, what you sell is less important than what you own.
If the 1990s belonged to China’s factories, the 2030s could belong to India’s code — if that code becomes IP, and that IP becomes exportable. The world is already wired for it. The only question is whether India will choose to sell time — or technology.
References
World Bank National Accounts Data (India, China 1990–2024).
Reserve Bank of India, Handbook of Statistics on Indian Economy (FY2024–25).
Arvind Virmani, “China’s Socialist Market Economy: Lessons of Success,” ICRIER Working Paper No. 178 (2005).
IMF World Economic Outlook, April 2024.
RBI Balance of Payments (Services & Royalties Data, FY2023–24).
Disclaimer: In the article "The Equation That Builds Nations — And the One That Will Decide India’s Future" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.
