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Hoagland is pretty late in the insight that India is likely to outperform China in the long run. He does make a great point on the currency basket for Asia.
Even before 9/11 the Bush administration was working hard to improve relations with India. It’s a natural US ally as a democratic, largely English speaking democracy concerned with militant Islam and a rising, nationalistic/fascistic China. We now have a services trade deal, military cooperation and a large Boeing deal to show for these efforts. It just took us a while to seek this logical partnership because post colonial India was a de facto Soviet ally in the Cold War. Bush moved crisply after Clinton barely got the ball rolling.
It has long been noted that the return on invested capital for India is much higher than for China thanks to its emphasis on developing a knowledge economy instead of being a low cost manufacturing center (not that this is a bad thing).
The scariest short term scenario with China is that the confluence of the government’s need to stoke nationalism to keep the country together, Taiwan’s negligent underinvestment in defense, China successfully upgrading its Naval and Air Forces without our knowledge and the impending European arms sales might lead them to make a grab for Taiwan sparking a crisis around the time of the 2008 Olympics. In the long term, they could make geopolitical trouble for us in a de facto alliance with a passive aggressive Europe, but we have many cards to play and China itself has some internal contradictions, unfavorable demographic trends and emerging factors — like the adoption of Christianity — that probably work in our favor.
There are really no bad scenarios with India. They can destroy anybody that may mess with them and are almost too diverse to degenerate into a civil war or hyper nationalistic state.