A recent article in The Economist caught my eye, and a particular statistic I found interesting was that until 1800, China and India accounted for about half of the global economy. The Industrial Revolution in the late 1700s shifted the balance of power to Britain and Western economies for more than 200 years, but growth trends appear to be shifting again.

Out of all emerging markets, China garners a significant share of the press. This is certainly justified; its economy recently overtook Japan as the second largest in the world and has averaged +10% annual growth for about three decades now. Its population of 1.3 billion highly literate, motivated individuals is certainly nothing to sneeze at and represents one of the largest groups of burgeoning consumers in history.

There are many other impressive data points to prove that China is a great place to invest, but it may not be the best emerging economy to invest in. That title may very well go to India. There are three primary reasons why India could outperform its neighbor and emerging market archrival going forward.

The first is demographic. India has one of the youngest workforces in the world. More than 30% of its population is under 14 years of age, and more than 64% is between the ages of 15 and 64. An investment bank estimated that its working force will increase by 136 million people by 2020. In contrast, it estimates China’s will grow by only 23 million during this period.

Overall, China’s population is growing slowly, at less than +1% per year, and the median age is over 35. India’s is growing by +1.4%, and its median age is under 26. India’s total current population is 1.2 billion, not far behind China’s in terms of a massive and growing consumer market.

The next reason is perhaps the most obvious: India is a democracy. China’s state-run government has clearly encouraged economic growth for many decades now. The government is streamlined to where decisions can be made quickly, and its leaders have a reputation for making rational decisions that have had a profound positive impact on the country. India’s complicated democratic system has arguably held back its growth, but in actuality, it favors investors.

This is because democracy has allowed India’s private companies to flourish. Companies such as such as information technology provider Wipro (NYSE: WIT) and Tata Motors (NYSE: TTM), India’s emerging car manufacturing powerhouse, have grown competitive on a global scale because they have been allowed the freedom to compete on their own right. In contrast, China’s largest firms operate somewhere between the public and private realms, receiving government capital and other input from politicians on how to run their businesses. With government intervention, the market is not always determining where it is best to invest. And not efficiently allocating capital could come back to haunt China in the future.

The last point has partly to do with India’s democracy — in that it has a helped create a highly entrepreneurial culture. Its democratic institutions and English-speaking emphasis have linked it inextricably with pro-business economies such as the United States and the United Kingdom. Evidence of this includes a global leadership position in information-technology (IT) outsourcing, thanks to firms such as Wipro, Infosys (Nasdaq: INFY) and others; and a $2,000 car, courtesy of Tata, as well as frequent travel among investors between these regions.

Right now, China’s economy is four times as large as India’s. This speaks to China’s success, but it also means India has a good chance of being able to grow faster from its smaller base. A number of market forecasters predict that India will indeed outgrow China going forward, given the factors cited above and that it has strong domestic demand, whereas China’s economy is export-focused and could run into trouble, similar to the way Japan has in recent years.

Action to Take —> Perhaps the most prudent course of action would be to hedge your bets and find ways to invest in both India and China. Overall though, many investors are probably overweighted in China and should definitely add leading Indian firms to their global shopping lists, if they haven’t already. Those looking for broad-based exposure to India should consider the PowerShares India ETF (NYSE: PIN), which has a diverse set of Indian holdings.