Can India become next China? 

Background: 

We often see comparison between India and China on several fronts, including economic. With Modi led government at the centre, this fight between two Asian giants is set to be intensified. It was not long back, when leading business magazine, The Economist, had featured two biceps sporting a dragon and a tiger in 2010, having a cover story, “China & India: Contest of Century” . A year later TIME magazine had a cover page sporting a fight between an elephant and a dragon with title, “India & China: which economy will rule the world”. With each year passing, this economic tussle is becoming more open and complex, ranging from sourcing of resource from Africa & Middle East to geopolitical tensions in South China Sea. Chinese influence can be seen in present year Union Indian budget as well, where Finance Minister proposed for a hundred smart cities, bullet trains, big push to infrastructure investments and so on. The opinion among economists and business men vary over forecast of futures of these two economic giants, but a majority agrees that we will witness an Asian Century, a few decades later.

Leading financial institutions like The World Bank, IMF etc. have predicted economy of USA to be overtaken by that of China in 2025. But, not to forget Chinese economy will itself be overtaken by India’s by middle of this century.

Made In India Campaign 

Recently Indian Prime Minister launched “Make In India” campaign and surprisingly, Chinese responded to it by “Made In China” campaign by launching it on the same day. While Prime Minister Modi stated that his country would provide flexible environment for business and investment in his country, cutting red tapism and replacing it with a red carpet, Chinese counterpart lured fresh investments via tax soaps for high technology imports and research & development to bring a new round of innovation in their manufacturing sector. It marks a clear indication in shift in India’s economic policy which is largely service oriented, fuelled by domestic demand and often associated with jobless growth to manufacturing-driven, exports-focused and real growth in terms of employment, poverty reduction and per capita income increase. One should not forget BJP and Modi government won a majority in Union Election on these promises only. The stock markets, often considered as a leading indicator of Economy has shown positive signs of rapid growth, with Sensex touching all time high and shooting up to 30% since January, 2014. 

Positive Signs

For Indian economy, this year has been a turnaround period, with inflation posting lowest levels in last 4 years, oil prices at 10 year low level leading to narrow trade deficient, less adverse effects of monsoon deficient, stable Rupee, upgrading of India’s credit rating by leading rating agencies, huge inflow of foreign funds by FIIs, visits by top MNCs CEOs to India and encouraging corporate earnings.

Modi Government is actually working to make Indian Economy competitive enough to catch up China, by a number of means- Jan Aadhar Yojna- mobilizing Rs. 4000 crores of funds in basic savings accounts and providing access to financial services to another 7.5 crores Indians, visiting Japan and USA to attract investments and technological tie-ups, simplifying taxations, unleashing much waited labour law reforms and boosting investors confidence by being business friendly regime (policies, clearances, disinvestments etc).

Chinese Issues

This is in contrary to what is happening in China, where government is finding hard to crush voices for democracy in Hong-Kong, Islamic Extremism in Western provinces, reduced demand for its goods overseas and as a result less demand for raw materials and labour by its factories, geo-political tensions with majority of its neighbours including Japan, South Korea, Philippines, Vietnam, Taiwan, India, Myanmar etc. 

But, most detrimental issues faced by China are- Increasing cost of Labour with ageing population, over dependency on exports, high savings rate and low domestic consumption, currency and economic growth manipulation allegations by some economists and countries and over investments in certain sectors like infrastructure and real state. 

This doesn’t mean India has no problem. In fact, it has its own, but, future seems brighter for India as it stands at a better position to achieve higher growth rate, primarily because of high demographic dividends, noisy yet relatively transparent democracy, business friendly government and policies, labour costs, high quality of educations etc. Economists are in a view that Indian economy has bottomed in previous years and is set to take off for high growth rates in years to come, while China will be struggling hard to manage its own share of issues, both internal to its economy and external (Euro zone).

Way Forward

As our Prime Minister asserted in an interview with CNN that India does not need to follow Chinese model for a rapid economic progress, and he has a “clear roadmap” to channel people’s entrepreneurial nature towards achieving 8 to 9 per cent growth rates for a longer period, is a sign of India’s ambition to rise in new economic world order. Though India aspires to be a strong power like China, Chinese model can’t be implemented in India due to number of differences between two economies, mainly form of government (Democratic vs Communist), Growth Engine sector (Service vs Manufacturing) and Markets (Open vs Soviet style). 

Though, at present Chinese economy is at least four times of that of India, and manufacturing sector almost eight times of India’s, it won’t be an exaggeration if we say, with correct policy and current advantages, India can cause China a serious threat over its economic supremacy.

Anshu Kumar, PGDM 2014-2016, XIME-Bangalore