Dr Ashwani Mahajan
In the recent past many international institutions, including World Bank and IMF have been forecasting that this year, India’s GDP growth would surpass that of China. It is notable that China’s GDP has been growing at a rate between 10 and 15 percent in the last two decades. If we accept new methodology, India’s GDP growth rate has already surpassed that of China in the current financial year. However, question remains, can India really surpass China, as an absolute economic power, in the near future?
China’s Economy is Much Bigger
Though, possibly India’s growth rate has surpassed that of China, however, India’s economy is much smaller than that of China. Notably, in 2012, China’s per capita income was $9210 as compared to only $3840 on Purchasing Power Parity (PPP) basis. Similarly India’s GDP was $4749 billion, as compared to $12435 billion in China on the same PPP basis. Therefore, since base of Chinese economy is much bigger, even if growth rate of India’s growth continues to remain higher and accelerating, it is very unlikely that Indian economy may come even nearer to that of China.
Advantage of Democracy
Noted economist Jagdish Bhagwati says that 6 percent growth in India is far better than 10 percent growth in Chinas as China is deprived of democratic freedom. It’s a known fact that in China, there is no democracy. Certainly, Chinese rulers have been able to increase production there; however benefit of increased production is seldom reaching common Chinese. Growth has failed to bring smile on the face of Chinese people. Crude way, with which single child norm was implemented in China, has caused severe hardships to the people, especially the woman folk. To keep the cost of production somehow low, Chinese rulers have not allowed wages to go up proportionate to inflation. To raise GDP, China has even encouraged capitalism and number of Chinese billionaires has increased from zero two decades ago to 197 in 2013 and number is ever rising. They are also being involved in the decision making process.
Future India and China
Though size of GDP and also the per capita income is much higher in China as compared to India, growth prospects seem to be better in India. In the past, obsessed to enlarge GDP, China has been expanding manufacturing; and infrastructure was given a big boost, sometimes even by adopting unconventional methods. For instance for expanding manufacturing, huge subsidies were given to exports, just to give extra competitive edge to Chinese products. Infrastructure was built, sometimes even blindly; as in some places, roads were built leading nowhere. Today central government and provincial governments in China are faced with such huge deficits, that they are incapable to give any further support to export led manufacturing. Now Chinese products are not that cheaper internationally, as they used to be in the past. China is now facing stiff competition from the rest of the world
Since there has already been enormous expansion of infrastructure in China; possibility of further expansion is not much there. To increase investment, China is targeting other nations. India has not been able to grow investment at the pace of China, due to paucity of resources on the one hand and absence of investment climate on the other.
Why Manufacturing has Stalled in China
In the last 3 decades, Chinese goods have captured markets globally. Producing and exporting goods ranging from toys to mobile phone and even power plant and other project goods, China has emerged as manufacturing hub of the world. In the last 5-6 years due to slowdown in the Western nations, USA and other developed nations, Chinese exports have been badly affected. It is notable that in January 2015, Chinese exports were $227.5billion, which came down to $169.2 billion in February 2015. Decelerating exports have become a major cause of stalled manufacturing growth in China.
Make in India
Now government under the stewardship of Narendra Modi, has been working hard to give Indian manufacturing a boost in the name and style of ‘make in India’. Prime Minister gave an open invitation on Independence Day to foreign companies to come and manufacture in India, apart from encouraging Indian entrepreneurs to produce quality products at home. From telecom, electronic to war goods; efforts are on to raise production of whole range of manufactured products. Government’s belief is that there is a huge domestic market for these products. Additionally, there is a big possibility of exporting these products,
However, deceleration of Chinese manufacturing, due to failure on export front, has been raising doubts about the success of export oriented manufacturing growth. RBI Governor, Raghuram Rajan has also aired the similar doubts about export led ‘Make in India’ strategy. We need to design our strategy based on domestic demand.
If we really want acceleration in our growth, especially manufacturing growth to match with China, we need to learn lessons from China, and eliminate all types of hurdles in business and improve ease of doing business. India has never got good ranking in terms of ease of doing business. It is generally believed that India is not a good destination for doing business, due to unfriendly business environment. According to the ranking of the World Bank, India stands at 142nd position out of a list of 189 countries, in terms of ease of doing business. A close perusal of the World Bank report in this regard we find that India stands at 158th position in terms of ease of getting permission to start business, 184th position in terms of getting permission for construction, 137th position ease of getting electricity, 121st position regarding registration of property. With regard to international trade, the report says that we are 126th position. About ease of enforcing contract, perhaps we are the worst with186th position. Easy availability of loans, freedom from web of legal hurdles, marketing assistance, infrastructure development, availability of electricity etc. are some of the facilities, if provided may have multiplier effect on the economy in general and industry in particular.
(The author is Associate Professor, PGDAV College, University of Delhi)
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