By Nantoo Banerjee
Those
comparing the People’s Republic of China’s economic slowdown in 2018 with
India’s projected higher economic growth in the current financial year and
beyond and suggesting that the country’s GDP will catch up with China in
another 15 years or so are living in a fool’s paradise of false prosperity.
China’s economy, which reportedly grew by 6.6 per cent in 2018, is worth $14
trillion. The size of India’s economy is worth only $2.6 trillion, or less than
a fifth of China’s. The GDP of the United States of America, the world’s
largest economy, at the end of 2018 was around $ 20.66 trillion. The US
reported an economic growth of only about 3.5 per cent, less than 50 per cent
of India’s seven-percent-plus. The economic base of both the US and China is
too vast compared with that of India. The annual growth rate of the massively
large economies of the US and China, the second largest, is bound to slow down
as their overall sizes grow bigger and bigger. Compared to the sizes of these
two economies, India’s economy, so-called the world’s sixth largest, is still
very small in terms of its population. Even at eight percent GDP growth per
annum, Indian economy is not going to get any closer to China’s in any
foreseeable future. India’s economy may have outgrown China’s in 2018, but it is
nowhere near China in technological strength and competence.
China
is the world’s largest trading nation, enjoying the largest favourable balance
of trade. It is the world’s largest exporter of manufactured products. China’s
top five export categories are computers, telecommunications equipment,
telephones, integrated circuits and light fixtures. India is still struggling
with export of low value-added petroleum products, cut and polished diamonds,
jewellery and pharmaceuticals. Unless India invests substantially in next
generation value chains, it will not be able to sustain a high rate of economic
growth for long. India has neither the capacity nor the capability of
manufacturing and exporting high technology products. It needs a strong
determination and action to promote a technology-led growth. Unfortunately, its
international trading partners will do everything to prevent such a situation.
China
first built its industry before it became a full-fledged World Trade
Organisation member, only to take advantage of WTO norms to boost its exports.
On the country, import-based Indian economy is facing increasing pressure from
WTO and, now, proponents of the Regional Comprehensive Economic Partnership
(RCEP) free trade agreement between the 10 member states of ASEAN — namely,
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines,
Singapore, Thailand and Vietnam — and six Asia-Pacific states combining China,
Japan, India, South Korea, Australia and New Zealand, to further open up its
import avenue. This may have a serious adverse impact on India’s intended local
manufacturing-led economic growth.
Former
Reserve Bank of India governor Raguraman Rajan’s prediction at the World
Economic Forum in Davos that India will eventually surpass China in economic
size and will be in a better position to create the infrastructure being
promised by the Chinese side in South Asian countries appears to be highly
unconvincing. Although, Rajan may be absolutely right that Indian economy will
continue to grow while growth rate slows down in China. Sitting over the
world’s largest dollar hoard outside the US, China is expanding its global
economic influence through a massive aid-and-trade initiative across Asia,
Africa and South America that will more than compensate any export constraint
in its traditional markets in North America and Europe. China’s economic growth
in 2018 — at its slowest pace in nearly 30 years — is forecast to go down
further to 6.3 per cent in 2019. However, that is little to India’s gain. On the
contrary, China poses the biggest threat to India’s manufacturing industry,
which contributes less than 20 percent to the country’s GDP as against China’s
40 per cent. Currently, India runs the biggest trade deficit with China in its
international trade. It is likely to grow in the coming years.
Paradoxically,
China’s public sector enterprises account for a bigger share of the national
economy than its burgeoning private sector. In India, the public sector, which
laid the foundation of the country’s economic growth for many years, is on
sale. This appears to be the biggest mistake of the successive governments
since 2000. And, it is specially so when the country’s private sector does not
have enough financial strength to fund large scale projects with longer
gestation period. Surprisingly, few talk about the financial mismanagement and
losses of India’s private sector enterprises that have slammed lakhs of crores
of rupees worth non-performing assets (NPAs) on the country’s state-owned
banks. Private sector bad loans forced the government announce a $32 billion
bailout package to help the lenders set aside funds for the soured loans and
kickstart new lending. For 30 years until 2015, the public sector-led Chinese
economy averaged a 10 percent annual growth rate. Even today, China’s public
sector accounts for a bigger share of the national economy than its burgeoning
private sector.
It is
true that India, today, is the world’s fastest-growing large economy, and will
probably remain so for years if not decades to come. The IMF had forecast a 7.4
percent economic growth for India in 2018. India’s growth predictions from
other international banks vary from seven percent (Standard Chartered) to a
high of 7.5 percent (Nomura). And, China’s maturing economy may not ever again
match such stellar growth numbers. But, given India’s current technological
strength and private sector investment incapability, such a growth rate is not
going to bring the country’s economy anywhere near China in a foreseeable
future. Notably, the private sector’s expansion in India, except in the
automotive and textile sectors, has been mostly under the shadow of the public
sector. (IPA Service)
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