Race with China ~ I – The Statesman


The idea that India will ever catch up with China may seem outrageous to most and some may even doubt my reason. After all, China is a giant global economic and military power. China surpasses India in almost every aspect. Its GDP is nearly eight times that of India in absolute nominal dollar terms, and nearly three times in purchasing power parity. Chinese companies dominate the Indian market, despite all measures taken by the government over the past two years. Chinese products have supplanted Indian products as it is difficult to find anything of our daily use that is not from China, including the raw materials for most of our medicines.

China’s human development ranking of 85 is way ahead of our pathetic 131. The vast divide between India and China militarily, economically and technologically has made us extra-sensitive and almost deferential to their sensitivities on Taiwan, Tibet and the Dalai Lama, as they have treated our sensibilities about J&K, Arunachal Pradesh or CPEC with utter contempt. We swallowed it all without even a whisper of protest.

But the pandemic and the pandemic years have changed both our world and our worldview, and with that changed worldview, the idea of ​​catching up with China suddenly doesn’t seem as absurd as it once seemed. The pandemic that started there, according to all available evidence, has also exposed China’s loopholes. Even the myth of its military invincibility was shattered by India during the protracted standoff in Ladakh, where India’s military strategy put China at a distinct disadvantage, forcing the PLA to withdraw from the country. Pangong-Tso region. He also learned that any adventurism against India will come at a cost that could lead to cracks in his own power structure. India has shown that it can stand up to China, despite its military superiority. It has also generated some confidence that it may not be impossible to catch up with China, even economically, and for the foreseeable future, if we can calibrate our approach, policy and policy in a determined manner.

In January 2020, Standard Chartered Bank predicted that India would overtake the United States to become the world’s second-largest economy by 2030, just behind China which has already overtaken the United States in terms of PPP. The 2030s would usher in a new economic order dominated by today’s emerging economies, with China and India in the lead. China’s economy of $ 64 trillion would then be only 1.5 times that of India’s $ 46 trillion, and India would have significantly narrowed the current gap. Convergence is a common phenomenon in economics where the poorest countries grow faster than the rich, gradually closing the gap. As the GDP per capita between them tends to converge, their shares in the world population also tend to converge. The world is still a long way from achieving this balance, but emerging economies have made considerable progress in closing this gap.

IMF data and projections clearly show convergence between advanced and emerging economies. Currently (2021) China’s share in world GDP (18.8%) is slightly higher than its share in world population (18.2%) and by 2026 it will be significantly higher (20.4%). % and 17.5%), while that of India a significant gap to be filled (8.4% and 17.96% respectively in 2026; the current shares are 7.2% and 18.03%). But half of India’s population is under 25, compared to 29% in China because of its one-child policy; any increase in income here therefore quickly translates into consumption and stimulates the economy and employment by creating demand. The Standard Chartered report estimates that by 2030, 100 million new jobs will need to be created in manufacturing and services to meet this demand. This is a real challenge for the government as it will have to find ways to fill the huge infrastructure and skills gaps that currently exist, while trying to reduce income inequalities and improve institutional functioning in them. giving the required autonomy.

For most of history, however, the Indian economy was not only larger than the Chinese economy, but it also grew faster, as Angus Maddison pointed out in his remarkable study on “The world economy”. China started to close the gap when India got weak. It was repeatedly invaded and its wealth plundered by Central Asian marauders during the 13th and 14th centuries, but under the Great Mughals it regained its economic superiority over China.
But the real turning point did not come until after 1757, when the British, after winning the Battle of Plassey, began to subdue India. Hosted by its colonial power which systematically began to plunder and deindustrialize India, the extractive and exploitative colonial economy stagnated for nearly two centuries. The industrial revolution that propelled the engines of growth could never happen in India, which remained Britain’s supplier of raw materials and the captive market for its finished products. In a recent book, “Reset: Regaining India’s Economic Legacy”, Dr Subramanian Swamy estimated the extent of the loot siphoned to Britain at $ 71 trillion. In comparison, our current GDP is around $ 2.7 trillion.

Even after independence, our closed economic model driven by state-controlled industries, flawed central planning and an inappropriate romance with socialism plunged the country deeper and deeper into an economic quagmire of low growth and poverty. endemic, and it could never compete with China again. More than four decades of poorly managed economy since independence had wreaked havoc and widened the gap with China which began to liberalize its economy since 1978, while ours only started in 1991. Reforms no ‘have never stopped since, although the pace has been rather uneven. But in recent times, some remarkable reforms have generated confidence that despite the huge gap, India can achieve rapid growth over the next 20 years to catch up with its giant neighbor to the north. So says an article (“Strategic Patience and Flexible Policies: How India Can Meet China’s Challenge,” March 2021) published by the Pune International Center ~ written by some of the country’s best minds ~.

Besides India’s demographic advantage, he also identified a few other areas where India enjoys distinct advantages over China. One is the strength of the Indian financial system which “allocates capital better than the Chinese financial system”, giving us an “advantage in translating the flow of investment into increased GDP”, thus reducing the consequences of the gap in investment between the two countries. In addition, Chinese exports, driven by state intervention and subject to state-controlled distortions in financing, exchange rates and subsidies, tend to be fragile and unsustainable in the long run. The recent crackdown on high-tech companies by the Chinese state to curb their growing monopoly power bears witness to this. Indian exports, on the other hand, are based on a real “competitive advantage”.

The most important advantage India enjoys over China is of course its strong democratic tradition and decentralized model of governance compared to the highly centralized model of China which places its own limits on a modern and dynamic economy in China. information age. Centralization of political power leads to inferior economic policy decisions, loss of private sector confidence and suboptimal economic outcomes, in addition to being dependent on the rulers. Despite the phenomenal rise of China and the integration of a capitalist economy with its communist regime, liberal democracy enjoys distinct advantages in integrating market-oriented economic policies into its political organization.

The document argues that “the decline in Chinese optimism and growth and the increased stress that has come to China from militarism and nationalism” have “aggravated conflicts with many neighbors.” His military adventurism in the South China Sea has made his neighbors deeply suspicious of his intentions.
In contrast, India’s foreign policy has earned it enormous goodwill, simultaneously increasing India’s role and importance in world affairs. The soft power of India has spread to many parts of the globe, compared to the hard power of China which is hated by most democratic countries. History testifies that global trust and goodwill easily translates into investment and growth, provided a favorable ecosystem of physical, social and legal infrastructure is functioning optimally. India must correct these factors quickly and refocus on the flaws in its domestic policy to unleash the enormous energy and intellectual potential of its workforce.

China aspires to become a “Community for the Shared Future of Mankind”, but its authoritarian political system is the biggest obstacle to its goal of becoming a world superpower loved and respected by all. The brutal authoritarianism that suppressed and murdered dissidents like Liu Xiaobo, purged all of Mr. Xi Jinping’s rivals, deprived Hong Kong of its freedoms in flagrant violation of the international agreement, and placed some 1 million Uyghurs in prisons in Xinxiang-type concentration camp also manifests itself. utter disregard for international protocols and restrictions when dealing with neighbors in the South China Sea or attempting to capture foreign territories through salami-cutting tactics. As an economy grows, its strong growth cannot be sustained and countries are often caught in the middle income trap. China’s growth rate is slowing.

The document estimates that with a sustained growth rate of between 6% and 8% which seems quite achievable, the Indian economy could be almost as large as that of China in 20 years, i.e. d ‘by 2041. It could even be faster if we can properly orient our policies for which there are many lessons to be learned from China itself.
(To be continued)


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