Great news! India's GDP grew at 7.5% last fiscal year compared to 6.9% in 2013-14 and 7.6% in the fiscal year 2015-16. Whereas China is facing a major challenge in terms of slowing economy and a lower GDP rate of 7.3% last year-2015, lower than that of India. It's called the new normal for China's overheated economy and its anxious trading partners.
The Stock markets around the world keep fretting over the fact that the Chinese economy might have a hard landing, whenever there is some bad economic news flowing in from China. The reported GDP of 6.2% in Q2 2016 rate is among the lowest in a quarter of a century for China. Moreover, these high growth rates experienced by China in the last 2 decades were impossible to sustain over a longer period of time.
In the first decade of this century, India’s growth reached a take off stage that prompted many people to ask when India would catch up with its neighbour. It was also thought that democratic India may even overtake Communist China. Will that dream come true?
Parallels not so long ago
Here’s some background to both the counties. China and India, despite being countries with such populations, both accounted for only 4.5 per cent and 4.2 per cent of global GDP in 1950 in Purchasing Power Parity (PPP$) terms. The ratio of China’s GDP to India’s was 1.18 in 1913 ($241 billion/$204 billion); and in 1950 it was 1.08 ($239 billion/$222 billion). Estimates of per capita income made by Angus Maddison and Dharma Kumar suggest that India might have had a higher per capita income in the 50s. However, there was not a marked difference in the level of human development. But what china did in terms of reforms in their economy from 1979 onwards, made them surpass India by leaps and bounds.
Deng China’s Premier opened China to foreign capital while making room for the growth of villages and local enterprises. Jiang Zemin, Hu Jintao and now Xi Jinping have continued to follow Deng’s principles, but with some adjustments. China’s economic growth was also made possible by a very large net inflow of foreign direct investment, a sign of confidence in the Chinese economy by outside investors. China is the leading nation in exports and the second largest economy in the world.
The country’s per capita income more than quadrupled, ($5,720 equivalent to about PPP $13,000) and abject poverty was completely eliminated. In comparison India’s per capita PPP is only 5350. This is in comparison to 1980 where both country’s PCI was equal, approx $990.
Evidence lies in the numbers
Some simple maths will make things more evident that India cannot beat China atleast in next 25-30 yrs. China is a $10 trillion economy compared to India $2 Trillion as of 2015. Lets say if India GDP grows by an impressive 8% and China by a sluggish 6% even then India will only add a mere $160 billion to its $2 trillion economy every year where as china will add $ 600 billion to its $ 10 trillion economy every year.
So going by the current rate of 8% economic growth India will reach $26 trillion by 2035 whereas china growing at 6% will reach the same 12 yrs earlier i.e.by 2023.
In last 35 years, China has outshined India in all areas expect for software exports. Even now China is building infrastructure including 200+ new Airports, high speed train network across the country which is touted as the biggest infra project in the world ever, road network which promises to reach 90% of its villages and expressways which have already surpassed the overall length of American Interstate highways. In contrast, India builds 15 kms of road per day where as China builds 35 kms of expressway along in a day, doesn’t have a single high speed railway, low quality of roads which only add to its woes and costs and has an awful power and energy infrastructure.
The bigger picture
China’s new economic silk route is another growth story which started in 2013. This 'belt' includes countries situated on the original silk road through Central Asia, West Asia, the Middle East, and Europe. Sensing that the domestic growth will eventually slow down, the Chinese government is targeting $ 2.5 TRILLION trade within a decade through the new silk route. China’s collaborating with the central Asia governments and exploiting their natural resources like gold mines, coal mines, oil and gas, and several of their mineral resources. It doesnt stop there, Chinese are taking over Africa in a big way too.South China sea is slowly been taken over by the china to build a military base and exploit it's rich natural resources including 11 billion barrels of oil.
However its not all good for china at home and abroad. There is public anger against china for exploiting human capital, low wages, sabotaging human rights, land grabbing by force etc. Trouble in their financial markets, a huge property bubble, rising wages, a declining young population, serious environmental issues and the costs associated with it can further slow down their growth and create upheaval in their financial markets.
India’s biggest strength lies in its human capital. It needs to focus on increasing its productivity levels and its skilled manpower. It’s a good time for India to open up its market, apart from cutting red tape as its entrepreneurship gathers pace. According to the present Indian Finance minister India needs an investment of $ 1.5 trillion in the next ten years in infra sector alone. But even in a best case scenario if India manages to grow at 10% annually still India will only reach $26 trillion GDP which china will cross by 2022.
India will have to do a lot more, else i don’t see it catching up with china in many decades to come unless there is a major failure of sorts in china.
Statutory warning:
I am not an anti-nationist, only realistic! Jai Hind!
