India to override China in future, says Dr. Wignaraja
Economists make forecasts and accordingly it is predicted that the Chinese and Indian economies by 2030 are likely to swap places with the latter overriding the former setting the stage for the rest of the region to take a cue as to how to position their own programmes in line with the Asian world order.
The International Monetary Fund (IMF) has stated that from 2018-2020 there would be a soft landing of China’s economy while the Indian state was expected to grow faster but by 2030 it is likely that India and China would “swap places”, economist and Chair – Global Economy Programme at the Lakshman Kadirgamar Institute Dr. Ganeshan Wignaraja said on Tuesday talking on the subject of “A Recovering Global Economy? The Dynamics of China and India in the Future of Global Growth” at the foreign policy think tank institute auditorium in Colombo.
After years of tepid growth since the global financial crisis, 2018 seems bright, it was noted. The latest IMF forecasts suggest that reasonable growth is expected in both countries in 2018 – over 6.5 per cent in China and 7.4 per cent in India that is partly linked to a recovery in demand in advanced economies, which are expected to grow at 2 per cent in 2018.
He noted that both economies would continue to expand in terms of resources, reforms and also highlighted some of the areas where both were in common support of.
The dynamics are set to change with India overriding China and the rise of the Asian century on the horizon, Dr. Wignaraja said.
He noted that with these developments there would be a significant drop in poverty levels resulting in about 800 million people being pulled out of poverty in India and China. China’s economic culture With a sizeable Chinese market and low cost labour the country has workers scheduled for three shifts per day and even then people still queue up outside factories looking for work.
In terms of literacy, China outweighs India with a higher education level, Dr. Wignaraja pointed out adding that the country’s Communist Party followed a disciplined method and implemented reforms faster than others.
It was also noted that they have a strong collective culture with respect to their hierarchy that sets the tone for the conduct of its economic and business affairs of the state.
The 1978 reforms in China also marked the beginning of the revival of local private business in the country, which had long been stigmatised as the root of evil behaviour and has emphasised on attracting Foreign Direct Investment ( FDI) through laws that encourage joint ventures and the establishment of Special Economic Zones (SEZs); tax incentives to direct FDI to SEZs; liberalisation of export quotas and a stable exchange rate.
India’s economic liberalism
Comparatively, India’s economic liberalisation kick- started a decade after China commenced with a focus on easing restrictions on FDI and imports.
An increased investment limit of small and medium enterprises (SMEs) and permitted free determination of interest rates by banks including reforms carried out under the “the New Economic Policy” or NEP under Prime Minister Narasimha Rao.
In recent years, India accelerated reform of FDI entry regulations and import tariffs with the country’s import tariffs for manufacturers reaching 7.8 per cent in 2015 compared with 6.4 per cent for China. But since China was a “first-mover” and had a more comprehensive reform programme they were able to achieve higher growth levels compared to the subcontinent for the past several decades and owning a much larger share of the world GDP than India.
Rise of the Asian Giants
China has today become the factory of the world moving away from a heavy reliance on exports that are resourcebased and low-technology exports like textiles, garments and footwear and has become the assembly hub of sophisticated global supply chain trade in technology intensive manufactures.
For instance the Apple iPhone though developed in the US has many of its parts manufactured in a number of locations around the world which are then shipped to China for assembly at its factory in Shenzen.
On the other hand, Indian exports are increasingly led by more-sophisticated, skill-intensive services such as information technology ( IT), business process outsourcing (BPO) and financial services. India’s success in IT is due to its widespread use of English, supplies of high- quality graduates from Indian Institutes of Technology and Indian Institutes of Management, falling communications costs and returning non- resident Indian investors from Silicon Valley.
Competition between
Dr. Wignaraja pointed out in his lecture that today firms operating in China enjoy a more competitive business environment than their counterparts in India, with more market-friendly rules for business start-ups, property registration, contract enforcement and bankruptcy.
Since the 1980s China attracted FDI into manufacturing to serve as the cornerstone of export-led growth and its annual average FDI inflows increased nine-fold from US$18 billion to a record $159 billion between 1980-1999 and 2000-2016.
Comparatively, India was slower to adopt comprehensive reforms and as a result of its recent acceleration of reforms the FDI inflows averaged $2 billion in 1980-1999 and $23 billion in 20002016.
China has been establishing itself through FDI across Asia and beyond to the EU and the US markets averaging at $56 billion per year during 2000-2016.
The two countries’ managed floating exchange rate policies have been similar as they both faced tariff reform gradually in using this as a tool to encouraging exports.
Xi, Modi trail
Chinese President Xi Jingping implemented the “change maker” policies and ended the one child policy to counter the country’s aging population, launching an anti-corruption drive; and inking the RMB’s footprint as a global currency by making it a world reserve currency.
Mr. Xi’s plans under the Belt and Road Initiative (BRI) is considered an ambitious web of intercontinental road, rail and port links involving 60 countries across Asia, Europe and Africa that is backed by a Chinese pledge of $269 billion and project co-financing from international sources like multilateral development banks.
Indian Prime Minister Narendra Modi pursued a radical reform agenda by implementing a flurry of measures including a nationwide sales tax; a “Make In India” initiative; demonetised large currency notes; introduced fiscal reform and accountability, fostered investment climate reform and created a new social security programme.
The Prime Minister’s “Act East Policy” is said to be a countermove to the BRI initiative with the former expected to link with high-performing economies in East Asia, and the AfricaAsia Growth Corridor to establish a partnership with Africa on infrastructure and skills upgrading.
Mr. Modi also created nine million bank accounts for the poor, Dr. Wignaraja stressed.
But it was noted that with India’s youthful population under 24 years compared to China’s numbers have gone down it could result in a skills gap.
Moreover, it was explained that though India’s education gap varied a lot compared to China its attention to Research and Development stagnated whereas China had ventured into research and development in the biotech and robotics sectors as well.
China has been establishing itself through FDI across Asia and beyond to the EU and the US markets averaging at $56 billion per year during 2000-2016
Lankan point of view
During the panel discussion on the subject, National Policies and Economic Affairs Deputy Minister Dr. Harsha De Silva noted that Sri Lanka stands to gain from what is happening around in the neighbouring states.
In this respect, he pointed out that Sri Lanka could link itself to the global network as the island itself boasts of some of the best ports in the region.
Central Bank Governor Dr. Indrajit Coomaraswamy, moderator at the panel discussion pointed out that if “Make In India” works then the subcontinent’s neighbouring states could take on the supply chains into India.
He noted that one million people would be joining the middle class by 2020 between the two states, China and India. In this respect, Dr. Coomaraswamy observed that if Sri Lanka was able to finalise the Economic and Technology Cooperation Agreement ( ETCA) it would create greater scope for Sri Lanka into India.