For a very long time China has spearheaded the growth of Asian markets with their bold, although dubious at times, moves and strategic shits at regular intervals. They have attained their full potential in a very short time due to which it often gets compared to a dragon, swift and aggressive. On the other hand, India was a hit and miss in its growth trajectory and slow in achieving its planned targets like an elephant. We have had a fair share of block-buster reforms, but, we only acted when we had no other option and momentum was also subsided soon after due to various reason. Sometimes, democracy is not a boon and it can hinder progress, particularly when many people are uneducated and can be exploited. Certainly, that is what happened with us for so long, and it may not stop any sooner. For a brief movement (a Quarter), India outpaced China in economic growth but we couldn’t continue the same for long.
So, the answer to the question, whether India CAN actually overtake China in terms of growth to become the next big thing in the world? Long story short, Yes.
There is a dark side to China’s Growth. Have you seen any deserted town (a town with skyscrapers, paved roads, amusement parks etc.) in India? I bet you haven’t. But, you can see some in China and they are called as ‘Ghost Cities’. Those are actually ‘cities’ in which hardly anybody resides, they have everything except the people to reside in. If you wonder whether they have abandoned it or is it that nobody has occupied. Answer lies in the second half of the question, nobody has every occupied them in the first place. Why would somebody build cities that go waste without people? Just to keep the growth rate in top gear. As long as some construction/manufacturing activity is going on, there will be enough jobs, and in turn enough consumption, to keep the growth rate ticking. Unfortunately, they can’t do that forever. While the rating agency Moody’s have upgraded India’s credit rating, other rating agency Standard and poor downgraded China’s rating amidst its mounting debts.
Dark side of China’s growth can pull it, or even a part of the world, into oblivion. On the other hand, even though we had hits and misses, our growth trajectory is much more stable and healthy. With reforms brought by NDA government to the table, India is better equipped than ever to take China head on. China’s autocracy and cheap labour helped them to turn entire country into a big manufacturing unit. However, with the increasing life standards of Chinese citizens, they are demanding more wages and they are not cheap labours anymore. Apart from the cheap labour, it is our financial markets that can swing the tide. Currently, in almost every metric China beats India, only exception being financial markets. Although our banks are under lot of ire amid mounting NPAs, our banks/ financial institutions are much better than Chinese counterparts. Why this particular metric is so important when we performed bad to worse in many others?
China’s credit to GDP ratio stands at 30 to 1 where the threshold of danger is 10 to 1, which indicates a ticking time bomb. We have seen what happened with USA and rest of the world during sub-prime crisis which was basically fueled by reckless lending. China kept pumping the money which fails to create any meaningful assets, building the cities in which no one resides, expanding the bullet train networks to nowhere just to keep its growth growing. And, again, they can’t do that forever. When everything stops, they will be left with ton load of debt trapped companies, NPA ridden banks which has never been a good sign of future. India stock markets have outperformed Chinese stock markets in the last five years. Investors have lost faith in china and diverting their investment to India.
If you are dissatisfied with India’s crony capitalism, you should peek at China for some relief (Mind you, it is not to undermine our problem). If you have decent contacts with ruling politicians, you can, literally, get anything done. Government officials can shutdown entrepreneurs at any time by cancelling the licenses. Even though you are an honest and meaningful entrepreneur, you can’t survive without the help of ruling politicians. And, most importantly, people has no say in it, they can’t demand for the things that are best to them, they can only accept what was given to them, welcome to autocracy. For an export oriented country like China, it is forgivable to think that it is one of the most open economies out there, but it no longer is true. In fact, India’s trade to GDP ratio is higher than that of China’s. Today’s India’s economy is far more open and integrated with the world economies that most people would assume.
Let me break it to you, increasing GDP need not necessarily be a good thing always. Sometimes, it may disguise the very underlying problem with the economy. That is exactly where china and India diverge. The staggering growth rates of China in recent past left the country with enormous debts which yield none to very little return and the consequent write-downs will pull down the China’s economic figures in the years to come. Though India has lot of catch up to do in terms of growth as we have low base, unlike China’s, India’s government has appetite for structural reforms rather than debt fueled growth, same can be seen from the rising stock markets.
Not so long ago, people used to address China and India together as they belonged to the same category, but today, it is very hard to imagine anyone putting both the countries in the same category any more. While China is facing dwindling forex reserves, India is pushing itself as the most favourable destination for foreign direct investment (FDI). In 2015, for the first time, India overtook China in FDI which has sent warning bells to Chinese counterparts. Traditionally, India has always have better pool of technological talent than China along with the ability to speak in English which helped us to lead the race in software Industry. And the same technological pool is going to help us in leading the race again in manufacturing.
Thanks to the reform driven government, world has started taking notice of India.