Comparisons are always odious but cannot be avoided. Up until a few years ago India was a challenger to China. Today, while India’s growth report card stinks, China brings a whiff of hope for a world trying to wriggle out of a tight corner.
Last week China beat the US to become the world’s top trading nation. The total value of Chinese imports and exports touched $3.87 trillion, a tad more than the $3.82 trillion trade logged by the US. In another piece of good news, China reported 7.9 percent growth in the last quarter of 2012, up from 7.4 percent in the previous quarter.
India, on the other hand, has been going from bad to worse. According to the latest estimates of the Indian government, the economy is likely to grow at just 5 percent in the fiscal year ending March 31, 2013.
The near $2 trillion Indian economy is hardly a match for the $9 trillion Chinese economy. In fact, a commentator recently placed China a decade ahead in terms of basic indicators of growth. But the game is not over yet.
Last week China beat the US to become the world’s top trading nation.
Morgan Stanley predicts that eventually India will outrun China. A greying workforce and declining marginal productivity of capital are expected to circumscribe on China’s blistering growth. The country is likely to lose its low-end manufacturing business. India is on the list of likely beneficiaries.
China has spent its way out of slowdown. This policy seems to have exhausted its shelf life. The country has been urging its tight-fisted citizens to start spending. The idea is to lessen dependence on exports and let the domestic sector stimulate growth.
But the Indian government is discovering that consumers don’t always spend just for the good of the nation. If the sentiments are negative, the consumers start tightening their purse strings. To elaborate, India’s industrial production growth contracted by 0.6 per cent in December. What was worse was that consumer durables shrank by 8.2 per cent and the consumer non-durables shrivelled by 1.4 per cent. Consumer spending had been keeping the growth going as infrastructure and corporate investments have turned into a trickle.
China has sacrificed individual freedom and choice at the altar of growth.
Economics apart, comparing India with China is unfair for historical reasons. The British methodically stripped India. India financed Britain’s industrial and economic revolution. The English also ensured that India remained industrially backward. Post Independence, the Indian economic revival was handicapped by the shortage of not only capital but also infrastructure. China never faced this sort of pillage or such a handicap. It was a superpower when the India was fighting for freedom. That’s why it is a permanent member of The UN Security Council.
China has sacrificed individual freedom and choice at the altar of growth. Economic growth is exhilarating and looks more rewarding in the short-term. But democracy is more intoxicating, and yields better dividends and stability in the long run. There is no fear of implosion. As the US has shown, the hits and trials, and the pulls and pushes of a free society shape a nation that is better equipped to take care of its people than one beaten into shape by princelings intolerant to differences of opinions.
Chinese economic data computation is not transparent and its accuracy is suspect. The world has to take Beijing’s word and there is no way to crosscheck the authenticity. China has always managed to surprise even its most ardent supporters by its resilience and ability to come out unscathed from global crises that have spared none. But even they are developing doubts about China’s growth fairytale.
A China optimist, Stephen Roach, chairman of Morgan Stanley Asia and the investment bank’s chief economist, has warned that time is running out for China to mend its economic policies. He is merely reiterating what the Chinese rulers have known for long. Premier Wen Jiabao had termed the Chinese economy “unstable, unbalanced, uncoordinated, and ultimately unsustainable” way back in March 2007.
The Dragon may be breathing fire today and the Elephant may seem to be trundling along. But the elephant has adapted and survived over the ages and will do it again. The myth of dragon will be busted.
by Ashutosh Misra
