Let’s welcome the new confidence to pave the way for emerging economic powerhouses. The positive factors that are driving these economies will help accelerate growth in the coming decades.
“The likely emergence of China and India as new major global players—similar to the rise of Germany in the 19th century and the United States in the early 20th century—will transform the geopolitical landscape, with impacts potentially as dramatic as those of the previous two centuries. In the same way that commentators refer to the 1900s as the “American Century”, the early 21st century may be seen as the time when some in the developing world, led by China and India, come into their own.”
– Mapping the Global Future: Report of the National Intelligence Council’s 2020 Project, US.
The global economy is undergoing a transformation which occurs once in a century or two. The 19th century belonged to Britain, the 20th century was of the US and the 21st century will belong to China and India, the world’s two most populous countries and their growth pattern is set to be the most dramatic event of the century. In the past, both the countries have had a big influence on the world economy in the early 19th century. In 1820, China was estimated to have accounted for around 29% of global GDP, and India for 16%. Now, these Asian economic giants are re-entering the world economy with some positive legacies. There are greater similarities in their policies against the economic cycles of repression and reform. Accordingly, both the countries liberalized their economies and witnessed greater economic growth over the years.
According to a US intelligence report—Mapping the Global Future, “the rise of China and India as global players is heralding an Asian Century in place of a receding American Century”. According to economists, a combination of sustained high economic growth, expanding military capabilities, active promotion of high technologies, and large populations will be at the root of the expected rapid rise in economic and political power for both the countries. Markets across the globe are also trying to digest recent investment bank reports arguing that China and India will become the world’s second- and third-biggest economies sooner, rather than later. In the age of globalization, size matters more than ever; the bigger the economy, the more long-term investment it seems to attract.
There are quite a few similarities between both. They are most populous and have a reputable history. China close linked with India by adoption and transformation of Buddhism in the 10th century itself, besides, the Chinese Indian civilization in architecture and temple-building, sculpture and painting and creative arts. On the economic front too, there are a number of similarities between the two Asian giants. Both of them were the world’s richest and leading economies at one time, and suffered economic recession in the second-half of the second millennium; and then witnessed their progress to modernity in the middle of the 20th century.
Until 1981, there was not much of difference in their economic performances. With 26 years of reform in China and a little more than a decade in India, both the governments avoided economic recessions. They enjoy huge foreign exchange reserves and growing exports of goods and services. While China has made great strides on the manufacturing front and achieved global competitive advantage in a variety of industries, India has emerged as the world’s software and information technology hub. India’s success especially in software has gained visibility amongst the developed nations. The growth of these two Asian economic majors is outlining not only the Asian but also world economy as a whole. In many ways, China and India are fueling each other’s growth by adopting the best practices each learned from the other. For instance, India has been the leading destination for inward foreign investment in research and development among developing countries, while China has had tremendous success in attracting foreign direct investment in export-oriented manufacturing Special Economic Zones. Thus, China has mimicked India’s approach in developing pure R&D capabilities, while India has begun to look at developing Special Economic Zones to capitalize on translating R&D capability into productive capacity. They can complement each other. Through comparative advantage, the countries can take advantage of each other’s existing strengths.
To their credit, both countries account for 40% of the world’s population and are the fastest growing major economies in the world. Their economic growth figures arrested the attention of the world. In terms of Purchasing Power Parity (PPP), China is the second largest economy after the US, followed by Japan and India. Going by their current growth rates, according to the US National Intelligence Council, China will be the largest economy in the world within a decade and India the world’s third largest by 2010. Besides, these two economic powers will be major driving forces for stimulating world economic growth in the next 25 years and beyond.
Comparative Perspective
Compared to China, India really has a long way to go. China has a more coherent leadership, is more business-friendly and has a much stronger international profile, and so it will vault ahead. India has world-class intellectual skills and the advantage of English fluency but needs to simplify its business environment. India relies too much on the skills of individuals whereas China relies on its ability to organize skilled labor to build up enterprises and invest capital. As things stand today, China is way ahead of India in terms of presence in the global marketplace. For example, China’s share of world exports is nearly seven times that of India’s. The discrepancy in terms of FDI volume received is also substantial, even after leaving a wide margin for potential exaggeration in the numbers reported by China. In terms of economic potential and global aspirations, however, China and India are both giants. Each has a considerable pool of resources at its disposal, which, if harnessed and channeled appropriately, could be used to realize their true potential.
To date, each country has followed a different path to propel its economic growth. In each case, the pace of economic progress has been divergent and the pitfalls associated with each strategy are also not similar. India’s experience with economic liberalization is more recent than China’s; it is more prone to political roadblocks. India’s is still a relatively insulated economy compared to China’s, which has already shown a remarkable ability to integrate itself into the global economic marketplace. It is important to note that simply having an economy that is valued at a trillion dollars does not equate with general prosperity. Both countries have critical milestones that need to be reached in the form of enhancing productivity, transparency, participation by many, financial-savvy etc., before they can credibly be incorporated into the club of prosperous nations. Dr. Linda Yueh, Economist, London School of Economics is optimistic about India’s prospects as it shares many of the features of the Chinese economy. Both countries have large population, mostly rural with urban centers of industry, a commitment to education even if only a portion of the population possesses high levels of human capital. But, perhaps, most importantly, both countries share a focus on the importance of science, technology and promotion of industries, which incorporate advanced skills.
The New World Order
After the border war in 1962 and a long period of disbelief in each other, they are now moving towards a more economic cooperation regime. They are coming closer and recognizing their common interest in trade, commerce and regional stability. In the year 2004, bilateral trade stood at $13 billion, contributing 1% of China’s global trade and India’s 9%. Indian companies are taking lessons from China’s manufacturing prowess while Chinese IT companies are learning from its neighbor, an IT giant. Experts say that these developments will have significant global implications, going by the vast economic potential of both the countries and their eager desire for energy and other natural resources. Besides, cooperation between these two Asian nations may reshape the global balance of power in the 21st century. The countries’ rapidly growing economic presence is transforming the traditional economic order, says Zhang Jun, Professor of Economics and Director, China Center for Economic Studies, Fudan University. “Both India and China are set to emerge as significant global economic powers in the first half of the 21st century—China is most likely to do so by 2020 and India more likely to achieve this status around 2030. Both countries will be significant regional powers in Asia”. Once they achieve the status of global economic powers, they will compete with the US for global economic supremacy.
Challenges
However, being most populous nations, both have one common challenge—the creation of a large number of new jobs every year to match the unfold labour market every day. Experts say “if that challenge is not met, social unrest may start and, if so, the established political leadership will feel the ground slip from under their feet. This may be more acute and visible in China, albeit still characteristic of the situation in India. The governments of both the countries need to justify their grip on power by creating employment and the indispensable condition for economic growth”. According to Gordon G Chang, Author, Coming Collapse of China, China’s ailing state sector has shed workers by the tens of millions in the last decade. That threatens social stability. Massive non-performing loans threaten the state banks, which are hopelessly insolvent. Reform is making the problems worse, and China could face a financial crisis in the next half decade.
Though India has a great potential, a lot still needs to be done. India is a potential global economic power. But for that potential to be realized, its promise must not be treated as an instrument of short-term electoral popularity. India, being an agrarian economy, the performance of the agricultural sector is very important not only from the point of view of economic growth but also from the viewpoint of the well-being of the majority of the population. The sector that provides 60% of employment is virtually stagnant and its development has been systematically ignored both by the central as well as the state governments. Besides, the biggest challenge is to raise the per capita and standard of living of these people.
Going Forward
The journey of both the countries towards becoming economic powerhouses has just started and is gathering momentum. They have been steaming ahead, marching much better in terms of growth than their counterparts. There is every hope that the present challenges of both the countries will be tackled successfully in the years to come. A new equation is beginning to emerge in the Sino-Indian relationship.
It is no longer the competition but the cooperation that is going to drive the two Asian neighbors’ rise to prominence as the global economic powerhouses. That will mean a great reshuffle in the global economic order. Echoes by Professor J. Orstrom Moller, Copenhagen Business School “In the next decade or two, China and India will create an economic powerhouse of unprecedented magnitude and effectiveness. World politics and world economics will be forced to adjust with a speed and to a degree not seen before in human history. With 2.2 billion people, a fast growing middle class, rising purchasing power, confident political leadership and competitive world class enterprises, these two countries will dominate the world economy”.
N Janardhan Rao, Senior Economist.
No comments:
Post a Comment