Round The World

New Delhi, 13 January 2023

Catching Up With China

FOCUSING ON THE ECONOMY

By Dr D K Giri

(Prof. International Relations, JIMMC)

Last week, I wrote in this column about India countering China. This piece is a sequel that suggests measures for building resilience in her economy, reduce trade dependence on China and avoid being vulnerable to economic pressure or disruption. India will have to catch-up with China sooner than later in order to be able to defend her political security and territorial integrity.

India and China are two of the world’s largest and fastest-growing economies, and there is ongoing debate about how India can catch up with China economically. Before we suggest measures that can contribute to competing with China, it is in order that we scan and amplify the differences in economies of both the countries. Both India and China have made significant progress in recent decades in terms of economic growth, poverty reduction, and improving the standard of living for their citizens. However, there are some key differences between the two economies.

China’s GDP is significantly larger than India’s, with the former’s GDP currently being around four times larger than the latter. Notably, India has overtaken Britain in terms of GDP to become the fifth largest economy in the world after USA, China, Japan and Germany. As of 2021, China’s GDP was around $14.14 trillion, while India’s was around $2.94 trillion. The GDP per capita of China is also higher than that of India; it is around 10 times higher than India’s. As of 2021, China’s GDP per capita was around $10,221, while India’s was around $2,104.

Both countries have experienced strong economic growth in recent decades, but China’s growth rate has been higher and more consistent. In 2021, China’s GDP growth rate was 2.3% while India’s was 7.7%. But it is to be noted that China’s economic growth was in two digits since 1980 for over three decades.

China has a more developed infrastructure than India, including better transportation networks, power grids, and telecommunications networks. On exports and trade, China is the world’s largest exporter and has a more developed export-oriented economy than India. It has a more diversified economy and trade partners than India. As of 2021, China was the world’s largest exporter and importer, with total exports worth around $2.6 trillion and total imports worth around $2.1 trillion, whereas India’s corresponding figures are $660.5 billion and $725.55 billion.

China’s manufacturing sector is more developed and diversified than India’s and is a major driver of its economic growth. In contrast, a significant portion of India’s population still depends on agriculture and allied activities. On foreign investment, China is more open to foreign investment than India and has attracted significantly more foreign investment. As of 2021, China attracted 1.63 billion USD FDI while India’s was around 74 billion USD.

On human capital, India has a large English-speaking population and a large pool of skilled workers, while China has a large, low-cost workforce and a well-educated population. Yet, according to the World Bank data, China has a poverty rate much less than that of India, only one per cent of the population in China live under the poverty line. In India, the poverty rate is quite high with around 21 per cent of the population living below the poverty line. Similarly, the unemployment rate in China in 2021 was around 5.3 per cent while in India it was around 8.3 per cent. There is also a significant difference on the inflation rate. In 2021, China’s inflation rate was around 2.3 per cent while India’s was around 5.5 per cent.

It's worth noting that these are general statistics, and they are subject to change. The economy of both countries is complex and multifaceted, and different sources may report different figures. Additionally, both India and China face their own unique set of challenges and opportunities, the relative economic performance of India and China can be affected by a variety of factors, such as domestic policies, global economic conditions, geopolitical considerations and many more.

That said, the following are some steps that India can take to close the gap with China. It needs to invest in infrastructure. Developing robust transportation, power, and other infrastructure is essential to attracting foreign investment and driving economic growth. India can look to China’s experience in building out its infrastructure and work to improve the ease of doing business, to reduce red tape and bureaucracy, which can make India more attractive for investment.

It needs to boost manufacturing and exports. India can look to China’s success in building a strong manufacturing base and exports to create jobs and spur economic growth. This will require policies and practices that create a conducive environment for businesses. It is also essential to invest in human capital. To close the gap with China, India will need to invest in its workforce and education system to build the skills and expertise necessary for the 21^st century economy.

India needs to improve the overall business environment and make it more predictable and transparent; this includes simplifying regulations and taxes, providing better access to credit and capital, and encouraging entrepreneurship and innovation. It has to encourage Foreign Investment. India can work to attract foreign investment in the country, which can help to bring in capital, technology, and jobs, as well as spur economic growth. Along with FDI, boosting domestic consumption is necessary. One of the key drivers of China’s economic growth has been its large domestic market; India can look to ways to increase domestic consumption by raising the incomes of its citizens, which will lead to higher demand for goods and services.

It's important to note that these steps are not mutually exclusive and will require a comprehensive approach, Furthermore, economic growth is a complex and multifaceted process, and there may be other factors at play in determining the relative economic performance of India and China.

In order to catch up with China, India should increase its international trade to build its economy. There are a number of steps that India can take some of which include; pursuing bilateral and multilateral trade agreements - India can work to negotiate and implement trade agreements with other countries and trade blocs to reduce tariffs and other trade barriers and increase market access for its goods and services. New Delhi should conclude ongoing trade negotiations without dragging them for long like with the European Union, United Kingdom and others.

On improving infrastructure and logistics, India can invest in improving its transportation and logistics infrastructure to reduce the cost and time required to move goods and make it more attractive for international trade. It may be strategic to focus on specific sectorsthat have a comparative advantage and have a good potential for export like IT, Pharmaceutical, Textiles, Agriculture, Automobile and renewable energy.

Make in India is a new slogan that must translate into action. India can encourage foreign companies to invest in India and set up manufacturing facilities in the country, which can help to create jobs and spur economic growth.

It’s worth noting that these are just a few examples. Experts will know more. What cannot be underplayed is the priority of economic development over anything else. ---INFA

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