Economic Highlights
New Delhi, 24 April 2008
Catching Up With China
NEED FOR CONSENSUS ON REFORMS
By Dr. Vinod Mehta
Former Director, Research, ICSSR
In
an interview to a foreign financial daily, Finance Minister P Chidambaram recently
observed that India needs to
“catch up with China”
in terms of economic growth to remain at the high growth trajectory. However, this
requires greater political consensus, which unfortunately is lacking, but vital
to realize our full economic potential. Unfortunately,
after a decade-and-a-half of economic reforms, political consensus on these has
been elusive, unlike China,
which had consensus from day one. In simple words, we need to work harder to
create this consensus, so that the gap between our and their growth rates is narrowed.
In spite of a slowdown in the economic growth the world over
thanks to a slowdown of the US
economy among other factors, India
and China
are still the two fastest growing economies in the world. Chinese economy is
growing at a 9 per cent, a rate faster than that of India, which is at 8 per cent. Apart
from increasing the growth rate to match the Chinese, we must also implement
economic decisions quickly like they do, or else the gap in economic terms will
increase and we will find ourselves much behind China.
It
is common knowledge that both India
and China
started their journey along the path of economic development almost at the same
time and from almost the same economic level, however, one under the democratic
system of governance and the other under a one-party rule. Interestingly, the
Chinese took to economic reforms almost two decades before India and are still being pursued vigorously
than by New Delhi.
In China,
the Communist party has become the catalyst for economic reforms, whereas here
we still have political groups opposing some aspects of the economic reforms.
China has traversed a long way in its
economic development since. Before the
introduction of the reforms, Beijing
had wiped out illiteracy and assured minimum level of social security including
health care to its citizens. Till date we
have not been able to either eradicate illiteracy or assure a minimum level of
social security to the people.
Since the start of economic reforms and the opening up of
its economy, the Chinese industrial sector has been enjoying a very high growth
rate. According to data made available by the State Statistical Bureau of China,
the industrial sector has been registering an annual average growth rate of 12
per cent. The Chinese attribute this remarkable growth to two factors: One, the
reform in the industrial sector was initiated by enlarging the decision-making
powers of the enterprises, relaxing controls on the functioning of industrial
enterprises and privatization of the enterprises.
Two,
the introduction of huge amounts of foreign capital and the opening up of the
economy quickened the pace of China's
industrialization. To quote Chinese
sources: “the establishment of large numbers of joint ventures and exclusively
foreign-funded enterprises has brought in capital, advanced equipment and
modern management expertise, greatly enhancing the technological and management
level of China's industrial enterprises, enabling the production of China's
manufactured goods to quickly catch up with or approach the world advanced
level and increasing exports by several fold."
At
another place, the Chinese claim that the gap between it and advanced countries
in terms of the overall industrial technological and equipment level has
narrowed by 10 to 15 years. As against
this, the reforms in the industrial sector in India have considerably slowed down
over the years. The average annual
growth rate of industrial sector is hovering between eight and 10 per cent. Still
there are many constraints on the flow of foreign capital and technology in India. The public sector reforms and disinvestment
in some of the public sector units are floundering. The technology level of Indian industries is
still very low. Though no studies have been done to find out the technological
gap between India
and other advanced countries, one hunch is that it would be 30 to 40 years
behind the advanced nations.
The
agricultural sector of China
too has witnessed a very robust growth in the past two decades. It must be noted that unlike India where reforms in the agricultural sector
are yet to be discussed, the rural reforms went hand in hand with industrial
reforms in China. The average annual growth of agricultural
production in China
has hovered around 6.7 per cent. Before the reforms, China was net importer of grain to
meet its food requirements and after the reforms it has been continuously
reaping good grain harvests with the output in 1996 topping 500 million tonnes. Of interest is the fact that the land-mass of
China is bigger than ours but
the arable land available to the former is just half of that of India.
It
is true that India
is able to meet its food requirements from its own sources. But the agricultural sector has not been
growing at the rate it should. That’s why
agricultural experts’ fear that if India does not move now to raise
its agricultural output it may face severe food shortages in 20 years from
now. The average annual rate of growth
of agricultural sector has been hovering between three to four per cent for the
past two decades and for certain years it has been a negative growth.
Far
from having economic reforms in the agricultural sector, we till date do not
have an agricultural policy. We are still dithering over foreign investment in
this sector, while the Chinese are going in for foreign investment here in a
big way. And, the agricultural sector in
China
which was opened to foreign investment has attracted large foreign investments.
China is also investing heavily in the technology sector.
It is feverishly developing and mastering ‘Gen Next’ technologies and has no financial
crunch for its scientific researchers.
According
to sources, nearly 60 per cent of foreign direct investment in Chinese
agricultural sector so far has gone into the developed coastal region. Beijing is now encouraging foreign investors to invest in
the agricultural sector in both West and Central China.
The Chinese feel that in the next few years, they would be able to increase the
output of grain by 50 million tones. To achieve this it needs to invest between
$ 20 and 50 billion in the agricultural sector. And, it is precisely for this
reason that it will encourage foreign investment. In India it would be some achievement
for the agricultural sector if we are able to remove all restrictions on
movement of agricultural products within the country.
There
is very little information available on the agricultural technology being used
in China. But given the fact that China with half of the arable land as compared
to India is able to produce
five times more grain output, the productivity per hectare is much higher in China. This
should be a challenge for us and afford us the opportunity to increase our agricultural
output by devising appropriate strategies.
This
is not to say that everything is alright with the Chinese economy. It has its
problems along with corruption, which is quite rampant. The non performing assets (NPA’s) of the
Chinese banks are reported to be much larger than that of the Indian banks and
economists are expecting that the bubble may burst at any time. Whether the Chinese banks go bust or not, the
above observations should make our nation think seriously: how can we match
their growth and emerge as an important economic power within the region. There is an urgent need to push economic
reforms in all the three sectors of the economy viz., agriculture, industry and
service.
Besides,
there is one more thing: China does not lose time in implementing its economic
decisions, whether they relate to development of infrastructure or of economic
zones etc. Whereas in India we take a lot more time in implementing decision
mainly because of opposition from various quarters. This single factor, and not
the one per cent difference in growth rate, is what will put India far behind
China in the decade. ---INFA
(Copyright, India News and Feature Alliance)
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