Looking Ahead: What India Needs To Do To Outdo China Economically
China "workshop of the world" marred by rising political crisis, slowing growth, and increasing untenable "zero Covid policies", paved the way for India to challenge China's global economic dominance.
Most recently, Stanford economist and Noble laureate Michale Spence declared that "India is the outstanding performer" now and India will remain the most preferred destination for investment in 2023 too.
Recent geopolitical crises have created an ideal environment for India's economic growth because, according to world institutions, India will be the shining star in the gloomy sky and India's GDP growth will remain moderate, whereas all other economies will go south and will continue to do so as the probability of recession grows.
As the central banks across the world have been raising the interest rates with synchronicity with other central banks, the world economy has never seen anything like this before. This is a rare occurrence, and the combination of these events takes the possibility of recession to its apex.
The reason why the Chinese economy is going down is because of their clandestine management of covid policy and as a result, the Chinese economy's pillars are on the verge of default: the Chinese high-speed railway, Chinese banks, and Chinese real estate are all declining.
Protest against the Chinese government has become an everyday phenomenon in an authoritarian state. So to externalize the internal threat the Chinese government is taking some promiscuous decisions that are harming its economy even more.
In the 1950s China faced similar internal events that force the Chinese government to externalize the internal threat by creating an artificial enemy in the form of India. As a result of that they invaded Indian land in 1962 and took away 38,000 square kilometers of land; at the time, they faced backlash from the US government; however, the same US government helped China to grow economically after China opened its economy in 1978, during Den Xiaoping's reign.
This event aided China's rise to the world's second-largest economy.
The Rise of Asian Powerhouses: An Economic Comparison of China and India
Before 1978, the People's Republic of China wasn't recognized by the United States; after prolonged negotiation, after lengthy negotiations, the US recognized the "One China Policy" over the ROC, which is today's Taiwan, the island formerly known as Formosa.
Between 1978 and 2012, the Jimmy Carter administration was solely responsible for China's rise and sustained and exponential growth. Within that time frame, India's growth was sluggish, and the country opened its economy after 13 years of Chinese dominance in the world economy. The lack of political will among Indian politicians to push India to be a global leader has contributed to India's sluggish growth, which has also been hampered by rampant political corruption in the form of scams.
This lag is an important component of the explanation for the current imbalance between the two countries. A significant gap between the two growth rates emerged around 2010, resulting in a large gap in the size of the two economies.
In 1980, the size of the Chinese economy was a mere US$305 billion and in 2022 it was a whooping US$17.74 trillion. During the same period, India's economy grew from US$189 billion to US$3.5 trillion. When this data is compared, the Chinese economy was 1.5 times that of India in 1980, but it is nearly 5.5 times that in 2022. This is the power of Compounding growth rate. China's registered growth was in the double digits, while India's growth was in the single digits(10% vs 8%).
Purchasing power parity estimates are best for comparing India, China, and the United States. China's Purchasing Power Parity is $23 trillion, higher than the United States $20 trillion and India's $8.6 trillion. This is where the real economy is, and the world cannot survive without these two Asian behemoths and the Superpower US.
Instead of having differences the trade between India and China grew at an exceptional rate since 2000. The total trade between India and China was only $1 billion in 2000, but it is now a whopping more than $100 billion. In 2001, India ranked 19th among China's export destinations; by 2022, it had risen 14 places to 5th.
China's main export destination is the United States, which ranked first in China's export destinations; it exported goods worth $561.25 billion in 2021. China's trade benefit in this case exceeds $350 billion dollars.
China was able to attract foreign direct investment on a large scale. China was able to attract large amounts of foreign direct investment by creating special economic zones in which foreign companies could build production facilities and create jobs for locals while remaining largely immune to the difficulties of Chinese state institutions. Between 1997 and 2022, the total FDI in China totaled 14.1 trillion USD. In comparison, FDI to India totaled only 725 billion USD.
Between 1978 to 2022 China added 375 million jobs to its massive population of 1.4 billion. For six consecutive years prior to 2019, the country added a net of 13 million jobs every year. In comparison, India only created 93 million jobs after liberalizing its economy, which is nothing for a population of 1.35 billion.
Now at this moment, India's unemployment rate is rising at an alarming rate of 8.0%. Since its inception in 2014, the government has taken steps to combat the unemployment crisis.
Steps Taken By the Government of India
1. GOI has already scrapped some old rules those were creating hindrances in making India the world Investment destination. Indian government removed the VAT taxation system and replaced it with Goods and Services Tax.
2. To make taxation easy and corruption free the government made it digital and paperless.
3. To make investment easy government created an online single-window system along with construction permit enablers, labor regulation enablers, environment registration enablers, and inspection enablers.
4. Land administration and transfer of land and property and obtaining utility permits have also been made digital to create an amicable environment for investment.
To make doing business easier, the Ministry of Labour and Employment has taken a number of steps to streamline labor laws. The Government has notified four labor codes by condensing, combining, and rationalizing the relevant provisions of 29 Central Labour Laws: the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020, and the Code on Occupational Safety, Health, and Working Conditions, 2020.
Mr. Sarbananda Sonowal, Minister of Ports, Shipping, and Waterways, announced on April 30, 2022, that Cochin Shipyard Limited has committed to invest an initial corpus of Rs. 50 crore (US$ 6.47 million) in maritime startup companies.
In the next five years, the government plans to invest Rs. 1.20 lakh crore (US$ 15.5 billion) in the automobile industry. The Ministry of Heavy Industries announced a Phased Manufacturing Programme (PMP) in February 2022 to encourage domestic manufacturing of electric vehicles, their assemblies/sub-assemblies, and parts/sub-parts/inputs of the sub-assemblies.
The most significant announcement made following the pandemic was the announcement of PLI schemes worth Rs 1.97 lakh crore across 14 sectors, including semiconductors. As the Indian government announced the Digital India program to make India digitally self-sufficient, the semiconductor industry will be the backbone of it. Under the PLI scheme, the world's largest mobile manufacturer Apple is now exporting their mobile phones from India.
India still has a long way to go to catch up to the Chinese economy, which is massive in comparison to the Indian economy. To overtake China by 2030 India has to run this marathon at the speed that Usain Bolt achieved to break the world record in the 100-meter race. This appears to be impossible, but with disciplined economic policy and an accurate future map, it is doable.
The budget for 2023 will lay the groundwork for accomplishing that seemingly impossible task. This budget will determine whether India advances toward becoming an economic superpower. As a result, the Indian government must perform impeccable math in order to formulate the country's economic growth. And the world is looking to India to help recover the world economy from the recent mess caused by the mistakes of the world's so-called superpowers.