Monday, February 2, 2015

India should not rejoice for China's economic declivity


Indians, mainly who are knowledgeable and understand the trend of GDP growth are rejoicing for IMF’s prediction of growth both in India and China. The latest data as per the IMF’s prediction indicates that India is in the growth path and will touch a figure of 6.5% in 2016 against China’s growth of 6.3% in the same period.  Some others in India are more enthusiastic to reckon to the figure of the World Bank, whose estimate is that India will grow by 7% in 2017 against China’s 6.9%.  Though these figures are estimated projection, of course, on the basis of facts and figures and even though the same get translated into reality, we should not rejoice.  China is the second largest developing economy in the world now and only the USA can beat them in all their political and economical activities.  Considering their industrial growth, per capita consumption of steel, huge capacity of producing hydel power and its strength of mammoth populace, it is a little foolish thinking that India will them and meet their growth pattern economically. At lease it will be not possible in the near future.


India will definitely take a minimum two to three decades to compare with them. To afresh, China had a significant track record of growth at 14% in the 2000s.  How IMF and the World Bank are professing China’s downward growth to touch the same at 7% is something willy-nilly professing of economic experts.  May be, they are focusing their estimation on the basis of the idle and unrealistic huge investment, which China has invested  in infrastructure and real estate sectors to boost up the economy, particularly after the recession period of 2008-2009 and the same has not accrued any tangible benefits for them.


Today’s scenario in China is somewhat comparable in the days when India was under the ruling of the UPA government.  But in the past, China’s efficiency was well acclaimed as they used to invest 4 dollars per one output, whereas today, their investment is nearly 40% to 45% of GDP to get 8% of growth.  So, this ratio is completely desultory, if we look into the past scenario of China’s efficiency.


But if you analyze in details, their slowdown is more due to political reasons and consequences thereof, not just the economic ones. It is a known fact that the countries whose monetary power is not so strong will always show a  lackluster performance in productivity and institutional development as compared to the developed countries, say the USA and UK. Now, if you undertake even a modest reformatory measure that can bring in a significant yield in productive output and if you are in a position to prototype the author's invention accurately, you can treble your growth sometimes down the line.  Following these conceptual practices, China has defeated USA in exports because of its high level of production output at a low level of wages and other incidental expenses to increase the production. Though China’s wages rose, but its productivity rose faster because it was able to manage the technological expectation and requirement as sought by the western countries, particularly the USA.


In this way, India has also managed to grow significantly in the recent past, though per capita income of India has not grown considerably, particularly for the huge middle class population. As per the World Bank’s estimation, the same has fallen in the middle income group, which is USD 1045 per capita baring a few in the  high income group, which is about USD 13000 per capita after rounding off. If you compare this figure with China, you will find China’s middle income group was at USD 6800 in 2013 and now, of course, it is sharply getting declined.   


It is a very common phenomenon when any country grows fast and becomes richer as in the case of China, the slowest in the economy is bound to come.  The countries, which  are predominantly rich like the USA will always have an  edge of state of the art technologies and more importantly, will have vast resources to improvise the said technologies and to upgrade continually to get better economical growth. This technological up gradation spree of the developed countries have significant benefit against China and India because they don’t have the vast resources to maintain the status quo of the rising growth.  Now, as China grew leaps and bounds in the 2000s, its low wage units started searching for the other less developed countries as compared to them and they shifted their base to Vietnam and Indonesia for their survival. As a matter of fact, the low wage units were never able to develop enough innovative skills to sustain their existence in the market driven economy and remain trapped in the cycle of the declivity and finally, take the shelter of other countries The one of the main reasons of China’s declivity is the one as stated above.


From the experience of South Korea’s rising economy, they were one of the poor countries in the world sixty to seventy years back. Under the dictatorial rule of their leaders, they grew only feebly.  But today, they have touched a high level of income status with respect to per capita income. No sooner they have changed their outlook and believed in democracy, they could develop their economic growth considerably.  Another example of a growth oriented country is Singapore, who is the financial muscle power of Asia. Many have their own notional feelings and political reservation for their self proclaimed democratic pattern of governance. But one must remember that they too have a very strong law and a system of fair election process.


Indians should not rejoice to observe the declivity of China. We have a fair enough system of democracy and election procedures. But we have a lousy civil rights record. The administrative machineries pertaining to law and justice refuse to even lodge a simple complaint unless there is a pressure from the top. The court cases are pending years together. The common public is denied the justice. The poor stratum of the society is becoming poorer even after the BJP government comes into power at the centre. Under these circumstances, why are we rejoicing for China’s poor GDP?


Only democracy and economic reforms are not that sufficient unless we create a strong civil institution to monitor our rights of living decently. China’s  decline growth could be because of all the said factors and they need to have a correction on their social and civil rights and then they will again grow leaps and bounds. So to catch them growth wise for us, will be an arduous task. In fact, we should not rejoice at all for their temporary declined economy.



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