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Together, we shall rise! - Views on News from Equitymaster
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  • Aug 16, 2003

    Together, we shall rise!

    As we celebrate the fifty-sixth anniversary of our independence, let us take some time to think about the following lines that formed a part of our first Independence Day speech way back in 1947. “Long years ago we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of midnight hour, when the world sleeps, India will awake to life and freedom.” In our tryst with destiny, there is one country that has inspired many a discussion among the intelligentsia as well as common men on the streets of India. The country is China, and we have compared our progress and our developments with it on innumerable occasions, and would continue to do so (as this article progresses in that very direction).

    Where China scores…

    There are talks about how China has overtaken India on the growth front. A look at the graph below should suffice. Be it GDP growth, FDI inflows, or share in global trade, China seems to be outpacing India on all fronts. The reasons for this seem many - while few call this a result of China choosing the path of liberalization earlier than India (China in 1978, India in 1991), some attribute China’s success to the proactiveness of its policies and people. Further, factors like high share in the global trade and a modern infrastructure have been driving growth in China.

    Source: The Economist

    The dilemma for India continues on the development front as well. Just consider the following table. As per a recent report by United Nations Development Program (UNDP), India ranked 124 out of 173 countries considered for the Human Development Index (HDI). The rank for China was 96, poor yet better than India’s. This is indicative of the fact that the growth (we are one of the fastest growing economies!) we have witnessed on the economic front has not helped much to improve lives of our people.

    India: Are we really developing?
    Parameters India China
    HDI Rank 124 96
    Life expectancy at birth (years) 1995-00 63.3 70.5
    Adult literacy rate (% age 15 and above) 57.2 84.1
    Population below income poverty line (%),
    $1 a day (1993 PPP US$), 1983-2000
    44.2 18.8
    Female adult literacy rate (%) 45.4 76.3

    Where India scores…

    In this discussion, however, India should not be denied its place in the sun. India’s competitive advantages over China lie in banking and financial services, IT services and outsourcing (IT, pharma, auto, etc.). India owes its success in these fields to factors like implementation of the reforms process, availability of educated English-speaking and technically capable workforce, a dynamic, entrepreneurial business spirit, and good regulatory support from the government. However, for India to build up on these relative advantages, numerous challenges to further progress remain. An unwieldy political system with high levels of corruption, high tariffs on imports and the overwhelming infrastructure and development needs of the country represent just a few.

    How both can score – faster, and stronger…

    Despite being two of the fastest growing economies of the world, there is a serious problem that stares India and China in the eye. And ironically, this problem has been self-created. The problem lies in the fact that Indians seem to be worrying too much about threat from the Chinese. The Chinese on the other hand, treat India as just another trading partner. One solution to the problem is that India should stop benchmarking itself against China and encourage establishment of a partnership between the two countries. Both India and China have to work together to make this century the much talked about ‘Asian century.’ China, for example, could provide an investment model to India, especially that of its Special Economic Zones, and a model on how to bring down the population growth rate.

    India could, in return, provide assistance in the software parks China is looking to build, as well as in banking and insurance sectors, research and development and biotechnology. This is the most probable win-win situation for both these giants. Also, rather than voicing concerns in isolation and remaining unheard, an India-China combine would have a greater say in WTO issues. India seems to have put the right foot forward as can be seen by India Inc.’s investments in China.

    On the trade front, the need of the hour, especially for India is to build a strong link with China. And given the size, proximity and economic structure of the two economies, the scope for expansion of trade is immense. A relationship can be built in the form of an economic union of the type of ASEAN, and this would enable both these countries to participate in each other’s growth. Over the past year, India's exports to China have grown at the rate of 14% and imports at the rate of 24%. The total volume of trade has more than doubled over the last four years. However, India's exports to China are a very small portion of its total exports. Same is the story with India's imports from China. Apart from representing a low penetration across major items imported by China, this indicates the fact that India is missing a major opportunity to participate in China's growth.

    As per the estimates of the Confederation of Indian Industry (CII), India's exports to China will touch US$ 10.0 bn in two years from US$ 5.2 bn in 2002. To achieve this, however, India needs to take a re-look at the items it exports to China (iron ore, steel, fisheries, chemicals and electrical equipments), and enhance the same. A growth in the size of the exports-basket will definitely improve India’s trade equation and will also strengthen the relationship between the two countries.

    Finally, we need to consider one thing before deciding on our verdict for either India or China. Over the past few years, in both these countries, there has been a rapid growth in the middle class - mobile, driven, and, to some extent, forward-looking, that is moving from simply having enough ‘roti, kapdaa aur makaan’ to now having sufficient funds to engage in some discretionary expenditure. This class is not a single section of society, but comprises of towns and countryside as well, making its voice heard everywhere. It encompasses prosperous farmers, white-collar workers, business people, military personnel, and innumerable others, all actively working toward a prosperous life. Ownership of cars, televisions, and other consumer goods, reasonable earnings, substantial savings, and educated children symbolize this diverse group.

    Along with that, a rising proportion of earning population (India has more than 80% of its population below 45 years, while the figure for China is nearly 60%) provide these countries with a chance to replicate the benefits of ‘baby-boom’ (the ‘middle-class boom’ in case of India and China) that spelled immense growth for the US economy post the second World War. All this, and much more can be achieved only when these two ‘bhai-bhai’ can combine as a force. And when that happens, it would be our real tryst with destiny, and that of Asia as well.



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