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'India v/s China' makes a comeback
Wed, 3 Sep Pre-Open

The good news that came in last Friday seems to have given renewed vigor to business sentiment in India. The country's economy grew at a better than expected 5.7% in the June quarter. This is best since 2012, and has been enough of a mood lifter to finally push the Sensex over the 27,000 mark for the first time ever.

With nascent return of the feel good factor, another friend of India's previous 'feel good factor' phase also seems to be making a comeback now.

The years around 2007 were rife with confident, and sometimes arrogant, optimism about the future of the economy. And integral part of this hubris was comparisons between India and China, with predictions of how India's economy would have no problem in overtaking that of the dragon nations' in terms of GDP growth.

No such thing happened.

Instead, while China too was affected by the global meltdown of 2008, it still managed to maintain a comfortable margin in terms of its GDP growth in the years since.

Now that sentiment is turning again here in India, the comparisons with China's pace of growth, though toned down for now, seem to be coming back in the mainstream.

And with China's economy seemingly turning down towards 7% growth, the fruit seems to be increasingly low hanging.

However, there is one important thing to remember. The last time around, euphoria got the better of policy makers. It managed to push them into a sense of complacency, and lift their foot off the reform pedal. As a result, instead of going into a higher growth trajectory, India ended up with over half a decade of below par growth.

While we look up to the future again, and ambitious comparisons with China return, we must remember to not make the same mistake twice. Even as the economy may see increasingly better numbers going forward, the urgency to take unpopular decisions for radical economic reforms will increase, not decrease.

The government and policy makers will do well to remember that.

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Mar 16, 2018 (Close)