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Can India mimic China?
Tue, 1 Dec Pre-Open

Proponents of the India growth story believe that India has the potential to expand its share of global manufacturing, particularly given the slowdown blues in the neighbouring dragon economy. However, it would be naïve to presume that India could easily grab any significant manufacturing share from China. And while India may grow faster than China in the coming years, India is still far smaller than China in terms of GDP.

As an article in The Hindu Business Line states, in 2014 China's GDP at current price levels stood at US$ 10.38 trillion. This was roughly five times India's GDP of US$ 2.04 trillion. So, even if India grows at a compounded annual growth rate (CAGR) of 10% and China at 3%, it would have to wait till 2038 to be able to overtake China.

Also, there are many roadblocks if India wants to mimic China's export-led growth model. Here are some key challenges:

  • India's multi-party democratic orientation makes it difficult for the country to implement a China-like growth model. The decision making process is typically laboured and inefficient. 
  • When China became the world's manufacturing hub, the world economy was expanding at a healthy pace. In the current scenario, the world economy is shrinking and reeling under the excesses of the past. The drop in India's exports is a reflection of the precarious state of the global economy.
  • Mega trade pacts between certain economies are likely to deprive India of access to some overseas markets.
  • While India has the low labour cost advantage against China, the least developed countries (LDC) such as Bangladesh, Ethiopia or Myanmar may pose competition to India as their labour costs are even lower.  
  • Another thing to be dealt is manufacturing through robotics and 3D printing. The same is going to shrink the extensive labour advantage that we have over our peers.

It is important that investors take such challenges into account before investing. Will Indian policy makers take the right steps to deliver the 'Make in India' promise? Will India emerge as the next big global manufacturing hub? Only time can tell...

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