Crouching Tiger, Flying Dragon

id-china.jpgThe hottest debate which has engulfed India in recent times is whether it can overtake China in the race for economic supremacy. Now, if only statistics were to be considered, then China would be ahead of India by leaps and bounds, both in terms of national income and economic prosperity. But as always there is a twist in the tale. However, before the twist comes the tale i.e. the statistics.

Well, roughly speaking, China’s population is 1.2 times as large as India’s, whereas its GDP is 3 times India’s GDP. Its poverty rate is less than half of India’s 35 %( World Bank). Female adult literacy is nearly double India’s pathetic 45%. Life expectancy in China is a full 8 yrs longer. The rate of malnutrition in children under 5 yrs in China is only a quarter of India’s staggering 46%. In terms of infrastructure, China’s lead is even more striking. And soon it is slated to host the Beijing Olympics.

Electricity production in China is nearly 3 times higher than in India. Even after the so-called ‘Telecom Revolution’, the number of landlines and mobiles in India is only a sixth of the number in China. The World Bank ranks China 83rd in doing business whereas India occupies a lowly 120th position. China gets $40 billion worth of FDI, India a pitiable $3 billion. Coming to the external sector- China exports an impressive $600 billion worth of merchandise compared to India’s meager $80 billion….and so the list goes on and on.

Well, all this actually shows that China has been more proactive in taking up reforms, opening up its economy and removing controls and restrictions. China’s mind-boggling achievements are all the result of determined state initiative and efficient execution of projects. On the other hand, inefficient management, constant delays, spiraling costs, political bickering, regionalism, corruption have all proved to be India’s bane.

Now that I have created a very rosy picture of China, it is time to reveal the chink (or rather chinks) in the armour. Well, firstly, China kick-started reforms more than a decade before India. Part of the gap between their performance can simply be attributed to that earlier start ( after all, a 10yr old child’s and a 20yr old mans height cant really be compared). Secondly, when it comes to statistics released by the Chinese government, it is simply not reliable. The authoritarian government there has a history of glorifying China’s economic performance and releasing inflated figures. Some of their economic achievements are pure propaganda or rather castles in the air (Some skeptics estimate that China grew by a mere 3-4% in 2000-01). In India at least the figures are more or less reliable. There are several institutions in place to keep a check on the government. There is the judiciary, the opposition, the RBI etc. So the Government can’t really fool the public.

Now coming to the FDI myth, almost 50% of China’s FDI is Flight capital (i.e. black money) returning through the process of Round Tripping. A large amount of Chinese black money is recycled through Hong Kong and sent back to the mainland as FDI by manipulating export and import receipts. So the actual level of FDI received by China might be nearer to $20 billion than $40 billion. India on the other hand, underreports its FDI by not ascribing to the IMF approved methods. India’s FDI figure excludes reinvested earnings, subordinated debt and overseas commercial borrowings which are included in the FDI figures of most other countries. Standard computation would raise India’s FDI level to $8 billion which doesn’t seem too bad when compared to China’s $20 billion.

All this doesn’t mean that China’s overall supremacy over India can be denied. Its socio-economic parameters have been constantly better than India’s. However India can take heart from some facts. Firstly, China’s export led manufacturing boom has been largely a creation of FDI, which has effectively served as a substitute for domestic entrepreneurship. On the other hand, India’s long list of homegrown entrepreneurs may give it a long term advantage over China. It is the Tatas, Birlas, Ambanis and Murthys who have taken India to places whereas it is hard to find a single name who symbolizes China’s prosperity. Secondly, by 2040, about a third of the Chinese population will retire. This will place enormous demands on the country’s finances in the form of old-age benefits, pension and healthcare cost. In fact, some economists think China might actually grow old before it grows rich. India, on the other hand will have a thriving young population who will be in the most productive phase of their lives by that time. Moreover, the global demand for skilled labour will also rise significantly. Hence, India will have a golden opportunity which it will only be able to capitalize by providing quality education to all its citizens. Hence demography and human capital are advantages which can not be denied to India.

Finally, coming to the strength which will prove to be India’s weapon of mass destruction i.e. its soft infrastructure. The political system, the rights and freedom of the people, the cultural diversity are all elements which constitute the soft infrastructure of a country. India not only has a democracy, but a uniquely diverse culture which binds people together. The state does not interfere with the people’s freedom, people have the right to disagree, the right to choose and the right to make their voices heard. Moreover, India’s independent judiciary is its biggest asset- justice may be delayed but it is denied to none.

On the other hand, the Chinese government is infamous for repressing its population (Tiananmen Square, Tibet etc). Citizens have to tow the official line; any sort of dissent is not viewed with a kind eye. There are major restrictions on labour movement. Private property exists only in name i.e farmers can lease land but not sell it. Moreover, the judiciary is not independent-justice is rare. People can not elect their own representatives. Till now, China has been able to satisfy the basic needs of its people. But as economic prosperity grows, people will start aspiring for more. And then China will have to make the expensive but inevitable transition to being a democracy. Till then China will continue to be a dual nation- one which is politically a communist state but economy wise a free market economy.

So if seen in absolute terms, India is miles behind China. However, India’s foundation is strong, whereas China’s seems shaky. So who knows the crouching tiger may finally overtake the flying dragon. And then the twist in the tale will be complete.

Anusree Raha

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