While holding the common factor of slumping economic growth, challenges and solutions to combat the same differ for India and China
It is a tale of two countries. India's growth rate slumped and it has caused a furore. The government has been held responsible for the sudden drop in GDP growth rate on account of its policy mistakes. In China, economic growth has fallen to a three-decades depth. At just about 6.1 per cent GDP growth in 2019, it is a distant call from those of days of two-digit growth rates.
However, the Chinese government is not under fire nor there is much worry about things being altogether lost. This, despite some increase in the unemployment rate as well. Why is there such a difference in responses over the economic performance of the two countries? This is because in one case such criticisms would appear to be politically incorrect, while in the other it is perfectly fine based on the punch they pull.
There are some other similarities and dissimilarities as well. Even before the dismal growth figures of 2019-20 were disclosed, India's economic numbers had come under serious doubt. A former chief economic adviser to the Union Finance Ministry, Arvind Subramaniam, had left his job in India and returned to his parent institution in the USA.
From there, he did a paper criticising India's numbers and suggested that the GDP figures were so inflated that growth rates announced officially could be a full 2-2.5 per cent lower than the announced figures.
The fact is that it is a known fact that China's economic data are often manipulated and experts had stated these should be taken with a pinch of salt. However, recently, even when the figures were put out, there were no qualms about the country's data quality.
What could be the difference between India and China that when one country shows a dip in GDP growth rate, there is not much of concern, however, heavens break loose in the case of the other when it reports a fall in growth rates.
This happens despite the fact that when India was going through a phase of sing-along economic activity and growth was in excess of 8 per cent we were advised by global experts, including the present-day world's most renowned public intellectual, Amartya Sen, that growth was not the be-all and end-all. The better measure was how good it was for raising the living conditions. The broadest answer could be nothing succeeds like success.
China has been so successful for such a long time, that any shortfall in its performance is given a go by. Already, it has acquired the economic muscle to take on the most powerful economic behemoth in the present-day world, United States. Despite a two-year trade fight with the USA, which was China's largest market in the heyday of US-China trade bonhomie, the country has not fared badly.
Secondly, in terms of economic might, the two have become like oranges and apples, that is to say, that they cannot really be compared. When it began its liberalisation close to forty years back, China was not much different from India.
However, currently, China's national income is close to five times that of India. China is an over USD 10 trillion economy, against India's USD 2.7 trillion. It has lifted a huge number of people from poverty and average per capita income in China is way above India's.
Thirdly, as a consequence of its success over decades in expanding its economy, China has deliberately been seeking to 'cool down' its economy and growth. The break-neck speed at which China has been growing, has created its own side-effects as well, mainly, in terms of deep degeneration of its environment.
Hence, China is aiming more at a deliberate modulation of its absolute growth and concentrate on the quality of growth. This is in terms of developing more high technology and less polluting industries. China is aiming more at gaining capability in high tech areas rather than proliferating in low tech manufacturing industries.
India, on the other hand, has not been able to achieve its stated aim of gaining capability in the manufacturing sector. It is way behind in production of even ordinary low tech articles. Hence, slow down at this stage stifles the process of developing the essential elements of sustainable growth.
However, at the end of the day, the worries of both countries are the same. The slackening of the pace of growth means slowing down on the creation of additional job opportunities. Both countries need to create roughly about 10 million new jobs a year to only absorb the addition to the labour force.
Hence, China is seeking to preserve the steam of the economy so much that job creation continues apace. For China, it is easier than it is for India. China has identified regional centres for setting up startups and technology industries. For this purpose, banks have been allowed to extend funds, notwithstanding the mountains of bad debts they are saddled with.
For India, while startup ecosystem is viable and individual entrepreneurs are emerging with their new startups, they are being dragged down by the absence of the kind of swift government aides —including ready funding and clearances—that are available in China.
In China, for example, loans are available at 2 per cent interest rate, which in India is upwards of 12 per cent and this makes a major difference. There are many other shortfalls as well.
In the end, it is a story of two different systems, one is yet a command economy, where there is little opposition to the government; the other is a loquacious free market economy where uncertainty is the only certainty.
Views expressed are strictly personal