Why India is struggling to beat China's growth story
India’s relationship with its neighbours depends on certain established and often created national interests. Except for Pakistan, no other neighbour poses any critical challenge to the art of governance. Any conflict with Pakistan is a resource to milk for the ruling parties. It has a huge market and not everybody makes profit out of it. The politics of religion and religious nationalism play a vital role in marketing the India-Pakistan conflict; however, when it is a conflict between India and China, a passiveness in response is visible from the Indian side.
Chinese intrusion along the Arunachal Pradesh border and the exploitation of Tibet does not create "national crises". The troubled waters notwithstanding, there are many similarities between India and China. In fact, India can learn many things from its most economically successful neighbour — China.
It is not the imposition of authoritarian power or cultural revolution; we can learn from China's success in eradicating basic challenges like extreme poverty and building up the macroeconomy.
India is still struggling to identify its poor and the resources for eradicating poverty. Centralised administration and decision making makes China important for India.
China gave up the idea of socialism and embraced the market economy in a particular context such that it went on to dominate the global market. Robert Weil, in his book Red Cat, White Cat: China and the contradictions of market socialism proved that, in China, market reforms didn't emerge from any spontaneous and liberal economic policy.
They were part of a project that started with breaking off from the agricultural commune system that had developed under the leadership of Mao Zedong. It was replaced with individual family contracts and collective public welfare programmes were scrapped.
Market socialism was an expression of the "middle class", the petty bourgeois side of China's development story. Though China introduced reforms in production, it continued to regulate labour mobility as well as wage. This contradicted with the market reforms, and led the labour market under state control to reduce the cost of production. The move had its own implications on the Chinese society. At home, in India, market reforms created labour mobility, but not jobs.
China’s export grew exponentially with its entry into World Trade Organisation (WTO). According to World Trade Statistical Review 2016, China dominates global trade with the help of its domestic manufacturing sector, including small and medium scale players.
This is economic nationalism. Unfortunately, India is yet to recognise its potential. For instance the trade deficit that India has with China stood at $46.56 billion in 2016. Apart from that China is still one of the biggest foreign direct investors in India — the 17th largest FDI investor in 2016.
Modi government encouraged "cashless economy" in India, giving a fillip to players like Paytm. It is a known fact that 40 percent shares of the startup are owned by Chinese firm Alibaba. At the global level too India is competing with China to attract FDI. Our rank in the global competitive index rose to 39 in the 2016-17 period from 55 in 2015-16, but China is way ahead at the 28th position.
Evidently, the dragon has risen past India and the rest of the world in terms of global trade.
China's domestic economic policy is a threat to India's small and medium manufacturing players.
The centralised economy of China promotes domestic manufacturing, which encourages companies to relocate to the country. China wants foreign companies to produce on its shores — promoting the domestic manufacturing sector vigorously. The Indian government, in fact, has done exactly the opposite.
China fosters the bourgeois — its middleclass — while India continues to impoverish them.Beijing follows a brand of protectionism that saves its domestic manufactures from global competition. Yet, there are criticisms about the deplorable working conditions in Chinese factories — a leading contradiction of China's market socialism.
At home, protectionism is treated as a sin. Both the Congress and the BJP hate protectionism. China's exports too challenge the Indian market in a big way. Interestingly, there have not been any active state-led interventions by New Delhi in this regard. On the contrary, India still wants Chinese investments.
Therefore, in this context, it is important to understand the impact of the Make in India campaign. The fact is the project is yet to attract global capital. Its official website lists the sectors where FDI inflows occurred from 2012-14 to 2014-16: Electronics and IT and power are the sectors which attract the highest FDI — of $5.9 billion and $2.5billion respectively.
Significantly, investments under Make In India are follow-ups of certain existing projects. Mining is another sector that the government has projected as a success story; but foreign investment in mining began in 1998.
One of the other challenges of the project is that it makes every investment under a single brand name. The government has put every foreign investment under this brand to show an inflated picture of the FDI inflow.
The opening up of FDI alone does not empower the economy to meet the trade deficit. If we are to overcome the Chinese challenge, empowering small and medium manufacturers is the path to follow.
On the hand, India is trying to increase trade with ASEAN countries. Foreign affairs minister Sushma Swaraj has made it clear that this would challenge the Chinese economy. Albeit unrealistic, the move is good to seek better trade partners.
ASEAN is India's fourth largest trading partner with about $49.40 FDI flowing into India from ASEAN partners. The Indian government seems to have explored all possible options to overcome trade imbalances it may encounter with China. This indicates the role of China in global politics and our dependency on the market economy.
The writing is on the wall: it is not possible to stop Chinese imports and it is also impossible to impose protectionism on domestic players.
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