Column: Canvassing China – Advantage Modi in Middle Kingdom

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Published: May 14, 2015 12:32:14 AM

With India’s growth set to surpass China’s, the Indian PM should be bolder than he would otherwise have been

Narendra Modi’s first state visit to China might be a landmark for various reasons. One of these is statistics.
The year 2015 might be the first year in the current century when India’s GDP growth might exceed that of China’s.

India was tantalisingly close to the Chinese GDP in 2010. The Chinese GDP (at constant prices) grew by 10.4% in the year, while the Indian GDP recorded a growth of 10.3%. Otherwise, there has not been any other year in this century when the Indian economy came close to matching the Chinese rate of growth.

Interestingly, there were two occasions in the 1990s when the Indian growth rate surpassed China’s. These were 1990 and 1999 respectively. During 1990, the Chinese economy grew by 3.8%, while the Indian economy grew by 5.5%. At the turn of the century in 1999, China notched a growth rate of 7.6%, while India grew by 8.4%.

The IMF forecasts a higher rate of growth for India in 2015. At 7.5%, India is projected to outgrow China’s growth of 6.8%. And if the IMF is to be believed, Chinese GDP growth is going to stabilise at around 6.3% for the next few years. India’s GDP growth, on the other hand, is seen settling at the trend level of 7.5% for the rest of the decade.

This would put India ahead with more than one percentage point of GDP growth each year.

Not much research has been done on how much of what the IMF forecasts actually materialises. For the time being, however, Modi would be in China with the knowledge that he is well-placed to snatch the label of the ‘fastest-growing major economy’ from his Chinese counterpart in a few months.

The knowledge might encourage him to be bolder than he could have been. As a starter, he does not need to be overly worried about the trade imbalance. India should now be able to turn the imbalance to its advantage. Chinese exports would now rely significantly on India for maintaining a stable rate of growth. There is little possibility of fresh investments in creating new capacity for exports in China. Furthermore, given the current budgetary controls, China is unlikely to extend any fiscal support to exports. Under these circumstances, some major export industries like steel, aluminium and chemicals can feed into the domestic demand from Indian industry. While this would not correct the imbalance, it would help India in selectively channelising imports.

The best option to channelise Chinese imports is to bundle them into project imports connected to Chinese investments. Indeed, there can hardly be a better time to solicit investments from China. These investments have already begun flowing, particularly in India’s remarkably expansive e-commerce space, telecommunicatioans and electric equipment. Making Indian rail run quicker through Chinese investments is an idea whose time has surely come.

More Chinese investments in India are the best way to sidestep the trade imbalance. At this stage, notwithstanding the slowdown in the Chinese economy, India is still not in a position to reverse the deficit. This is simply because China produces much more of what India needs. Also, India is not an exporter of oil, coal, or other precious metals and commodities that can make it indispensable for China. But Chinese investments in India can spur Indian exports if the investments are export-oriented. Much in this regard will depend on how fast India can clean up its doing business conditions. A good job by Modi would encourage the Chinese to visualise more export-oriented businesses in India, rather than the domestic market-oriented focus they have right now. For example, there is no reason why the Xiaomi should not think of India as a location for manufacturing handsets and exporting them elsewhere, particularly the rest of South Asia and the Middle East.

Modi can also take the liberty of casting his net wide and persuade China into playing a supportive role in some of his grand strategic designs. Foremost among these is the ‘Act East’ policy. Nobody has much idea of what the Act

East strategy actually means except for the knowledge that unlike the ‘Look East’ policy of the past that focused only on Southeast Asia, Act East would mean much more of China. Act East can make a grand entry in regional matters if Modi has China on his side in making some lasting moves in the region. Connectivity and disaster management are some of the ideas that can be easily pursued in this regard. Nothing can sound more harmonious than a Sino-Indian joint call on connectivity for economic revival in Asia, where ‘Silk Road’ and ‘mausam’ pledge close co-existence.
It will be ‘Advantage Modi’ as he traverses the Middle Kingdom. One indeed hopes the IMF has been right in putting India ahead of China.

The author is senior research fellow , Institute of South Asian Studies, National University of
Singapore. Mail:

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