What India can learn from China to revive economic growth

Updated: December 9, 2019 12:24:26 AM

China seems to have evolved a response to its trade war with the US through ‘triage’.

Indian economy, trade war, FDI policy, FDI in digital media, IP protection, market reforms, US economy, global value chainIndia can reverse anaemic economic growth by employing triage to identify and implement market reforms on a war-footing—policymakers may consider implementing reform in phases, targeting meaningful measures at less damaged or promising industries.

By Vivan Sharan

Triage is a term used in medicine to indicate the degrees of priority assigned to patients based on the principle of doing the greatest good for most number of people. It originates from French word ‘trier’ (to sort), dating back to Baron Larrey, a surgeon in Napoleon’s army, who employed it to assess and evacuate patients during battles. India can reverse anaemic economic growth by employing triage to identify and implement market reforms on a war-footing—policymakers may consider implementing reform in phases, targeting meaningful measures at less damaged or promising industries.

China seems to have evolved a response to its trade war with the US through ‘triage’. Economists predict that a protracted imbroglio involving steep hikes in tariffs and imposition of sanctions may hurt China more than the US. This highlights China’s successful integration with the global economy, especially in light of its late entry into the WTO in 2001. Instead of retreat, China’s response to deteriorating terms of trade is to implement reforms that enhance global integration of select industries. The ‘Regulations on Optimizing Business Environment’ passed in October 2019 is an example. The rules, effective January 2020, are aimed at improving the operating environment for foreign investors; innovation-centric companies will also gain. There are three components to triage-like Chinese regulations from which India should draw inspiration.

First, Chinese reforms aim to establish ‘open’ and ‘competitive’ modern markets. Such objectives seem counterintuitive for a state that often imposes trade barriers to protect local industries. However, a commitment to openness is a prerequisite to inspire investor confidence, which is at historic lows in China and India. India could signal intent through clear messaging in its consolidated FDI policy. Instead, it has reduced openness to FDI in new markets. In August, India imposed a limit of 26% on FDI in digital media related to ‘news and current affairs’. It’s a confusing signal to give investors in a vibrant industry. A reversal from the previous allowance of 100% FDI in digital media also shows lack of an economic ideology.

Second, China aims to establish higher enforcement standards and rapid dispute resolution mechanisms, to enhance IP protection. It realises that the core strength of the US economy, its main rival, stems from strategic development and deployment of IP. The much-quoted example of Apple’s royalties from the production of the iPhone in China is now part of the global value chain (GVC) folklore. At their core, GVCs represent the simultaneous fragmentation of production and concentration of IP. In contrast, India has never paid attention to IP-centric industries, despite their innate resilience to economic headwinds and increasing relevance in the services sector. For instance, domestic media and entertainment industries powered by strong IP are still growing at 13%. India is one of the fastest growing markets for digital segments such as video-on-demand and music streaming, with subscriptions to related digital services growing by 250% between 2018 and 2019. These industries are also globally competitive since digitalisation eases infrastructural barriers to trade. Yet India has done little to promote IP. This is visible in lack of specialisation in IP tribunals. In fact, a permanent office for the Intellectual Property Appellate Board was only established in 2014, after the state was sued for not providing it with adequate resources.

Lastly, China has committed to solicit public opinion on economic regulations and publicise rules and regulations that impact ‘market entities’ to build an environment of transparency. This is an area where India can better China. While some Indian regulators and ministries have become adept at public consultations, the boundaries of ‘public interest’ across regulated markets are seldom open to debate. ‘Digital sovereignty’ is the latest such construct that guides government decision-making in new markets, without adequate explanation of its economic benefits. China, a historically-closed economy, recognises the value of transparency by employing triage. India, too, should pick up a cue.

The author is Partner, Koan Advisory Group, Delhi, and author of ‘Wonked!: India in Search of an Economic Ideology’. Views are personal

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