INDIA vs CHINA - THE GROWTH CONUNDRUM

Two Asian Tigers with similar demographics. Started an era of development at the same period. Similar demographics. Unique demographic dividend of youth and world's highest percentage of working population to boost labour productivity. China's economy is soaring. Indian economy is falling through the cracks. What went wrong?

The growth conundrum of the world's two most important economies - INDIA vs CHINA

A look at what ails the Indian economy and what aids unstoppable Chinese economy?

While INDIA has long cherished its culture of unparalleled diversity through the epochs, hard fought and won democratic values and secularism, and importance given to intellect, the arts and the nurturing of individual personality, CHINA is known for its authoritarian, disciplinarian regime with relentless focus on growth, pursuit of technology with all its excesses, its homogenous culture, and obedience of the whole country to a fault.

Despite these stark differences in composition of the two Asian juggernauts, their destinies for growth seemed entwined, just a few decades ago.

INDIA and CHINA were competing neck to neck on GDP growth of 6-8% per annum not too long ago. China has maintained its steady 6% p.a growth over nearly 3 decades, and India's growth rate which saw the enviable highs of 7-8% under the leadership of eminent economist Dr Manmohan Singh has dramatically fallen to 4.5% in the September quarter 3Q 2019.

China became the manufacturing hub of the world in the past decade, whereas India did not invest enough in manufacturing. In the 1990s, when India had just liberalised trade and embraced globalisation, and technology was not yet a definitive driver of economic growth in the pre-internet era, India and China were both competitive in the pharma industry where the world came to see both countries as re-engineering hubs for reverse engineering drugs. Both economies offered western enterprises the same cheap skilled labour and well-trained engineering and research talent. Though both countries have similar population, and similar composition of the work force (working age adults as percentage of population, as well as the absolute numbers are of same order of magnitude), India's work force in the organised manufacturing sector as at the end of 2019 is around 14 million, whereas China's is over 100 million. What could be a starker pointer to how far behind the INDIA is in the race of development - the country of Aryabhatta, the inventor of Zero, Kautilya the father of economics and commerce, backyard of icons who shone incandescently for their valour, patriotism, unparalleled bravery and moral character, home to a potpourri of myriad conquistadors who invaded India for its prized, world's most exquisite treasures, and birthplace of the most revered and exalted kings, emperors, queens, and leaders such as Gandhi? And, India has achieved this singular accolade despite its world class higher education institutions like IITS, IIMs, Regional Engg Colleges, liberal subsidised education for all, and an extra ordinarily gifted populace in STEM sciences. This disconcerting departure from what is due India merits a deep reflection by all Indians and particularly its youth, especially at this juncture when the idea of India seems to have been tossed to the air flippantly by India's enemy!

All the Asian economies that have grown fast in the past few decades, Korea, Taiwan, Singapore, Japan grew by domestic and Foreign Direct Investments in their employment intensive manufacturing sector. India while producing a large number of highly skilled labour force, still fails to generate employment, resulting in unemployment levels reaching the lowest figures in 45 years in 2019. Several factors merit attention that plagued India through the past 2 decades - lack of managerial talent at the upper most echelons, brain drain that resulted in India's best leaving for greener shores, crony capitalism, mismanagement of public funds by successive governments, mismanagement of PSUS, monopoly utilities, rampant corruption, bankrupting India's natural resources through unethical awarding of contracts to capitalists who sponsor elections, lax law and order climate, unenforceability of contract law that dissuaded western counterparts from making substantial commitments of capital, and so on...

India's domestic consumption is not as strong as that of the Chinese, buoyed by the recent prosperous growth of China. The most reckless investors in any high end luxury category such as abstract art, or any speculative category such as the ICO craze of 2017, are to be found in China. China's strong domestic consumption made it less dependent on exports. Though China was looked down upon in the west as producer of low quality and oftentimes hazardous products not too long ago, it speaks to China's deserved clout in the manufacturing world today that Apple that most conscientious brand outsources its manufacturing of its flagship product the iPhone exclusively to China. In the intervening decades, many importing countries chose China as the manufacturing hub and invested capital in setting up manufacturing facilities and also imparted technical know-how to China, which aided in fast skilling of Chinese labour force and also China getting very competitive in cost of production.

India's domestic consumption story being not so strong, it is more dependent on exports for its growth relative to China. Indian importers and exporters are both adversely affected by the exchange rate, which is overvalued, and suffers on account of Indian Govt's ineptitude at managing the exchange rate (apart from making frivolous election promises that if a certain Govt is chosen, Rupee will go further up from 1USD = Rs70 to 1USD = Rs20).

Urban migration in China

Workers have migrated in swathes to cities in China where factories are situated, seeking better employment prospects as the economy transitioned from agriculture to manufacturing. Chinese GDP per capita has grown at a staggering 9% p.a for decades, vis a vis a 2% growth benchmark that The World Bank deems good. Indian rural economy is in great distress. Farmer suicides are an ongoing reality in India, as the produce prices have stagnated or fallen, despite increase in productivity, due to policy deficiencies in supporting basic minimum incomes for India's Anna Daatas or farmers. Because the Indian farmers are already greatly vulnerable to climatic vicissitudes like rainfall, floods, droughts etc, lack of policy support from the Govt. and the added urbanisation trend of super grocery stores that further squeeze farmer prices have delivered a double whammy for farmers. Faced with lack of employment prospects in cities for the youth, the consumer spending in rural india has stagnated, cutting into savings and investment rate also.

Human capital investment in China

As foreign investments skyrocketed in China, so did the college admissions for the youth, and also the upskilling of already employed workforce, as China picked up the manufacturing jobs of the world and gradually even the most skill-intensive jobs, in keeping with its competitiveness and gargantuan growth. India had an advantage here in its billion strong English speaking workforce, but India simply did not have the manufacturing intensity, the factories, the capital, and the training required to be a competitive manufacturing hub, despite its world class education system and engineering talent.

China's enormous investments in Research & Development

China invested 1 trillion RMB (160 bn USD) in 2012, the second highest R&D spending in the world, amounting to 1/5th of the world's total R&D spending. Besides China's own R&D spend, the world has been investing in Chinese R&D due to its acquired glory as the world's cheapest imitator. Every time a global client chose China to manufacture their product, the technical know-how also moved to China, which the Chinese exploited to their advantage with weak patent laws prevalent in China.

China's leaps in technology

Armed by a very strong and controlling regime that firmly believed in an illiberal trade regime, China successfully guarded its economy from global platform monopolies like facebook, WhatsApp, paypal while nurturing Chinese tech. Almost every western success has a counterpart in China.

Alibaba and JD.com to Amazon

WECHAT to a host of platforms like WhatsApp, paypal

and now TIKTOK to recreational platforms like facebook

Alibaba's affiliate Alipay has assets under management dwarfing the world's biggest wealth management firms. These indigenous successes came about because Chinese were forced on a diet of the international platforms, and a billion plus population of young, aspirational chinese had to invent these homegrown success stories, with a massive helping hand by the regime.

India, not only played passive to the onslaughts by western tech platforms, but did nothing to nurture indigenous entrepreneurship culture and failed its startups. If we find Indian startup successes today, it is despite the unconducive environment, and with dollops of capital once again from guess where, China! Most successful Indian unicorns today such as PAYTM (which owes its success in no small measure to help from Indian Govt through demonetisation 2016) and Flipkart have Chinese strategic investments.

China's investment in infrastructure

China's physical as well as social infrastructure is a study in meticulous detail and execution. Visit any tier 2 or tier 3 city in China. You are bound to see far more sophisticated infrastructure than tier 1 metros in India like Mumbai, Delhi, Chennai, Bengaluru. China's infrastructure can withstand an apocalypse it looks like, and the formidable law and order that no citizen or tourist dare cross the Chinese police. India's teeming masses are severely shortchanged for infrastructure by governments that divert funds to wasteful leakages to personal coffers of the corrupt administrators. The Delhi model's current success by an educated government AAP (fittingly named after the common man) is a ray of hope in an otherwise despairing state of affairs for the common man in India.

China's investment in R&D at a breakneck speed

Most advanced technologies such as AI are saturated by the highest number of Chinese patents, patent applications and investments only second to USA. In comparison, when we talk of Indian startups, they are a far cry technologically, passing off chatbot creators as next gen AI companies. It is telling that India played content to be the body-shopping backyard when IT was booming all through the 1990s and 2000s when IT services companies like TCS, Infosys, L& Infotech etc flourished. World has neither seen tech pioneers like APPLE, GOOGLE, FACEBOOK emerge from India, nor homegrown equivalents of successful Silicon Valley companies. India has just passively become a customer of these world leading tech companies, and dutifully supplied talented employees to whoever cared to innovate and win the technology race.

Unsurprisingly, China is far ahead in its adoption of technology like Artificial Intelligence, Cryptocurrencies & Blockchain

When China banned bitcoin, crypto related companies and ICOs in late 2017, it gave the impression of being tech averse and fearful of new technology. However, as CHINA'S Central Bank Digital Currency experiment poses competition to Facebook's proposed Libra, China's farsightedness is at display even with respect to cryptocurrencies and blockchain.

India is a far cry in comparison. Ever since the erudite economist Dr Raghuram Rajan, the then Governor of RBI, presciently called cryptocurrencies the future , back in 2015, we are yet to encounter a single person in India's current ruling establishment who comprehends the potential of cryptocurrencies, leave alone the technology! Competitors can rest assured that the Indian Govt. has nothing up its sleeve, try as it may for the next 5 years, as China brandished a surprise after 2 years of ban, all the while working on fortifying China's capabilities in crypto.

I will leave it to the readers' imagination as to why India's economy has been so consummately derailed. Any guesses?

Ideological critiques aside, where India is headed to the desolate replica of an ISIS, except on a scale that is million times bigger, India's economy is begging for answers and solutions, that may lie simply in a regime change. India has never seen a morose and intellectually bankrupt ruling establishment as we are facing currently, and not surprisingly at its insecure and defensive best.

Leadership with vision of an authoritarian regime in China vs uninformed and intellectually deficient Indian Govt.

Infact the ruling dispensation in INDIA is so bankrupt of ideas, education, qualifications and basic comprehension of any science, and so terrified of talented opponents, bureaucrats, advisers, anyone with education, and dissenters who can oppose the regime that India's most illiterate and lowest IQ PM todate is singlehandedly taking INDIA backwards by giant leaps, back to a regressive stage of our civilisational progress that we cannot trace or remember!