Role of India and China in the Global
Economy
By R.Kannan
International Conference on Asia - 14th
March 2014
The Asia’s role
in Global Economic Development is becoming significant after the recent
economic and banking crisis in the world. The global crisis had an impact on
the economic performance of all the economies in the world but the countries
from Asia were still able to report growth rates which were higher than the
growth rates reported in other parts of the world. Asia contributes to more
than 50% of incremental economic growth in the world.
Within Asia,
India and China continue to have a major contribution to the economic growth.
The sheer size of the population of both countries and the continued demand for
products and services in two countries continue to sustain the economic growth
today and this will be the trend in future.
India and China
were playing a major role in the Global Economy before the rise of UK. After
the dominance of UK, USA Started playing a major role in the global economic development.
After the World War II, Japan was growing very fast and then we saw the rise of
countries from ASEAN. From 1980 onwards, the economic growth in China started
gaining momentum and the country is still able to sustain the high growth
today. From 2001, we heard the concept of BRIC and terms like VISTA, CIVET,
MENA and MINT and how they can contribute to the global growth.
India and China
are in the process of regaining their prominence in the world and China is
already leading the world in terms of Forex reserves with a forex reserves of
more than 3.8 trillion dollars. The road to regaining the competitiveness is strewn
with both opportunities and risks. To achieve the potential today, both
countries have to carefully calibrate their movements in the Economic,
Political, Social, Cultural, Technological, Security and Environmental aspects.
India and China have
to work very closely in all these areas to realise the full potential of Asia.
Economy. Indian Economy after reporting
a good growth for few years saw the rate of growth decline due to both internal
and external factors. The potential for growth is still at 8% and the solutions
are available to achieve 8% growth. What
is required is the consensus building among the various stake holders in adoption
of the policies for achieving the growth. The sectors like manufacturing and
agriculture have to be given more importance, going forward. The proposed
Industrial corridor projects in India will provide a momentum to the growth and
there is an increased interest from various countries in the world to
participate in these projects and FDI is likely to come through this route to
support these projects. It should be possible to increase the contribution of
industry to country’s GDP to 25% from the present level of 15% by increasing
the alliances with countries like Japan, US, China, UK, etc in the world.
There were
concerns regarding the fiscal deficit and current account deficit and it has
been proven in the recent past that by adopting innovative policies it should
be possible to bring down the deficit. India is inherently strong due to its
large informal sector which was one of the main reasons for India weathering
the storm during the crisis. This sector can play a major role in sustaining
the growth rate and creating employment opportunities in the Indian Economy.
India has been
recognized today as an IT Hub, Pharma Hub, R&D Hub, Automotive Hub, Diamond
and Jewellery Hub, Leather Hub and global companies in these areas have
increased their interest in India and new units are being set up in these
areas. Global sourcing companies also have established their offices in India other
than China. These sectors in India will continue to do well going forward.
China’s
continued Economic growth has helped to gain the global leadership role today
and the country has trade balance with many of the countries in the world. The focus on creating large industries with
government and bank financing support enabled Chinese companies to emerge as
the largest companies in the world in the sectors , they operate today. So far
the economic growth was driven by the strategy of exports as well as inflow of
FDI . After the recent crisis and reduced demand for exports, there was a need
for rebalancing the economy. The need to focus on creating internal demand had
become paramount. In the recent past, there were also concerns about the rising
inflation and interest rates.
China has to
continue the engagement with other counties in the world and apart from
focussing on exports , there is also a need to look at reducing the trade
balance with other countries in the world. If Yuan , continues to rise, it will
erode the competitiveness of exports. The Yuan level could be maintained only
by reducing the trade balance with other countries. To ensure the continued
availability of resources, the country already has acquired mines and
industrial production facilities in many parts of the world. China is the
largest foreign investor in US treasury bonds today and because of this reason,
there is a need to ensure the stability and strength of the dollar. China’s
efforts to make Yuan as one of the major currencies for trading will take shape
in a few years and Dollar will continue to have its dominance for many more
years to come.
China’s economic
growth was mainly driven by focus on Industrial growth and it has emerged as
the power house for manufacturing in the world today. Starting from a strategy
of producing low cost goods , there is now a movement towards manufacturing of
high quality , high value goods in the manufacturing sector. The country has to
liberalise FDI and strengthen the Trade and Patent laws to ensure a benign
environment for foreign investors. Going forward, there should be an increased
focus on developing the domestic market and increasing the purchasing power of
workers in the country.
Society . India is a multicultural
society and there is a lot of diversity in Customs, habits and Income levels.
In the past few years, the society had gone through a big transformation and
the consumers are able to exercise their choice for the products ,they prefer. The
liberalisation of economy has created hyper competition in many industries. As
per the latest classification, the Indian consumer is categorised into twelve
income groups and there is a constant upward movement of people from one level
to other level. There is a free movement of labour from one city to another
city and there is a lot of internal migration whereby people from rural areas
move to urban areas. The mobile technology revolution in the country has helped
even Semi urban and rural areas to look at aspects relating to urbanisation and
the government’s schemes on providing employment for minimum number of days
work in rural areas have created employment opportunities for people. The services
as a sector is also developing well in rural
areas . There is a movement away from Joint family system to nuclear family
system. These trends create a huge demand for consumer products of various categories
at different price points. This has attracted the attention of global marketers
to India.
In China, the
demand for high end products had seen a big rise in demand over the years. The
purchasing power of people in urban areas has gone up significantly. System of providing work permits to workers to work in a city has
restricted the movement of labour and depressed the wages in the manufacturing
sector. Many of the workers at the lower level come to work from far away
distances. But the recent trend in increase in wage levels, if it
continues, will create different income
segments and create new class of customer segments for the products. This will
also result in consumer boom, which would partly offset the reduced demand for
products from exports. The government has taken measures to increase the
population and now people are allowed to have more than one child in a family.
The trends
witnessed above , will help to create new products for the local markets ,
which could be exported at a later stage.
Political and Security issues. India
being the largest democracy in the world, the decisions at the government level
have to be taken after taking the
consensus of various stake holders in the Economy. There are forces which act
against the pro economic growth policies because of which the economic momentum
slows down. The country has an approach to keep very cordial relations with others and by
itself does not take initiatives which challenges the sovereignty of other
nations. India is part of various Economic Alliance forums in the world and
considering its contribution , there is an effort to obtain a permanent seat in the UN Security Council .
The country
helps the adjacent countries in aspects relating to technology and training
aspects. In the last few years, there were lot of internal issues relating to
terrorism in various pockets of the country which are creating concerns on
maintaining a peaceful atmosphere. There is an increased interest from most of
the countries in the world to partner with India in all the growth initiatives
and there is a foreign business delegation
visiting India every week to identify business opportunities for doing business. India has
moved ahead in various reforms including
passing of RTI act and empowering the Panchayat Institutions in the country. In
line with the increase in economic prosperity, the country has also increased the
defence budget. Multilateral institutions are also supportive of India’s growth
initiatives and after the recent geo political issues in the Asian region,
Japan and US had shown increased interest in enhancing the tie up with India.
India has joined the nuclear club now and this should help to increase the
power generation from this source. China has emerged as the leading partner for
India in trade and runs a huge trade
surplus with India today.
The present
government in China will last for 10 years and they had already drawn a plan to
maintain the economic growth of China. Since China has gained leading economic
status in the world today , in line with
the economic status, it is trying to match the political status by increasing
its influence on many countries in the world. In terms of its growth ambitions, it is trying to achieve
this by acquiring the natural resources from regions like Africa and has allowed
its leading companies to take over the ailing MNC’s from the developed world.
Its economic engagement with many countries are helping China to maintain the
growth rate. Since its objective is to increase its political influence, it is
facing opposition from the entrenched players in the world. The present form of
merit based Government system is likely to continue in China which is good to
maintain its economic growth. To gain political influence, China is also giving
military aid to countries, low interest loans for equipment purchase from China
and various other incentives to obtain political support. But the recent moves
on Territorial disputes , have created concerns among US and neighbouring countries.
Going forward,
both the countries should use the political dispensation to increase the
economic engagement with other countries in Asia including Myanmar , Vietnam,
Malaysia , Singapore, etc. The disputes with the neighbouring countries should be brought to an end by announcing ceasefire
. Both countries in alliance with Japan should
engage in consultation on the matters to be addressed relating to multilateral institutions as well as
developing the Asia as the Economic Hub of the world. The political influence
over other countries should be exercised through increased economic engagement
rather than seeking territorial advances. The recent past indicates that as
countries grow in economic might, the number of wars saw a decline. Most of the
time, the countries take a posture to threaten other countries without
intention to go for a war. Instead of this strategy, the best to way to achieve
the political influence is through adopting a strategy of win win and identify
action plans for mutual cooperation. There should also be consultations on
addressing the internal terrorism issues
and sharing the best practices between the countries in addressing this issue.
Technology. The recent developments in
communication and mobile technologies had a significant impact on most of the
economies and how the business is being done. Both India and China have
benefited a lot from the mobile technologies and the social / financial
inclusion could be achieved through
adopting more applications of these technologies.
In other areas, there is still lot of gap in availability of technologies
which is being bridged through creating strategic alliances with the leading
players in the world. The leading companies in the world from various sectors
are already present in both countries and all of them want to increase their
engagement.
India has been successful in many of the space initiatives
and is in the process of developing a robust domestic Defence manufacturing
base. China is already advanced in the technologies relating to warfare and it
is in the process of manufacturing its own Air craft for commercial purposes. Both countries have their own home grown labour intensive
technologies which are in use across
both the countries. There is an increased need felt for creating patents for the
local products and systems are being put
in place to create more patents.
The low cost
labour intensive technologies in both
countries could be transferred to countries where there is a strategy to
promote SME’s.
Environmental issues. There is a
pressure on both countries to reduce the pollution levels but on per capita basis, the levels are still low.
Considering the need for further economic growth and increased level of
manufacturing , it would be impossible to meet the global standards in the
immediate future. Few more years are required for China and India to move
towards to the global standards. In the meanwhile, we have to build a consensus
on the need for pursuing the manufacturing strategy and this could be done with
the help of emerging environment friendly
technologies.
In the coming
years, opportunities and Challenges are many for the countries from Asia. India
and China are well poised to capitalise on these opportunities. India and China
have to co-operate in all the endeavours
as partners in progress and the focus of partnership should be based on
economic fundamentals and the influence of political considerations should become
secondary, while realising the opportunities. India, China and Japan can take a
joint leadership in realising the full potential of Asia’s Economic Growth and let us hope Economic collaboration will
take precedence over all other collaborations between these countries.
Thank you.
