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Views Articles India Will Rise As China Falls

India Will Rise As China Falls

Let us understand that it is not a zero sum game — the loss of one is not the other’s gain. Besides differing political systems of governance, both nations have different USPs — India has law, China has order.

China had built its infrastructure at a time when oil was, for most part, sub-$25 per barrel. With a powerful zeal of its united politburo, China gave it the desired the thrust. That was a great advantage.

The other advantage it had was that its timing was perfect: the very beginning of the globalisation phase, about 25 plus years ago. It had no competition from any potential manufacturer base economy in the world and the rich Western world was moving up the food chain, looking for avenues to source cheap finished low-end products.

China is still in a good position; it is innovative, it has higher HDI ranking, sound infrastructure, strong foreign exchange reserves and no democracy-related hurdles, if I may.

It is, however, severely bruised on many fronts. Going forward from here may be with a limp. Today, there is a backlash to excessive globalisation. Jobs and protectionism are essential subjects of mainstream discussion across the geographic landscape, keeping politicians of every colour busy with rhetoric on ‘bring back employment’ blah.

To make matters worse, China made too many enemies over the last decade, which it did not have in the first 15 years of its growth. It has simply kissed every cheek that the Western world has slapped: to get cheap raw materials from sanction-affected nations. You can’t be a leader with no followers.

China’s traditional customers in the West are also a wee bit poorer now. They are also angrier with it and so are on the natural hunt for an alternative, drifting away from it. It does not stop there.

Our northern neighbour has created a hostile neighbourhood for itself by making expansionary claims on territories — India, Taiwan, Japan, Vietnam and Philippines dislike it. One can’t say the same about Pakistan. Contrast that with Mexico, Canada and Puerto Rico for the United States.

China now has a sudden psychological unease about it. Recently we saw that it still relies on devaluation of its currency for competitiveness; it has run out of super low-wage and high productivity labour force.

On the other hand, the country is flexing its muscles. It wants to create a formidable alternative to the World Bank and have its currency at par with the American dollar as a reserve currency for global trade. For that, it will have to make the Yuan fully convertible and tradable, thus exposing it to the market vagaries, risking its rise. A rising Yuan can be a sinking China.

It will have to begin privatisation of its PSUs as they have so far been artificially pumped up. Moving from conventional to high technology industries will require it to be interdependent on some of the advanced nations it annoys and competes with. It has over invested in industrial towns, some now dubbed as ‘ghost towns’ as further urbanisation has halted. Property prices may be a bubble waiting to go bust. Construction activities have slowed and steel is already in the drain hole.

China has also polluted itself, but to check that, it must close some mega industries, which is going to hurt its economy big-time.

It will now have to transition from the government-spending model to a population-consuming economy and that is difficult in any country, especially where there is a citizens’ trust deficit with its government and no social security for the aged. The problem is further compounded as they are running out of young people and it is ageing due to years of a one-child rule.

China’s population was always more literate than India’s, but it is now more educated as well. Recall that they had closed almost all universities for a decade (1966-76) during their cultural revolution. They are also wealthier now (but not rich enough), and so not just comprising the peasant class. An evolved population is perforce an involved one too. That makes them more politically demanding — a hurdle and challenge for any government to rule over.

Our ‘incredible’ India has some of the above and much deeper problems (a noisy democracy being the worst), but it is likely to pose a serious competition to China in the future, more so if a pro-business and governance efficiency-seeking Narendra Modi gets majority in both the Houses of Parliament by 2017. Such a parliamentary control would be historic for India.

Low oil and commodity prices will be a bonus for a nation like ours, which is at the cusp of building infrastructure.

Unlike China, India is a natural ally of the free world, and that is its strongest intangible asset, with Prime Minister Modi adding to the aura.

Due to his personal stamp on foreign policy, the direct rapport with world leaders and ambition to engage nations across the spectrum, he has put India on the ‘to do’ list of most of the world’s political and business leaders. In 2 years, he will have traversed nations as diverse as the US, Bhutan, China, Japan, Israel, Australia and Saudi Arabia to just name a few. He enjoys unprecedented popularity among the rich, famous and influential non-resident Indians and foreign business leaders at large.

With a bit of luck, India could be that destination in a few years. That — even a blind, mute and deaf Christopher Columbus can’t give a miss! The chances of both stagnation of China and rise of India happening simultaneously are high, but India’s rise is closer to inevitability.

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Kevin M Shahhttp://kevincpp.com/
Socio-political commentator and industrialist

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