Tags:
Journalism of Courage
THREE years ago, there was paranoia about an import threat from China. Chinese manufactured products cost half or even one-third of Indian ones. That8217;s because of better infrastructure in China, flexible labour laws, lower interest costs and perhaps even unwarranted export subsidies and non-transparent input prices.
Doesn8217;t Global Competitiveness Report confirm this? The government should get its act together and introduce reforms. Otherwise, Indian manufacturing especially small-scale will be wiped out.
Certainly, there were issues that Indian manufacturing ignored, such as China8217;s economies of scale. Consequently Chinese prices were on marginal costs, fixed costs having been recouped. The Chinese had higher productivity linked to labour market reforms and better technology linked to Indian industry8217;s investment decisions or lack of them.
Because of historical price controls, most Indian manufacturers competed on costs. Since this was the USP, China beat India hollow.
But there was salvation away from manufacturing. Perhaps India would clock eight per cent GDP growth riding on services alone, although no country in the world has ever done that. Unfortunately, India8217;s great software bastion was also threatened. Weren8217;t Chinese importing English language teachers en masse?
The India-China comparison is dysfunctional, tells us little. Most foreign investors don8217;t look at India and China as 8216;8216;either/or8217;8217;. It has to be both.
Each country has its advantages and problems. Judged by most criteria, there is no comparison between India and China. China is 20 years ahead. You don8217;t need criteria to tell you that. A visit to Pudong will do.
Citing unreliable Chinese statistics, you can scale down China8217;s GDP growth. You still get between seven and eight per cent. Depending on the year, we get between 5.5 per cent and 6.5 per cent. Our per capita income of US 500 compares with China8217;s 1,000.
Even if we reclassify our FDI measurements, as we are about to do, we get 6 billion for 2002-03. Even if the Chinese figure is scaled down, 40 billion becomes at least 30 million. Poverty, literacy, health indicators, IT penetration ratios, there is no comparison. We were in the same league in the second half of the 1970s. We aren8217;t now.
We may catch up. The Chinese may mess things up internally. The global economy has room for two locomotives.
By the way, there are at least three types of Chinese imports. First, legal imports from China. Second, smuggling and this can happen across the border from China or through Central Asia, Bangladesh or Nepal. Third, legal imports that show up as imports from Nepal or Bangladesh, but are actually Chinese products. Understandably, official import figures include only the first.
Three years down the line, why is China no longer public enemy number one? There are several reasons, although the underlying unfavourable India-China comparison remains. Similarly, the Chinese export threat also remains, not just in the Indian market, but also in third countries. After all, both China and India export similar items and are largely in low-value segments.
Let the rupee appreciate a bit more against the dollar, let Indian export growth slide and let the yuan stay where it is. You will hear blue murder once again. But like the border problem, which can8217;t immediately be resolved, we have simply moved onto other things.
First, the Indian economy is recovering and 2003-04 promises to be better. Second, notwithstanding recent slowdown, exports have done well. They have done well in China also. The base is low, but India8217;s exports to China have grown by 100 per cent, compared to an Indian import growth from China of around 25 per cent.
True, most of India8217;s exports consist of iron and steel. But if you can export iron and steel to China, that gives you confidence. Two-way bilateral trade will probably be around 5 billion this year and 7 billion the next. The target of 10 billion looks feasible.
Third, countries don8217;t compete, companies do. So it is simultaneously possible for a country to export and import steel. At least some quarters of Indian manufacturing have come of age and become more efficient.
Consequently, Indian investments in China have also increased and might touch 1 billion in the not-too-distant future. Fourth, despite the paranoia, in no segment did Chinese imports into India actually cross five per cent.
Fifth and finally, there is IT, BT and pharmaceuticals, the knowledge-based economy.
Greater bullishness about India neutralised the earlier paranoia. There is room for both. China may have the Olympic Games. We have the Afro-Asian for what it is worth and hope for the Commonwealth.
The author is a well-known economist
