It’s a no-brainer that an economy growing by an average of 9.8 per cent a year since 1980 has to slow down. No less plausible is a scenario of its growth rates falling below those of an economy that has been expanding annually by an average of 6.2 per cent during this period and by over 7 per cent since 2000. Both the IMF and World Bank think this is a real possibility this year: 2015 could well see India’s growth rate, at 7.5 per cent, finally surpass China’s 6.8-7.1 per cent projected range. This gap could widen in the next five years, as China’s growth settles to 6-6.5 per cent and India’s rises closer to 8 per cent.
These plain growth forecasts would, however, yield greater meaning if viewed in the backdrop of how the two Asian giants were placed at different points in time. Even in 1990, India’s GDP of $327 billion wasn’t really far behind China’s $404 billion; its annual per capita GDP at $385 was actually more than the $354 of the latter. But in 2014, China was a $10.4 trillion economy, five times India’s slightly over $2 trillion GDP. In per capita GDP terms, too, China had left India far behind at $7,589 and $1,627, respectively. It only shows what sustained growth over a period can do. China’s growth engine was primarily driven by exports and investments. A strong yuan and rising labour costs, amid an overall global trade slowdown, have fundamentally undermined an export-led growth strategy. Nor can China rely any longer on building new expressways, airports, high-speed rail networks, aluminium smelters or steel mills. If anything, it is today faced with a crisis of over-investment and a rebalancing of the economy towards domestic consumption is the only feasible growth-stimulating option before the country’s planners.
It is quite the opposite for India, which is short of everything from power, railways and roads to irrigation canals, schools and hospitals. Investments in creation of physical and social infrastructure can be a huge source of growth — both through raising productivity levels in the economy and stimulating demand for steel, cement or various construction-related services — for the next 20 years or more. The challenge is in mobilising the resources for these investments. Some of this will have to come from the government itself, through a redirection of its expenditures from current consumption to investment. Even with regard to attracting private investment — especially from global insurance companies or pension and sovereign wealth funds — the government’s policymaking and facilitating role holds the key.