Society for Policy Studies in collaboration with India Habitat Centre held a lecture in the ‘Changing Asia Series’ by Dr. Surjit S. Bhalla, Chairman and MD of Oxus Investments on “Understanding the Indian and Chinese economies: past trends and future gazing”
Venue: Gulmohar Hall, India Habitat Centre, New Delhi
Speaker : Surjit S. Bhalla
Dr. Surjit S. Bhalla is the Chairman and MD of Oxus Investments, a New Delhi-based economic research, asset management, and emerging-markets advisory firm. He holds a PhD in Economics from Princeton University, a Master in Public and International Affairs from Woodrow Wilson School, Princeton University, and a BSEE degree from Purdue University.
He is the author of Imagine There’s no Country: Poverty, Inequality and Growth in an era of Globalization (2002) and Devaluing to Prosperity (2012).
In the past, he has worked as a research economist at the Rand Corporation, the Brookings Institution, and at both the research and treasury departments of the World Bank. He was also a consultant to Warburg Pincus and has worked on Wall Street in Deutsche Bank and Goldman Sachs.
In India, he served as Executive Director of the Policy Group in New Delhi, the country’s first non-government funded think tank. He has been on several government committees, including the two capital account convertibility committees of the RBI (1997 and 2006).
Summary of the Lecture:
Background
India and China’s per capita income was within ten to fifteen percentage points of each other for the longest time in history. China currently is five times richer than India in US Dollar terms, two and a half times richer in PPP terms and roughly about 10 to 15 years ahead of India. There is no evidence to substantiate the claim that Democracy has hampered India’s growth as compared to China.
China is not expected to sustain the model of growth it has maintained so far because of its demographic labour force. Its population policy has proved to be a challenge while India’s failure with its national population policy is providing it with a unique opportunity.
Between 1900-1950, the world witnessed two world wars and the great depression. During this period India was somewhat ahead of China. Post Independence, there is little evidence to show that there was a spike in India’s growth as a result of planning and socialism. It is to be noted that what India and China economically lost in over four hundred and fifty years, they are expected to gain in about fifty years’ time.
The purpose of the presentation was to present a brief historical view of the progress achieved in the two countries. It would also delve into what can be learned from the Chinese model with an outlook at the future.
Issues
It is a myth that inequality has risen in India, it has roughly stayed around the same percentage. While in China due to the scale of the structural change there has been an intermittent increase in Inequality. However, this does not mean that increase in inequality is good for the economy. What then explains the fact that inequality has stayed constant in India?
1. Education. While education inequality post independence has declined over 40% , economic inequality has remained the same. In the education policy of the East Asian countries and China, the focus has been on primary and secondary education post 1950s. In the same time period India’s focus has been on educating the rich through the creation of specialized institutions like the IITs.
2. In India, Agriculture is primarily a state controlled enterprise and reforms are stagnant. This has lead to the intrusion of government in every decision related to Agriculture right from prices, finance to export etc.
Apart from the above two crucial differences, the lack of a developed manufacturing sector has aggravated the gap between India and China. While at the current growth rate India’s manufacturing level should be around 28% of its GDP, it is actually about 10 percentage points lower, China’s manufacturing is 10 percentage points higher than what it should be. The “Make in India” campaign introduced by the Modi administration is a step in the right direction.
Investment, Capital Stock, total productivity factor and ease of doing business are other determinants on which China has taken a lead compared to India. In order for India to grow at a consistent rate, it needs to improve considerably in each of these parameters of growth.
What does the future hold for China and India?
There is a decline in labour force in China, this trend is expected to spike up in the next three to four years . There is also increasing pressure for China to improve its internal consumption rate to balance declining exports. Both Investment and total factor productivity growth will decrease in the years to come. It is important to note that India is not constrained by what happens in the rest of the world but China’s growth will be increasingly dependent on such forces. India and the ASEAN could expect a migration of manufacturing from China, while China will have to increasingly adopt cutting end technology and innovation to stay competitive with the rest of the developed world particularly the US.