Over the past three decades, India has watched with envy as its powerful neighbour and bête noire China pulled further and further away on the economic front, leaving it to wistfully bemoan what could have been had it played its cards better. While the more jingoistic among us would spiritedly point out how we still had our democracy versus their oppressive autocracy, no one seriously believed there could be any comparison between how the two countries had fared relatively. China was simply way, way ahead.
And while it continues to be, the events of the past few months point to a potential unravelling of the Chinese success story, the portent of which has been received at home with an expected sense of schadenfreude.
Were this an isolated Chinese blunder, it would be alarmist to jump to dire conclusions, but it isn’t one. First came the mysterious disappearance of Alibaba’s Jack Ma, then China’s richest man, following his criticism of the Chinese establishment. It was the beginning of a series of moves, ostensibly aimed at putting high-flying entrepreneurs in their place and flexing state muscle. The sleeping socialist serpent giving its newly acquired capitalist coat a rattle. In a sweeping ban on for-profit tutoring, China wiped out hundreds of billions of dollars of investor wealth overnight from its edtech sector. The world of unicorns recoiled in horror. A curiously timed investigation was launched into ride hailing company Didi, two days after its high-profile IPO, leading to a crash in its value. And now, trouble is brewing in its massive real estate sector, where the second-largest player Evergrande, labouring under $300 billion of debt, is defaulting serially on repayments. It’s not the only one; luxury home developer Fantasia is also struggling to service its debt obligations, leading to fears that China’s debt-fuelled boom—long regarded as its Achilles’ heel—could finally be coming apart. One never knows, except on hindsight, what the straw is that finally breaks the camel’s back, but the signs are ominous. And therefore, in India, there is much hand rubbing and glee. Could something like the Jack Ma episode ever happen to an Ambani here, businessmen ask, shaking their heads in disbelief. Unicorn entrepreneurs heave sighs of relief that they aren’t operating in such a capricious ecosystem. Politicians whisper they knew it was only a matter of time before China got its comeuppance; such a reckless debt spree had to unravel. Underscoring all this is the belief, even confidence, that as China slips, it will finally be India’s time in the sun.
There is a grain of truth to all of this. China’s self-inflicted blows, exacerbated by its reckless behaviour on the geopolitical front, have alarmed businesses, investors and policymakers. Everyone is rushing to de-risk their exposure to China and India is an obvious beneficiary, of both business and investor interest. There is much talk of a China-plus-one policy. Yet, one should not get carried away. China remains a worthy adversary. Without fixing its own issues, India’s enthusiasm could turn out to be misplaced—a mirage born of wishful thinking.
The reasons for China’s rise as the ‘factory of the world’ are well documented and they haven’t vanished overnight. But many of the reasons why India may struggle to close the gap with China lie in its social fabric. The two countries have populations of comparable size, but while the female labour participation rate in China is 61 per cent, in India, it is less than 20 per cent. Simply put, more than three in five women in China earn a living, while in India, less than one in five do. If half the population does not participate gainfully, how will our economy ever come close to China’s? It is really like fighting with one arm tied behind your back. And it isn’t just women; 15 per cent of India is Muslim, another 15 per cent Dalit. What access do they have to our labour market? It is no wonder then that India’s fabled middle class, post the pandemic, comprises only 66 million, while the number in China is over 400 million. Imagine the scale of difference in spending power between the two populations.
On the other engine of growth—capital investments—the difference is as stark. Despite a recent slowdown, the investment rate in China is still 44 per cent of the GDP, while in India, it’s grinding below 30 per cent. With a much smaller consumer base and a significantly lower investment rate, the gap between the two countries can only grow, not diminish, over time.
Indian businesses get good press worldwide. Deservedly too, but what people often forget when reflecting on our successful entrepreneurs, is that they all come from a fairly narrow pool—almost as if a tiny, prosperous India has blossomed inside an otherwise stunted nation called Bharat. This is the India of the 66-million-strong middle class and one that mostly fuels the boom in its stock market. One cannot but be bullish on this India, yet it is one that is the preserve of a predominantly male, upper-class, Hindu subset. The rest watch from the sidelines, praying for the mythical trickle-down.
This may be the nub of the problem, one that has to be addressed for us to effectively steal a march on China. More so because these problem areas are getting worse, not better. Female labour participation rate was 34 per cent in the 1980s and in 2007, but is less than 20 per cent today, so we cannot even console ourselves that it is a work in progress. Similarly, despite state-level reservations, it is tough to argue that Dalits and Muslims are economically better off today than a decade ago. If we think that our 70 million can pull the weight of China’s 400 million, we are living in a fool’s paradise. It can fuel a narrow boom, but just like bull markets, without genuine breadth, it is not quite the real thing.
On the investment front, the government seems to be finally making the right noises. An aggressive asset sale plan has been announced, the proceeds of which will hopefully be used to initiate a strong public investment drive, spanning infrastructure, healthcare and education, so that the rate of capital formation can climb back to the mid-30s. We desperately need this to happen.
India has a window of opportunity, probably its last one. We have to capitalise on China’s mistakes and press home our advantages instead of getting distracted by a majoritarian social agenda. If not for political convictions, then for economic reasons. Else our social fault lines will come in the way of accomplishing our true economic potential. We must find a way to include women, Dalits and Muslims in our economic engine to give the elephant a fighting chance of knocking the stumbling dragon off its perch.
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