The rising elephant? The outlook of India's economy and its comparison with China
Table of Contents
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1.???? Introduction
The debate on India surpassing China’s economy revolves around India’s demographic advantage, services sector growth, economic reforms, and efforts to attract investments. However, skeptics highlight the significant gap in GDP, structural challenges, China’s manufacturing dominance, and the stability of political system as potential obstacles for India’s ascent. While India has shown promising economic growth, surpassing China’s economy in the near future remains a subject of debate and speculation.
In view of the rapid growth of Indian economy and the heated debate on its prospect, this case study intends to shed some light on the following questions regarding the Indian economy so as to generate pragmatic avail for business, investment and finance entities and practitioners:
(1)? What are the characteristics, advantages and shortcomings of India and its current economy?
(2)? Will India become the next China? In other words, is it comparable with historical China?
(3)? How great is the established advantage of China, the incumbent India must compete against?
(4)? Have rules of the game changed? Or, does the future world still need a world factory?
(5)? Will the boom last?
(6)? What can we conclude and what’s the indication for business, investment and finance?
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2.???? Background
India has operated as a planned economy since 1951 (Anand, 2014). The initial plans emphasized industrial and manufacturing sector strengthening and growth as the cornerstone of the Indian economy. India faced its worst economic and currency crisis in history in 1991, but the country's economy recovered well after implementing economic reforms and embracing the Liberalization, Privatization, and Globalization (LPG) policy. The Indian economy was then disrupted once more and went through another turbulent phase in 2008 as a result of the global financial crisis (Anand, 2014).
In the last decade, Indian economic performance has attracted global attentions. An increase of 6.7% (Qian, 2023)! India’s 2022 gross domestic product (GDP) figure is released. If it weren’t for Saudi Arabia’s huge profits from oil last year, India’s growth rate would be the highest among the world’s major economies. After experiencing the pain of the COVID-19 epidemic, the Indian economy began to grow rapidly in 2021 and continued the growth trend in 2022. While the world economy continues to face extremely huge downward pressure, India has delivered outstanding performance, making it a shining star on the international economic stage (Qian, 2023). India’s GDP surpassed the United Kingdom, in 2022, becoming the world’s fifth largest economy. The latest World Economic Outlook of the International Monetary Fund (IMF) also believes that India’s economic growth rate will drop from the growth rate in 2022 (6.7%) to 6.1% in 2023, and will rebound to 6.8% in 2024 (Qian, 2023).
The rapid economic growth gives the Indian government sufficient optimism and confidence. According to research by the Reserve Bank of India, the central bank of India, with the current growth rate of more than 6%, India is expected to overtake Germany in terms of economic aggregate in 2025 or 2026, and outpace Japan in 2027, becoming the world’s third largest economy (Qian, 2023). In his Independence Day speech on August 15, 2022, Indian Prime Minister Modi even set a timetable for when India will become a developed country. “We have to turn India into a developed country in the next 25 years, within our lifetime.” He said (Qian, 2023).
Whether a country is recognized as a developed country depends on GDP per capita. It is generally believed that countries with a per capita GDP of more than 20,000 US dollars can be called developed countries. Quoting latest data from the World Bank, India’s per capita GDP in 2021 is US$2,256.6, still a low- and middle-income economy, that is, per capita GDP between US$1,086 and US$4,255 (Qian, 2023).
Unlike many developing countries whose economies rely on the export-driven mode, India’s economic growth is more a result of domestic demand. A large and young population supports huge consumer demand: in India, personal consumption accounts for 60% of GDP (Qian, 2023), whose growth has become an inexhaustible driving force for the Indian economy.
Indian population is still growing, which is good news for pushing up consumption. United Nations projects that India’s population will surpass China’s in mid-April this year, becoming the world’s most populous country (Qian, 2023). In 2022, the average age of Indians will be 28.7 years old, of which the proportion of people aged 15 to 64 will account for approximately 63.6% (Qian, 2023). India is confident that with its young population, it can take advantage of the division of labour in the global labour market.
Regarding India’s manufacturing industry, Modi’s goal is to increase the ratio of India’s manufacturing industry to gross domestic product (GDP) from 15% to 25%, create 100 million new manufacturing jobs, and promote India’s commodity exports to account for 3.4% of total world trade (from today’s 1.7%) (Qian, 2023). Due to reasons such as technology accumulation, supply chain, and labor quality, India has so far been unable to compete with China in the traditional manufacturing field and is far from completely replace Chinese products.
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3.???? India: Characteristics, advantages and shortcomings
3.1. Characteristics: politics and society
This section starts by discussing the heterogeneous politics and society between China and India, for the reason that the drama of economy and market is performed on the political, social and historical stage. Only by doing so can we have a grasp of the unquantifiable nature and underpin our forecast of the future.
There are two basic ways for us humans to form organizations: being governed or self-governance. The dominant base of Chinese society since the Qin Dynasty has always been Bianhu [編戶齊民] (atomized population that was under unified registration, taxation, management, and control of movement by the central government). The purpose of Bianhu is to weaken the population’s self-governance ability, replacing grassroots autonomous organizations with bureaucrats, thereby making it easier for the emperor to rule, and obtaining a semblance of peace and stability. China was a colony of Communist International. After the end of civil war in 1949, the newly totalitarian state eliminated the elements of rural and clan autonomy that were already limited anyway. After reform and opening up, those atomized population was released and entered factories in the east of the country as cheap and submissive labor force, for example, Guangdong and Zhejiang (Chen, 2020).
Self-governance, on the other hand, is to govern according to customary law, various associations founded by the local, and sometimes autonomous tradition (e.g., medieval European municipalities). Like raising a child, the parents do not dictate everything, but allow the child to develop according to his nature, only offering protection and guidance if needed. India was a colony of British Empire known for its political philosophy of small government and “rule by customs”. Self-governance of Indian population was preserved (Without the British, there wouldn’t even be an Indian nation) (Chen, 2019).
As a result, for Western capital to invest in India and recruit hypothetical cheap labor, they may find not many people in the local community would actively respond to job opportunities, because given the existence of small communities, those cheap labor forces that exist in theory don’t value higher book wages much (Chen, 2019). Indian villages are often not included in the modern monetary economy. Many villages have very close community relations, which means indigenous people don’t need money! Person A’s ancestors have been barbers since ancient times. A is also a barber and only possesses haircut skills. A give haircut to farmers in exchange for some rice back… These transactions are based on custom rather than economics. Also, unlike barter trade between strangers, there’s a certain human sentiment to it, and they’ll never worry about unemployment in the feudal structure of the villages. From the perspective of GDP, they simply contribute none. But if one employer tells them, “Please come to Calcutta to work. I will give you a salary of one thousand rupees, which your ancestors have never seen in twenty generations.” He will probably receive the answer, “I took one thousand rupees back to the village. Who would recognize my one thousand rupees? After I stopped providing haircuts for others, those who originally had no money and relied on me for haircuts considered me a treacherous and unfilial son. Our grandfathers had such a good relationship, and we always helped each other throughout the years. Now that I quit, who should they look for? They angrily kicked me out. ‘Go away, and never come back again.’ I came to Calcutta to earn a thousand rupees, which was barely enough for renting a basement. My quality of life was not as good as when I lived in the village without zero wage.” To make matters even worse, his parents will then complain to the local power centers like a religious leader or organizations like the Islamic Federation that have political influence over the decisive votes at every turn (Chen, 2019). Consequently, the local congressman will tell the employer that it is best not to build the factory.
3.2. Overview: advantages and shortcomings
·????? Evolving but atypical economic structure
The dynamics of growth changed the structure of the Indian economy, with agriculture’s share falling from 28.4% in the 1990s to roughly 15–17% since 2009 (Anand, 2014). According to Anand (2014), there was a commensurate increase in the proportion of services during the same time period, with the share reaching approximately 47% between 2012 and 2022. The fact that industry’s share of GDP has stayed constant at 25–30 percent is concerning, though. This indicates that the services sector, followed by manufacturing, has dominated India’s growth acceleration over the last 20 years. Anand (2014) notes that between 1995 and 2009, there was a notable structural transformation in the manufacturing sector, despite the industry’s share of GDP remaining stagnant.
The Indian data should have demonstrated a swift shift toward a structural transformation over the years, characterized by a contraction of the rural labor market and a rise in opportunities for rural-urban migration (Binswanger, 2013). However, this isn’t taking place. Rather, rural households are expanding into non-farming sectors of the rural economy. Six out of ten jobs in rural areas were in the non-farm sector in 2013 compared to four out of ten in the 1980s (Binswanger, 2013), indicating that the rural non-farm sector has emerged as the main driver of job creation in the Indian economy, given the size of the rural labor force (Binswanger, 2013).
·????? Huge labor force…potential
With a median age of roughly 29, India’s population is extremely young in comparison to China, the United States, and a number of other wealthy countries where the population is aging (Anand, 2023). In contrast, the median age in China and the United States is approximately 38, and the aging population is already contributing to a labor shortage in certain sectors of the economy (Anand, 2023). According to a forecast by consulting firm EY, India will have one billion working-age adults by 2030. This implies that over the next ten years, India will account for about 25% of the global workforce increment (Anand, 2023).
India faces a significant obstacle in utilizing the potential of its working-age population: a large number of people are not employed. According to the World Fact Book, women make up half of the working-age population in India, which contributes to the low labor force participation rate. However, World Bank data showed just 25% of women who are of working age enter the workforce. In contrast, women make up 67% of the labor force in the United States and approximately 71% of the labor force in China (Anand, 2023). Since 2005, the proportion of women in the Indian labor force has been falling, mostly as a result of social norms that discourage women from working, particularly after having children (Anand, 2023).
Neither are skills and quality of young labor pool satisfying. An online test of skills of 375,000 youth by assessment firm Wheebox found that only half were employable (Anand, 2023). HR experts across industries are struggling to find talent. Companies need to make a significant contribution to make graduates (candidates) job-ready (Anand, 2023).
Furthermore, unorganized labor is a common occurrence in India. Approximately 85% of the country’s 524 million workers are classified as being in the “unorganized sector”, which is defined as not having any official work contracts, social security, or health benefits that are normally offered to employees by employers (Anand, 2023). The majority of this unorganized labor is in agriculture and related fields, which have low pay and are weather-dependent (recall section Characteristics).
·????? Popular destination of FDI
The attractiveness of India as a preferred investment destination could be ascertained from the large increase in FDI inflows to India, which rose almost from year to year. The significant increase in FDI inflows to India reflected the impact of liberalization of the economy since the early 1990s as well as gradual opening up of the capital account. As part of the capital account liberalization, FDI was gradually allowed in almost all sectors, except a few on grounds of strategic importance, subject to compliance of sector specific rules and regulations.
The country has received $919 billion in foreign direct investment (FDI) over the course of the last 23 years (April 2000 - March 2023) while $595.25 billion, or nearly 65% of the total FDI inflow over the previous 9 years (April 2014 - March 2023) has been received (“FDI Policy”, 2023).
Just $ 45.15 billion in FDI entered India in FY 2014–15; this climbed to $60.22 billion in FY 2016–17 and, in FY 2021–22, reached an all-time high of $ 83.57 billion (“FDI Policy”, 2023).
A total of $70.97 billion in FDI and $46.03 billion in FDI equity were inflows into the nation in FY 22–23 (“FDI Policy”, 2023).
The top 5 countries for FDI equity inflows into India in FY 2022–2023 are Mauritius (26%), Singapore (23%), USA (9%), Netherlands (7%), and Japan (6%). Services Sector (Fin., Banking, Insurance, Non Fin/ Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis, Other) (16%), Computer Software & Hardware (15%), Trading (6%), Telecommunications (6%) and Automobile Industry (5%), are the top 5 sectors receiving the highest FDI Equity Inflow during FY 2022–2023 (“FDI Policy”, 2023). The top five states in terms of foreign direct investment (FDI) equity inflow for FY 2022–2023 are Tamil Nadu (5%), Delhi (13%), Gujarat (17%), Maharashtra (29%), and Karnataka (24%) (“FDI Policy”, 2023).
·????? Inflation
Figure 10 shows the trends in inflation rate from 1991 to 2013. Historically, periods of high inflation has coincided with demand and/or supply-side shocks, with food (mostly internal, monsoon failures, etc.) and fuel supply (mostly external) shocks being the most persistent (Anand, 2014).
·????? Trade balance
As introduced in the previous section Background, Indian economy distinguishes itself from other export-driven Asian economies (Japan, South Korea, Taiwan, China) by the dominance of its domestic consumption. The rapid growth of demand for imports led to chronic current account deficit (Figure 12). The trade balance was negative in all years from 2014 to 2023.
·????? Favorable diplomatic and geopolitical situation
Is there a country that can be exempted from Western sanctions and diplomatic disaster after continuing importing Russian oil during the Ukrainian War? Is there a country that can acquire Russian and US weapon at the same time? Yes, there is. And India is that lucky one.
The Initiative on Critical and Emerging Technologies (iCET), an agreement that aims to expand bilateral technology and defense cooperation, was announced on January 31, 2023 (Council on Foreign Relations, 2023) as the lastest step toward deepening defense and economic cooperation between U.S. and India. The US-India Strategic Trade Dialogue, which aims to implement iCET, is launched after the initiative, which includes provisions on weapons, artificial intelligence, and semiconductors (Council on Foreign Relations, 2023).
As a key fulcrum of the “Indo-Pacific strategy” of US and Japan, India will definitely play a role in regional politics, economy and military affairs with an ever-growing weight and activism.
·????? Inadequate but refining infrastructure
India’s infrastructure, including transportation, logistics, electricity and power, and urban facilities, requires substantial improvement. Underdeveloped infrastructure hampers the efficiency of industries, increases logistics costs, and limits economic growth. Investments in infrastructure development are crucial to support sustained economic expansion.
The goal of a new road being constructed along the Arabian Sea is to relieve traffic in a city where five lanes of honking cars frequently occupy three-lane roads (Douglas & Agarwal, 2023). An extension of the rapid-transit metro system is being considered to alleviate the burden on crowded suburban trains. The time it takes to ship goods over the 870 miles to New Delhi is predicted to be reduced from 14 days to 14 hours by means of a rail freight corridor (Douglas & Agarwal, 2023).
The building in Mumbai is indicative of a nation-wide movement in India to modernize a nation whose deteriorating and ineffective infrastructure has long impeded economic progress (Douglas & Agarwal, 2023). The government has poured money at the issue in recent years (Douglas & Agarwal, 2023).
Is the infrastructure in India tangibly better? Sure, is the response. Does it meet the standards of the aspirations that India has? The answer is then no. It’s still a mission in progress, according to Oxford Economics’ head of Asia economics Arup Raha (Douglas & Agarwal, 2023).
The Finance Ministry of India reports that the country has allocated over 10 trillion rupees, or roughly $120 billion, for capital expenditures in the fiscal year that ends in March 2024, over twice as much as was spent in 2019 and 37% more than was spent in the previous fiscal year (Douglas & Agarwal, 2023).
The amount of construction that has occurred recently is astounding. According to the Ministry of Road Transport and Highways, India had nearly 90,000 miles of national highways at the end of the fiscal year in March—nearly twice as many as it had ten years prior, at over 49,000 miles (Douglas & Agarwal, 2023). Every month, hundreds of miles of new roads are constructed.
OECD states that India currently has more miles of electrified railway than either the United Kingdom or France. As described by Douglas & Agarwal, a series of brand-new or renovated ports that adorn India’s coastline are among the ambitious megaprojects currently under construction. Remote provinces are being connected by bridges and tunnels, and solar energy parks are springing up to power factories and residences. Numerous cities are seeing the emergence of mass transit systems. High-speed train lines are being built to connect major cities (2023).
·????? Privatization
In a speech on privatization and asset monetization in February 2021, Prime Minister Shri Narendra Modi stated, "Government has no business to be in business," which stands in stark contrast to India's traditional socialist economic narrative (Akshay, 2022). An important turning point in India's privatization strategy was the successful sale (return) of Air India to the Tata Group, which raised optimism about the viability and advantages of the initiative (Akshay, 2022).
With the release of the new disinvestment and strategic sales policy, the government made a significant push for privatization through policy. The government has decided to fully privatize or close all central public sector enterprises (CPSEs) with the exception of those in strategic sectors, in accordance with the new “Public Sector Enterprise Policy for Atmanirbhar Bharat” (Akshay, 2022). The government would continue to have a minimal presence in the following strategic areas: (i) transportation and telecommunications; (ii) atomic energy, space and defense; (iii) power, petroleum, coal, and other minerals; and (iv) banking, insurance, and financial services (Akshay, 2022). To put the size of the public sector into perspective, as of March 2020, the government owned over 250 CPSEs with a total paid-up capital of over 3.1 lakh crores (Akshay, 2022).
·????? Reform and anti-reform in labor regulations
India’s labor market regulations can be complex and rigid, making it challenging for businesses to operate efficiently. Simplifying labor laws, promoting labor flexibility, and ensuring a conducive environment for employment generation would help spur growth and attract investments.
Recently, legislation in Karnataka and Tamil Nadu, two of India’s most business-friendly southern states, was amended to permit longer work shifts—from eight to twelve hours—a reform that was pushed by investors, including Apple and its contract manufacturer Foxconn (Reed, 2023). The Taiwanese supplier intends to establish a large plant in Bengaluru, Karnataka. In February, the state amended its laws to permit two-shift production and to facilitate the work of women, who are a key component of Asia’s electronics manufacturing workforce (Reed, 2023). Similar legislation was passed in April in neighboring Tamil Nadu, where Foxconn already manufactures iPhones for Apple (Reed, 2023).
However, a backlash is emerging as soon as it seems that India is following suit with more business-friendly working hours. On May 1, India’s Labor Day public holiday, Tamil Nadu’s chief minister MK Stalin announced he was delaying the state’s legislation in response to protests from opposition parties and trade unions (Reed, 2023). India is a democratic country with powerful federal state governments and vocal interest groups (Reed, 2023). Indian unions do not have absolute power, but they do represent manufacturing workers’ interests. This implies that as companies like Apple, Foxconn, and others work to establish India as a top “China plus one” manufacturing location, a more uncertain future is in store (Reed, 2023).
·????? Improving but still unpleasant business environment
Despite recent reforms, the business environment in India still faces drawbacks related to bureaucracy, red tape, and regulatory complexities. Streamlining administrative processes, reducing regulatory burdens, and improving the ease of doing business would encourage entrepreneurship, attract investments, and boost economic growth.
Despite recent improvements, India still lags behind many larger countries in important areas like property registration, contract enforcement, and business establishment. In comparison to other OECD high-income economies, the process of registering a business can take up to 68 days and incur costs equivalent to 7.4% of the property’s value (“Doing Business in India”, 2020). In the event of a business dispute, the resolution process through a local court can take an astounding 1,445 days — three times longer than in other nations (“Doing Business in India”, 2020). However, India has eliminated the filing fees for the SPICe company information form, incorporation form, electronic memorandum of association, and articles of association in an effort to facilitate the formation of new businesses (“Doing Business in India”, 2020). For most entrepreneurs, nevertheless, the process of starting a business involves a lot of steps that are quite onerous. Ten steps are needed in Mumbai, which is twice as many as the average of five steps in high-income OECD countries. In addition, it takes longer to finish—roughly twice as long as the OECD average (18 days in Mumbai vs. 9.2 days in OECD countries) (“Doing Business in India”, 2020).
There are signs of a rise in protectionist policies despite business reforms and other actions by the Indian government that suggest a free-trade ideology. Due to India’s already opaque and frequently erratic trade laws and tariffs, many American exporters and investors had little access to the market (“Doing Business in India”, 2020). The nation has some of the highest bound tariff rates in the World Trade Organization (WTO) and the highest average applied tariff of any G20 nation. In actuality, India has raised import taxes in order to bolster domestic small- and medium-sized manufacturers and decrease the market for inexpensive goods from abroad (“Doing Business in India”, 2020). In addition, the nation withdrew from the largest regional trade agreement in the world, declined to join the Regional Comprehensive Economic Partnership (RCEP), and the government intends to take action to prohibit the importation of any goods that might harm domestic companies (“Doing Business in India”, 2020). Lastly, India has strict local presence requirements for potential investors and has limited the amount of foreign ownership of businesses.
Businesses and investors may find it difficult to navigate the Indian market due to its immense size and fragmentation. Given their size and diversity in terms of talent, language, culture, infrastructure, and other factors, Indian states are frequently compared to individual nations, (“Doing Business in India”, 2020). This leads to a significant variation in business environments. States may also differ from one another in terms of laws that are in effect at the time as well as in terms of regulations, policies, and rules (“Doing Business in India”, 2020). Additionally, cultural differences need to be recognized and handled. For example, the northern region of India is younger and poorer than the southern region, which is wealthier and older; While southern Indians use English or their state language for business transactions, north Indians prefer to communicate in Hindi (“Doing Business in India”, 2020).
It's critical to comprehend Indian intellectual property laws as well. There is some worry regarding the enforcement of local laws, despite the fact that they are comprehensive and generally in line with IP laws in the EU and the US. Protecting sensitive intellectual property is threatened by both bureaucratic delays (IP enforcement cases can take years to go through the courts) and a general lack of transparency (“Doing Business in India”, 2020).
·????? Real estate
India's housing market is expanding significantly, and prices for homes are rising in many of the nation's cities. One city where real estate values have increased significantly is Bengaluru, which is sometimes called the Silicon Valley of India. Bengaluru, which has seen a recorded appreciation of 3.4% (Sood, et al., 2023), is still a major hub for the IT industry, drawing professionals from all over the nation. The city's world-class infrastructure, thriving startup scene, and pleasant climate have all contributed to the steady growth of its real estate market.
Two of India's largest metropolises, Delhi and Mumbai, have also seen increases in real estate costs. Delhi saw growth at a rate of 7.5%, while Mumbai saw growth at a more moderate 2.9% (Sood, et al., 2023). Because of their business prospects, cultural significance, and cosmopolitan lifestyle, these cities continue to draw in investors. However, given that prices in these cities are frequently beyond the means of the typical homebuyer, affordability is still an issue (Sood, et al., 2023).
The cost of real estate has increased significantly in Ahmedabad as well. With an estimated 13.5% appreciation, Ahmedabad has become one of India's most important real estate hubs (Sood, et al., 2023). Numerous factors, such as increased infrastructure development, a thriving industrial sector, and an increase in demand for residential properties, can be attributed to this growth (Sood, et al., 2023). Ahmedabad has drawn both investors and homebuyers due to its advantageous business environment and strategic location.
Many factors, such as the low interest rate set by the Reserve Bank of India, resurgence of interest in home ownership and the upgrading of lifestyle and configuration in the midst of the structural transformation following the pandemic, contribute to this spike in property prices (Gayn, 2023). Furthermore, because of the spike in demand, developers are now willing to pass on higher input costs to buyers, something they were not willing to do in the past due to the weak market demand? (Gayn, 2023). The "much in demand" but "limited in supply" ready-to-move-in property also comes with a premium. Property prices have increased in all cities as a result of these factors combined? (Gayn, 2023).
·????? Startup India Initiative
On August 15, 2015, the Hon’ble Prime Minister of India unveiled the Startup India initiative. The main project seeks to create a robust environment in the nation for fostering innovation and startups, which will propel long-term economic growth and create a significant number of job opportunities (DPIIT, 2022). In addition, on January 16, 2016, the Indian Prime Minister unveiled an Action Plan for Startup India. The Action Plan consists of 19 action items that cover a variety of topics, including “Industry-academia partnership and incubation”, “Funding support and incentives”, and “Simplification and handholding” (DPIIT, 2022).
Under the Startup India Action Plan, there has been a significant advancement since the initiative's launch in January 2016; In addition to the Startup India Action Plan, numerous other projects have been launched to support the expansion of the startup movement in the nation as a whole (DPIIT, 2022).
·????? Financial frictions and stability
India’s financial sector faces challenges related to non-performing assets (NPAs) in banks, liquidity constraints, and governance issues. Strengthening the banking system, enhancing transparency, and improving corporate governance would promote financial stability and support long-term economic growth.
As pointed out by Indiafreenotes (2021), there are a list of underlying issues in the financial sector of India:
(1)? Dominance of government development banks, failing to mobilize savings of the public
(2)? Lack of coordination among various financial institutions
(3)? Unhealthy financial practices causing high debt level in corporate capital structure
(4)? ?Inactive and erratic private capital market
(5)? Monopolistic structure in the financial sector
(6)? High level of NPA in banks and financial institutions (“Weakness of Indian financial”, 2021)
In 1998, public sector banks had NPAs of approximately Rs457 billion (Deolalkar, 2000). Banks recovered a total of Rs250 billion by 1997/98 and projected recovery of Rs181.39 billion. However, since fresh batches of loans default each year, the overall numbers might be rising: Roughly 70% of total non-performing assets are held in "hard-core" questionable and loss assets that have accumulated over time (Deolalkar, 2000). Since the majority of these are secured by securities, they can be recovered. However, these are still pending with the Board for Industrial and Financial Reconstruction (BIFR) or in court (Deolalkar, 2000).
The proportion of non-performing assets (NPAs) in Indian banks is relatively low. Deriving NPA figures based on percentage against risk assets instead of total earning assets exaggerates the NPA problem faced by Indian banking institutions (Deolalkar, 2000). Additionally, unlike other banking systems around the world, the Indian banking system makes full provisions rather than net of collateral (Deolalkar, 2000).
Directed loans given to the "micro sector" present recovery challenges, particularly when some of its units experience weak or illness (Deolalkar, 2000). PSB loans to sick/weak industrial units, and these units received nearly 7 percent of PSB's net advances. Rather than bank mismanagement on the scale observed in Japan and certain Southeast Asian countries, these units are undoubtedly one of the most significant sources of NPAs (Deolalkar, 2000).
·????? The banking system
The banking system in India is different from any other nation in India due to the country’s diverse social and geographical characteristics, extreme disparities in income, high levels of illiteracy among a large percentage of the population, and the economic policy framework combining socialistic and capitalistic features with a heavy bias towards public sector investment (Deolalkar, 2000).
The size, composition, and diversity of the nation's banking and financial industry all mirror these characteristics. The objectives of economic policies stated in subsequent five-year development plans, particularly with regard to fair income distribution, balanced regional economic growth, and the diminution and abolition of private sector monopolies in trade and industry, have required the banking system to function (Deolalkar, 2000).
The Indian financial system comprises the following institutions (Deolalkar, 2000):
1. Commercial banks
a. Public sector b. Private sector c. Foreign banks d. Cooperative institutions
(i) Urban cooperative banks (ii) State cooperative banks (iii) Central cooperative banks
2. Financial institutions
a. All-India financial institutions (AIFIs) b. State financial corporations (SFCs)
c. State industrial development corporations (SIDCs)
3. Nonbanking financial companies (NBFCs)
4. Capital market intermediaries
About 92 percent of the country’s banking segment is under State control while the balance comprises private sector and foreign banks (Deolalkar, 2000).
The Priority Sector Lending (PSL) guidelines issued by Reserve Bank of India to harmonize various instructions issued to Commercial Banks, SFBs, RRBs, UCBs and LABs; align these guidelines with emerging national priorities and bring sharper focus on inclusive development, and to encourage and support environment friendly lending policies to help achieve Sustainable Development Goals (SDGs) (RBI, 2023).
·????? Mismatch in the labor market: Underutilization of talent
The rate of unemployment for engineering graduates in India is 20.5%, a high rate; In comparison, India's overall unemployment rate during this time was only 4.75% (Akshay, 2023). As with the other metrics, there is a significant variation between the states, with Gujarat and Karnataka having 5.4% and 14.1% respectively, and Rajasthan and Kerala having 37.8% and 35.2%, respectively, on one end of the spectrum (Akshay, 2023).
The National Industrial Classification 2008 Code for "Computer Programming and Consultancy" employs about 35.2% of engineering graduates, while the National Industrial Classification 2008 Code for "Software Publishing" employs about 5% of graduates in this field (Akshay, 2023). As a result, the information technology industry employs about 40% of engineering graduates.
Figure 20 summarizes the top 15 industries in which engineering graduates find work. In Figure 20, these industries make up 66.5% of the workforce (Akshay, 2023). Retail sales, monetary intermediation / financial services, public administration, and the growth of non-perennial crops make up 12.6% of the top 15 non-core industries.
In summary, (i) there is a high rate of unemployment among engineering graduates; (ii) the top 15 industries for engineering graduates to work in include public administration, financial service/intermediation, agriculture, and retail sales. Given that many skilled engineers are employed in non-core roles, this is cause for concern (Akshay, 2023).
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4.???? The next China? Its comparison with historical China
4.1. The China Mode
China has used a variety of tools and policies to achieve steady and rapid economic growth. As per the prevailing perspective in China, the so-called “China Model” is characterized by significant attributes like a highly centralized political system, rapid economic growth, and distinct Confucian cultural traditions (Huang, 2012). Comparative examination of the histories of economic development in China, India, and Brazil reveals that the “China Model” is not exclusive in terms of its strategies and tactics, its economic successes, or even the issues it raises (Huang, 2012).
In terms of successful experience, China’s development is similar to that of East Asian countries. Academic circles have long reached a consensus on the reasons for the rapid economic development of East Asian countries, which are attributed to their early successful land reforms, the vigorous growth of the private sector (albeit with government intervention), and the government’s large-scale investment in education and health (Huang, 2012). China’s situation is very similar to that of East Asian countries, and the reasons for its success can be roughly summarized into the following three aspects: First, social investment, for example, promoting basic education, eradicating schistosomiasis, eradicating barefoot doctors, building farmland water conservancy (Huang, 2012), etc. Second, it is economic reform. Economic reform is the result of marketization and is essentially not much different from other countries (Huang, 2012). Third, from a political point of view, China pursues progressive reforms, in which local governments constrain their own rights and avoid excessive interference in the market economy (Huang, 2012).
4.2. Similarities
·????? Predatory protectionism and domestic production ambition
“The largest democracy in Asia” is not necessarily an practitioner of free trade. Indian media, Economic Times (2023) reported that the Indian government requires Chinese mobile phone manufacturers such as Xiaomi, OPPO, realme and vivo to appoint Indians to positions such as CEO, COO, CFO and CTO. The government has also directed them to delegate contract manufacturing work to Indian companies, as well as form joint ventures to take up local manufacturing to the component level. The total market share of these four brands in India exceeds 60% (2023).
Just as what many Western multinationals complain about China, to promote “Made in India”, India’s policies are often predatory too, and sometimes worse.
Yet, one may also argue that most of these cases happened on China only, as a retaliation on the conflicts and disputes between the two countries. Therefore, the nature of these acts is political instead of economic. In short, India has kept progressing in its business environment and there’s nothing to worry about for investors from the rest of the world.
领英推荐
·????? Efforts in innovation
India has made great strides recently, with cities such as Bangalore, Mumbai, Delhi, Chandigarh, and others serving as innovation or technology hubs and contributing to the growth of this new industry by demonstrating excellent work in the automotive, pharmaceutical, and educational sectors (Kapoor & Jain, 2022). Public-private partnerships, academic collaborations, and foreign capital, have all contributed to this progress, which has allowed India to top industries like telecommunications and pharmaceuticals and record higher growth (Kapoor & Jain, 2022).
The Indian pharmaceutical market, which ranks third in terms of volume and fourteenth in terms of value, is expected to grow from USD 42 billion in 2021 to USD 120–130 billion by 2030 (Kapoor & Jain, 2022). Furthermore, India surpassed the UK to move up to third place in the world among all unicorns, behind only the United States and China, with over 100 unicorns in total (Kapoor & Jain, 2022). In addition to pharmaceuticals, India has recently seen growth in the Edtech sector, which the India Brand Equity Foundation (IBEF) projects will increase from USD 750 million to USD 4 billion (Kapoor & Jain, 2022)
Has India, however, accomplished enough to be referred to as the global “innovation hub”? India has made significant strides toward creating unicorns and starting new businesses, but only 0.7% of India’s GDP is spend on R&D, with GERD per person standing at approximately 43 (in current PPP dollars) (Kapoor & Jain, 2022). Comparatively speaking, this is less than that of countries like the US and Germany, which spend roughly 3% of their GDP on R&D, and countries like Brazil, Russia, South Africa, and China, which spend roughly 1.16, 0.98, 0.83, and 2.14 percent, respectively (Kapoor & Jain, 2022).
·????? Demographic dividend
Refer to High labor force…potential
·????? Fast building of infrastructure
Refer to Inadequate but refining infrastructure
·????? Attract foreign investment
Refer to Popular destination of FDI
4.3. Differences
·????? Political systems
Compared with China, India’s political system is not conducive to comprehensive implementation across the country, but at the same time it is more open and democratic, which is conducive to inclusive and equitable development.
When comparing the political systems of China and India, there are notable differences in their ability to achieve comprehensive implementation across the entire country. India’s political system, while facing challenges and imperfections in this regard, is characterized by its openness and democratic principles, which contribute to fostering inclusive and equitable development. This openness allows for a greater diversity of perspectives and interest to be heard and compromised, which in turn contributes to fostering inclusive and equitable development. By embracing inclusivity, India ensures that the benefits of progress are distributed more widely among its population.
China’s political system, with its authoritarian approach, can facilitate a smooth and rapid advancement of the economy, particularly in transitioning from a starting point of minimal development to achieving a certain level of success. This centralized approach can effectively implement policies and drive economic growth. However, it’s a double-edge sword. For instance, under the communist capitalism arrangement, when the government, legislation, police and employers unite in one trench against the working population, the absence of union, working overtime and low wages make it difficult for domestic demand to become the main driving force of Chinese economy.
The authoritarian approach may be particularly smooth and rapid for the economy to advance ?from zero to scoring a “pass”; yet, to be a top player on the global stage, a relatively inclusive, open, and just institutional foundation is necessary.
·????? Rural-urban labor movement
China’s rural labor force was characterized by a labor surplus brought on by rising population and low agricultural productivity. To raise their income and standard of living, many rural workers looked for jobs in urban areas. Millions of rural workers moved to cities during the labor movement in pursuit of better job opportunities. Due to the large-scale rural-to-urban migration, cities and their infrastructure expanded quickly, resulting in rapid urbanization. Manufacturing and construction, two labor-intensive industries, were crucial to China’s economic growth. Rural migrants contributed to China’s export-oriented growth and infrastructure development by offering these industries a cheap and adaptable labor force. China’s household registration system, known as the Hukou system, linked social welfare benefits like healthcare and education to an individual's birthplace. For rural migrants, this system presented difficulties because they had little access to social services and were frequently employed in low-wage, informal jobs with unfavourable working conditions.
However, in India, as illustrated in Evolving but atypical economic structure, rural labor has not moved into cities in large numbers.
·????? Major driving force of economy
China is renowned for its export and investment driven economy.
In India, domestic consumption accounts for more than half of the GDP. This is consistent with developed economies, where private consumption or household consumption typically represents the largest share of the GDP (Garg & Rangan, 2022). In India, domestic consumption makes up approximately 60% of the GDP, while in the United States it stands at around 68%, Japan at 54%, Germany at 52%, and the UK at 60% (Garg & Rangan, 2022). Interestingly, when comparing the population demographics of the United States in the 1960s to India today, similarities can be found in their consumption patterns, with both countries having a share of around 60% for consumption (Garg & Rangan, 2022). It is worth noting that the per capita income of the United States in 1960 was $3,000, whereas India's per capita income as of 2021 was $2,277.
India's consumption basket is heavily tilted towards food, which accounts for approximately 30-32% of the total consumption (Garg & Rangan, 2022). Transport follows closely behind with a share of 15-17%, while housing and utilities make up 13-14%. Clothing, education, and health each contribute about 5% to the consumption basket. Overall, services hold the largest share at approximately 48-49%, followed by non-durable goods at 44%. Durable and semi-durable goods have a relatively small share of only 2-3% and 6-7% respectively, making up less than 10% of the overall consumption (Garg & Rangan, 2022).
·????? Financial market
Through a series of systematic evidence obtained from the World Business Environment Survey (WBES) database, Huang concludes that India’s financial system is far more developed and efficient than China’s financial system, especially in rural areas in providing financial support to regions and small and medium-sized enterprises (2012). In addition, India’s stock market plays a great role in supporting the development of local private companies (Huang, 2012). In contrast, China’s local private companies such as Lenovo, Huawei, rarely have the opportunity to be listed on the country’s stock exchanges (Huang, 2012).
Further, in 2022, India continued to outpace China for the second year in a row in terms of new unicorns created. Funding to start-ups in non-metros grew to 18% share and 9 out of 23 unicorns added in the year emerged from cities outside of the top 3 metros indicating a shift to more democratic funding geographically.
·????? Education and labor quality
In comparison, perhaps China’s biggest advantage is its universal education level, not infrastructure construction (Huang, 2012). India is currently vigorously strengthening its investment in fundamental education, but it is unrealistic to for India to catch up with China in the foreseeable future (Huang, 2012). This may be India’s real relative disadvantage.
·????? India’s service and IT sector
A quick comparison with the American and Chinese economy reveals the unique nature of India’s GDP growth from the contribution of the service sector and its linkages to employment and income distribution (Figures in bracket indicate employment) (Lakshmanan, 2019). Over time, a robust manufacturing and productive agriculture sector leads to the service industry in India becoming the mainstay of GDP and employment (Lakshmanan, 2019). In our context, the service sector has become extremely important to grow not only our GDP, as well as make it the key vehicle for employment generation (Lakshmanan, 2019).
Here is a brief fact sheet to demonstrate the strong performance of the “world office”, India’s service sector (Ministry of Finance, 2022):
(1)? Services contributed over 50% to GDP.
(2)? Sector witnessed 10.8% growth during the first half of 2021-22.
(3)? 8.2% growth expected in overall services sector.
(4)? FDI inflow of $ 16.73 billion received in first half of 2021-22.
(5)? 22.8% increase in net exports of service in first half of 2021-22.
(6)? IT-BPM (Information technology - Business Process Management) revenues reached $ 194 billion, growing by 2.26% in 2020-21.
(7)? Record 44 start-ups reached unicorn status in 2021.
(8)? Total cargo capacity increased to 1,246.86 Million Tonnes Per Annum (MTPA) in 2021 from 1052.23 in MTPA 2014.
(9)? Various reforms undertaken in space sector to promote private sector participation (Ministry of Finance, 2022).
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5.???? Competing against the incumbent: How great is China’s established advantage?
The vision of Sino-US diplomatic relation is bleak. In a joint statement released on September 8th, the United States and India reaffirmed their partnerships on a number of fronts, particularly with respect to computer chips, telecommunications, and access to shipping lanes in the Indo-Pacific (“Biden and Modi”, 2023); while Chinese leader skipped G20, symbolizing the transformation of world pattern and geopolitical game among major powers. Moreover, tensions between China and Taiwan have grown unabated in the past five years.
As confidence plummets as a result of the expansion of an anti-spying law and other challenges, foreign companies are moving their investments and their Asian headquarters out of China (McDonald, 2023). The Chinese government is struggling to encourage foreign businesses to invest and bring in technology so as to boost the economy, whose growth sank to 3% last year. However, they are concerned about security regulations and strategies to establish rivals to major producers of commercial aircraft, computer chips, and other technology (McDonald, 2023). Two-thirds of the 570 companies that responded to the European Chamber’s survey said doing business in China has become “more difficult”, up from less than half before the pandemic (McDonald, 2023). Three out of five said the business environment is “more political,” up from half the previous year. The European Chamber noted it wasn’t just foreign companies that are moving out of the country: 2 out of 5 in its survey reported Chinese customers or suppliers are shifting investments abroad too (McDonald, 2023).
Diversification is well underway. According to a report from Rhodium Group, US and European companies are diverting investment away from China and toward other developing markets. The majority of this diverted foreign capital is going to India, followed by Mexico, Vietnam, Malaysia (Cash, 2023). In contrast to China, where investment dropped to less than $20 billion last year from a peak of $120 billion in 2018, the value of announced US and European greenfield investment into India soared by about $65 billion or 400% between 2021 and 2022 (Cash, 2023). Western businesses are expanding greenfield investment in these markets to give their options for sourcing assembled goods and commodities with high geopolitical sensitivity, such as semiconductors, and to alleviate their reliance on China in their supply chains (Cash, 2023). Since the markets that foreign companies are investing in are highly dependent on trade and investment with the Asian giant themselves, some cautioned that diversification is unlikely to result in a swift decline in exposure to China. Therefore, even as diversification away from China accelerates, it would not be surprising if China’s overall share of global exports, manufacturing, and supply chains might rise (Cash, 2023).
In the competition to become China’s “world's factory”, countries such as Mexico, India and Vietnam face a powerful opponent: China's vast inland areas (“Chinese factories are”, 2023).
Low-cost manufacturing is moving away from China's bustling coastal regions as companies seek cheaper land and labor in China’s central and western provinces. Manufacturing relocation has accelerated in recent years as U.S. tariffs drive up factory costs and China’s coastal cities focus on high-tech electronics, electric vehicles and other advanced industries (“Chinese factories are”, 2023). The result is a boom in exports from China‘s inland provinces, dwarfing the acceleration of exports from rivals seeking to challenge China's manufacturing supremacy (“Chinese factories are”, 2023).
Further development of China's interior could help China solidify its dominance in global manufacturing, even as Western countries become increasingly wary of China becoming a supplier of key industries such as semiconductors and renewable energy (“Chinese factories are”, 2023).
Since the beginning of 2018, exports from 15 provinces in central and western China have increased by 94% cumulatively as factory production expands beyond the Pearl River Delta and Yangtze River Delta (“Chinese factories are”, 2023). The Pearl River Delta and Yangtze River Delta regions are the engines of China's industrial economy. Exports from these provinces totalled $630 billion in the 12 months to August this year, surpassing India's ($425 billion) during the same period, according to official data compiled by data provider CEIC, Mexico ($590 billion) and Vietnam ($346 billion).
Despite the surge in interest in other manufacturing bases outside China, exports from China's inland regions are growing faster than those from the three countries mentioned above (“Chinese factories are”, 2023).
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6.???? Changing fortunes: Tomorrow’s manufacturing industry and the fall of world factory
This part of discussion will adopt a perspective from Vietnam, for the scenario faced by the latter is so typical.
In 2022, Vietnam experienced an economic growth rate of 8%. However, despite recent prosperity attributed to undertaking Chinese industries and benefiting from China’s lockdown, it is important to acknowledge that the development model employed by China is no longer applicable in the present day (Joshua, 2022). The dynamics of globalization, the prevailing low-interest-rate environment, and the current state of economic regionalization challenge the feasibility of replicating China’s past success (Joshua, 2022). While many economists express optimism regarding Vietnam’s economic prospects, the country’s performance following the COVID-19 pandemic has been less than impressive, even presenting some challenges (Joshua, 2022). Additionally, Vietnam’s enlightened authoritarian approach, akin to the Chinese Communist Party’s model, faces inherent difficulties in replicating historical circumstances accurately. In terms of demographics, Vietnam's median age of 31 does not provide a significant advantage compared to China (37) (Joshua, 2022). In contrast, countries like the Philippines boast a younger population in their 20s. Moreover, Vietnam’s ability to suppress labor force costs is not as formidable as China’s, and it lags behind countries such as the Philippines, Indonesia, and Malaysia in terms of civil liberties. Vietnam is grappling with a decline in the real estate sector (11% of GDP) and in its exports (1/3 of GDP) (Joshua, 2022). This downturn highlights its failure to replicate China’s success in leveraging exports and real estate as drivers of economic growth. Political reforms in Vietnam appear superficial, with underlying North-South disparities and the prevalence of emotional nationalist education, reminiscent of other socialist nations (Joshua, 2022). The current regime, following a Leninist party model, faces challenges in simultaneously maintaining long-term control and fostering economic development amidst the fluctuations of ups and downs. Furthermore, differences between Vietnamese and Western ideologies pose additional obstacles to Vietnam’s progress. The United States’ engagement with Vietnam is primarily driven by the goal of containing China. Therefore, Vietnam may not enjoy an extended period of significant benefits from this engagement. It is worth noting that several decades ago, the United States and North Vietnam were embroiled in a devastating war, adding historical complexity to their relationship. The advancement of AI and automation has diminished the need for abundant low-cost labor in the manufacturing sector (Joshua, 2022). This trend is evident in the relocation of numerous factories back to the United States without corresponding increases in US domestic employment. Consequently, it is possible that future global manufacturing demands will not require any Asian country to assume the role of the world’s factory. As a result, Southeast Asian countries like Indonesia, the Philippines, and Malaysia may find more promising prospects in their pivotal service industry (Joshua, 2022).
The conjecture on Vietnam can provide valuable insights into the prospects of India. On one hand, India can rejoice at the fact that its current industrial focus is “global office” rather than a “world factory”. On the other hand, India can also draw inspiration from Vietnam’s industrial development strategy and upgrading its industries.
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7.???? Is the feast sustainable? Underlying Threats
·????? Will the demographic dividend deplete?
While the mainstream celebrates the vast population of India, a notable fact is that India’s fertility rate dips below replacement level (Figure 28).
As mentioned, India’s rural households are expanding into non-farming sectors of the rural economy, instead of flowing into cities to become migrant workers [農民工]. Six out of ten jobs in rural areas were in the non-farm sector in 2013 compared to four out of ten in the 1980s (Binswanger, 2013), indicating that the rural non-farm sector has emerged as the main driver of job creation in the Indian economy, given the size of the rural labor force (Binswanger, 2013).
This feature grants India a significantly better chance in sustaining its population and exempt a considerable proportion of them from being over exploited in monetization.
It’s crucial that India would remain diverse not homogenous, i.e., there are multiple parallel “Indias”. If India’s rural areas can maintain vitality instead of being drained like China, then India will have a savings and reproduction pool of sustainable population growth, as well as a cushion against unemployment and external shocks under globalization. In the short term, this means not taking full advantage of the demographic dividend, a fancy term for selling the opportunity cost of labor and population reproduction to international investment in exchange for metropolitan economic prosperity. But what’s the merit of prosperity that is exhausted in just one or two generations?
Another factor also weighs prominently in deciding the population trend, the female labor force participation rate and gender equality. The intuition excerpted from a research is as follows (Schasfoort, 2023): (1) In a rather traditional or premodern society, the division of labor in a household is, the male works, the female rears the children, and fertility rate is high; (2) As economy and society evolves into modern phase, the male works, the female works as well as rearing the children, and fertility rate is low (e.g., Japan, South Korea, Taiwan, China); (3) As transition and adjustment take place, in some successful countries, the male and the female share work as well as sharing rearing the children, and fertility rate is recovering (e.g., US and France) (Schasfoort, 2023). Therefore, for India, either conservative approach (1) or the postmodern approach (3) will lead to a sustainable base of population and labor force.
·????? Is the population too large?
Jobs in rural India have increased (Verma, 2023). Data showed that 95% of people who entered the workforce in rural areas were able to find employment, but only 54.8% of urban job searchers were successful in finding new positions (Verma, 2023). For the most populous country in the world, creating jobs thus continues to be a major challenge.
In recent times, Mumbai, India's financial hub, witnessed a surge of young men jostling forward as policemen attempted to maintain order? (Usher, 2023). These candidates had come from various parts of the state, vying for coveted positions in the police force. The level of competition was intense, with a staggering 650,000 applicants vying for a mere 8,000 openings? (Usher, 2023). This scenario highlights the fierce competition faced by job seekers in India's job market.
Despite India's fast-paced economic growth, the country's unemployment rate stands at a high of 8%, as reported by the Centre for Monitoring Indian Economy (CMIE), an independent think-tank. This issue is particularly prevalent among young individuals who possess an education but lack the specific skills required to keep up with the flourishing high-end service sectors such as software and finance, which are driving the nation's economic growth? (Usher, 2023). Consequently, many young job seekers aspire to secure stable government positions, including roles in the police force.
In an interview with BBC, a candidate named Mr. Bamble shared his determination to move to the city, even if he fails to secure his dream job. He acknowledged that while there are numerous employment opportunities in urban areas, there are also associated hardships? (Usher, 2023). Mr. Bamble expressed concerns about the higher cost of living in the city compared to his village, stating that he would have to pay significantly more for basic necessities, making it challenging to maintain a comfortable lifestyle? (Usher, 2023). Nevertheless, he remains willing to take the gamble and relocate.
The suburb of Nala Sopara exemplifies a community of migrants on the outskirts of Mumbai that has experienced remarkable growth of 200% over the past 20 years? (Usher, 2023). This migration trend reflects the aspirations of individuals seeking better economic prospects in urban areas. However, rapid urbanization poses challenges in terms of providing adequate infrastructure, affordable housing, and social services to accommodate the growing population? (Usher, 2023). Effectively managing urbanization becomes crucial in ensuring sustainable development and improving living conditions for migrants.
·????? Political stability and good governance
India is the world's largest democracy, with a multi-party political system. It has a federal structure where power is divided between the central government and the individual states.
India has a stable political system with regular elections, a functioning judiciary, and a robust bureaucracy. However, like any country, it faces various challenges in governance. Corruption has been a long-standing concern in India, and efforts have been made to address it through legislation, anti-corruption bodies, and public awareness campaigns.
Overall, India has maintained stability and continuity in its governance. The dominant position leading party (the one which PM Modi belongs to) persists and strengthens, while the political system remains open and competitive, thus far from deteriorating to “winner-takes-all” scenario.
Bureaucracy is a stubborn disease of Indian government.
Plus, the democratic principle demands the time for the formation of consensus of the general public.
Unlike China’s GDP-oriented approach in appointing local officials, GDP doesn’t account much for the political life of an Indian politician.
The vigilance towards corruption of Indian government and the public has grown. The central government has taken various means but received limited progress practically. Social customs and mentality of the ordinary people are also important negative factors.
8.???? Summary
The case report aims to offer insightful and comprehensive understanding to these issues:
(1)? What are the characteristics, advantages and shortcomings of India and its current economy?
(2)? Will India become the next China? In other words, is it comparable with historical China?
(3)? How great is the established advantage of China, the incumbent India must compete against?
(4)? Have rules of the game changed? Or, does the future world still need a world factory?
(5)? Will the boom last?
As we approach the end, it’s time to answer the last question: What can we conclude and what’s the indication for business, investment and finance?
While India is considered the largest democracy and China is known for its one-party system, there are a number of striking similarities between the two countries.
India has amazing endowments and comparative advantages. However, its characteristics and weaknesses, as well as the less stable global geopolitics mean that it may neither be smooth sailing in the process of economic development, nor exceed China’s past record in its best years (and it’s not necessary either, as long as the growth could perpetuate). As one Indian econometrician told me, he expected it would take 40 years for India’s economy to surpass China’s.
Historical experience will not simply repeat itself. It is not an advisable method to simply select some data indicators as what some Wall Street institutions had done, compare them to the past, and predict the future linearly based on them.
The India Model is bound to be different from the China Model, from political background to industrial structure.Therefore, India will have its own unique path, prospects and worries.
In an atmosphere where public opinion and economists are generally optimistic and praising a country's prospects, always maintaining an independent and calm opinion is a very valuable quality.
Without a doubt, India will be a land of opportunity for business to embrace. Simultaneously, business and investment should be always founded on deep insight, rational estimation and bravery to accept and insist on them, but never on craze or fanaticism.
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