When India put a cut-price satellite in orbit around Mars last September, one media company could not resist a comparison with China. Although the “Indian elephant” was losing to the “Chinese dragon” in most other respects, NDTV’s website said, at least Delhi was beating Beijing in the race to the red planet.
Meanwhile, back on planet Earth, India may be about to steal another march on China. After years of peering over the Himalayas in awe at China’s superior growth rates, there is now a realistic prospect of India overtaking China on that measure too. The switch could happen as early as next year. That would make India the world’s fastest-growing large economy, finally thrusting it into the limelight after decades in China’s shadow. It might even bring democracy back into fashion. Delhi consensus anyone?
The idea is not as outrageous as it sounds. For years, we had been used to China growing at double-digit rates. Now it is slowing. China’s labour force is shrinking and manufacturing is losing its power. More fundamentally, Chinese leaders recognise the need to change a model that relies too heavily on credit and energy inputs. China’s growth has already dropped to below 7.5 per cent. Before long, Beijing will probably allow it to settle down somewhere in the 6-7 per cent range. It would certainly take that option over a crisis, which could temporarily send growth much lower.
India, meanwhile, may be about to go the other way. A Goldman Sachs report says the country is on the verge of a new growth cycle. The economy is in better shape. The current account and fiscal deficits have fallen, as has previously stubborn inflation. Cheap oil is a boon.
India also has political momentum. Although some are disappointed at what they regard as a timid start by Narendra Modi, the Prime Minister, there is a palpable sense of optimism these days. In theory, it should not take much to get the economy ticking over more effectively after a few years in the doldrums, when growth dropped to 5 per cent. So when might India overtake China? The World Bank puts it at 2017. In its latest forecasts, it predicts India will be growing at 7 per cent in that year, with China down to 6.9 per cent.
Predictions, especially such precise ones, should be taken with a generous helping of chilli powder (or oyster sauce if you are reading this in China). We have been here before. A few years ago, it was fashionable — especially in India — to describe the Indian tortoise as being on the verge of overtaking the Chinese hare. That prediction ended up as turtle soup.
What could stop India this time? There are several things, but I shall stick to two. First, Modi may find it harder than he imagines to remove bottlenecks. Reforms aimed at boosting manufacturing or encouraging capital investment may prove tougher to implement at national level than they did when he was running Gujarat. Besides, some reforms, such as relaxing the rules on foreign ownership of insurance companies, may not prove to be the magic bullets that industry lobbyists claim.
Second, and perhaps more fundamental, democratic India is still caught in an ideological battle over where to strike the balance between pursuit of growth and protection of the environment and land rights. The debate, ferocious at times, is being waged in the courts and in the public arena. In recent months, a leaked report by India’s intelligence bureau claimed that foreign-backed non-governmental organisations were using environmental concerns as a pretext to stymie India’s development. Conspiracy theories aside, tussles between activists and industrialists have held projects back. South Korea’s Posco has been fighting with local residents for years over plans to build a $12 billion (Dh44.13 billion) steel mill in the eastern state of Odisha. Vedanta, an Indian mining company, has failed to secure permission to mine bauxite in the same state because the nearby hills are held sacred by local people. Balancing the ambition to grow with other legitimate interests is an unsolved puzzle.
In a very different context, similar concerns are playing out in China. Beijing, at least rhetorically, is now putting as much emphasis on the quality of growth as on the quantity. Responding to the central government’s lead, several cities have dropped gross domestic product as a performance metric and are emphasising environmental protection and poverty reduction instead. It would be an irony if India finally overtakes China in terms of headline growth just as the concept goes out of fashion.
— Financial Times
