(Pic: Wikipedia)
I read similar headlines in multiple news outlets and have read about this for a while. ‘India and China being the shining stars of asia. They will finally restore the balance of world power and economy with asia being as important if not more than west’. This made me wonder about certain aspects of this India-China duo. The pair supposed to make it big on the World stage in 2030. West has, for long, believed in the philosophy–Democracy and not Autocracy is better for people and I concur with it. After-all ‘For the people’ has been part of the definition. The pair presents a good opportunity to test this belief. They have similar population, started the being independent entities at the same time (WWII) and are in similar regions, which takes the demographics out of question.
In 1947, India elected Jawaharlal Nehru as the Prime minister and that sealed India’s fate as socialist democracy. Following the Chinese Civil War, Mao Zedong’s Communist forces took power and founded ‘Peoples Republic of China’ in 1949. If you compare the policy of both countries in initial phases it was similar being socialist. Mao and Nehru both adapted the Soviet-style Five year Plan as a part of centrally controlled economy. Nehru era created extensive regulations and red tape widely known as ‘Licence Raj’ in his daughter’s time. India’s per capita income grew at a meager 1% annualized rate till 1980s. If this paints a dire picture my country, China was not far behind. Actually Chinese economy was behind India up until 1978 in terms of GDP. It is pertinent that both countries were socialist, mildly put. No critic of Indira Gandhi governance stayed jail-free during India’s ‘state of emergency’. Similarly, Mao Zedong’s influence was so strong that his successor Deng Xiaoping coined a famous phrase “7 parts good, 3 parts bad” but failed to acknowledge the economic disparity prevalent three decades of Mao’s reign.
The history looks comparable for India and China at least for their first thirty years or so. The key difference between the two was the ‘elected’ part for Nehru and ‘took power’ part for Mao. The picture for both the countries changed to paved way for western world to enter the these markets as producers, investors and consumers. Various rounds of economic liberalization that led to development of relatively free market economies. Even-so there came a drastic difference between two in 21st century that has developed in short time of two or so decades. Widely known fact is China having bigger economy on a size of GDP scale. Although I would grade a country on the basis indicative of the level of life in that country than the poster growth.
First up is the economic shock that all of my friends here in US have felt when they went to their recent trip back home. Trip to a decent restaurant that used to cost around Rs. 100/person has ballooned to around Rs. 300 at least. This concurrent with the ~10% inflation rate in India. In contrast China has that rate at acceptable 1.3%. This affects the budgets of even the middle class families let alone the poor which is available at wholesale rates in India. The current population below the poverty level–less than $1.25 per day– stands at a daunting ~32% for india which is huge considering China’s ~13%. This tells you distinction in the overall financial demographic of two countries. There has been two sides of employment creation in US. Democrats think the government can assist the private sector with stimulus and Republicans think that it should be completely left to private sector. Whichever you support India has failed to do as good as China. India has unemployment rate at 9.4% compared to China’s healthy 4.2%. Either Indian government is failing at adding enough stimulus into the economy or is doing a bad job at not coming in the way of private sector. Later being more likely scenario. The next characteristic a bit loose in my opinion but still a contrasting one. The average gross salary for an Indian is ~$1410 per annum as oppose to his/her Chinese counter part who earns ~$5400. This to me is a weak measure because cost of living in two countries is completely different thus making a straight up income comparison less worthy.
I cannot help to think that all this prosperity that these countries have enjoyed in recent decades should have cost them in some format. This would show in the balance sheets of the countries. This is also a bad report card for India. India manage all the growth that current congress government likes to boasts about at huge public debt of 68% of its GDP while China managed by borrowing only 25% of its GDP. The rates at which a country borrows is dependent ont its credit rating. India has a BBB- to China’s AA-. In 2011 India ran a ~$110 billion deficit on top of a ~$196 billion revenues. China in same year ran a ~$83 billion deficit on top of their ~$1.64 trillion revenues. Foreign reserves for India stand at a meager ~$295 billion as opposed to ~$3.2 trillion of China.
Digging this up has made me wonder if India is any better off by being this pseudo democracy compared to communist China. My good friend liberalcynic argues that a Communist country has disadvantages such as lack of freedom of speech, lack of competition and central economic planning that results in inability to account for volatility in market. Lets take a look of our ‘Non-communist India’ in all these aspects. India has threatened to ban social media and media outlets like Facebook and Google unless they comply with government requests. This gets worse when the judicial system also supports this restricted freedom of speech, as it is being called. I admit that this is still better than Chinese situation but not as good as western countries like US. ‘2G spectrum scam’ involving politicians and Indian government officials under-charging companies for licenses. Coal mining controversy famously known as ‘Coalgate’, involved coal block allocations as oppose to auctioning them. This doesn’t sound like competition friendly environment to me. As I mentioned before the ‘democratic’ India has a centralized planing known as Five year plan.
In summary, I think India has all the bad you assign or expect to come from communism and still lacks the economic prosperity that is guaranteed by communism advocates. I have been and still in support of democracy and free market economics. It is the Indian scenario that makes me sad. I wonder what and where India would have been has it taken a few right steps.
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