World Economy

Uphill Task in 2015 for China, India Economies

Uphill Task in 2015 for China, India EconomiesUphill Task in 2015 for China, India Economies

The year 2015 is the year that India can. There’s a new, wants-to-do government. Stalled infrastructure projects are being revived, jobs matter again, ecologically sustainable business models are being considered, technology — in private and public enterprises — is on the rise. And unexpected savings from falling oil prices are likely to do good to the fiscal deficit.

A proactive foreign policy has raised India’s profile. Economic diplomacy has re-ignited investor interest, even as a free trade agreement with ASEAN moves towards fulfilling the “Acting East” promise. New Delhi is also securing the neighborhood with active diplomacy and aid, with an eye on ensuring stability in South Asia, Quartz reported.

So what can change this promising picture? In a word, China.

At every step, India will come up against the great wall of China — to its benefit, or to its detriment.

China's High Gear

Like India, China too is in high gear. Regionally, it is an economic and geopolitical aggressor. Its giant $9 trillion economy has plateaued, forcing it to expedite its move towards an open economy. The world’s factory is now focused on becoming a consuming economy, and technology imitation is giving way to genuine innovation.

 China has gigantic exports but its massive aid now dominates financing in Asia, Africa and Latin America — sometimes more than that of powerful multilateral agencies like the World Bank or bilateral agencies like the US Exim Bank.

It’s acquiring energy assets across the world, and securing a place in space, beyond the moon to Mars. The People’s Liberation Army has aggressively advanced influence into Central Asia, Pakistan, Nepal and is adventuring beyond.

These ambitions require varied levels of adjustment by China, a tuning that is already evident from the slowing of its economy.

The question is: Will China’s adjustment be orderly, or disorderly?

A methodical realignment will require Beijing to rein in its extravagant public spending by instituting prudent lending by its banks and reduced foreign aid and acquisition programs. A disorderly slowdown will disrupt the financial system, perhaps causing damage to domestic banks, property prices to crash and manufacturing to slow. In turn, this will impact China’s domestic employment and wages, and global trade and financial linkages.

India Eclipsed

Our analysis indicates that in 2015, China will eclipse India.

China will likely see an orderly slowdown, even as the security and stability of India’s neighborhood will deteriorate, negatively impacting India’s ambitions. China will outgrow BRICS, and the precipitous decline of Russia will propel its enjoining the high table with the US.

The G2 — US and China — will make global decisions, bypassing India especially on new global, US-led trade agreements like the Trans-Pacific Partnership and the Free Trade Area of the Asia-Pacific. Beijing will be on course for parity with Washington.

India will surrender on trade and climate change negotiations — a constant thorn in the bilateral relationship.

India’s hope of leading an alternate global political and economic architecture that reflects own conditions and global heft, will be in retreat in 2015.

India can use the isolation to pursue internal reforms, and strengthen relations with other stagnant powers like the EU, Japan and actively-excluded Russia. Thus better prepared, India can hope for an equal voice in world affairs come 2016.