India Has Every Chance to Outstrip China
World Economy

India Has Every Chance to Outstrip China

Forecasts this week by the World Bank revived a prediction often made down the years: that growth in one of the Asia’s fast emerging market, India, would outdo that in the other, China.
If this comes to pass, the correct reaction would be: about time too. And while in the medium term it would mainly reflect their relative positions in the economic cycle, sustaining it over a longer period will require Narendra Modi’s government in Delhi to play as good a liberalization game as it talks, Bloomberg reported.
In truth, it is an indictment of India’s policy making over the decades that the thought of its economy outpacing China is a novelty. At a much earlier stage of development — India’s per capita gross domestic product at purchasing-power-parity levels is less than half China’s — the potential for catch-up should be enormous.
Yet India, although it has succeeded in creating world-class software and business services companies, has never achieved the broad-based take-off in manufacturing that has lifted so many Asian countries out of poverty. This can be remedied.
Clearly there is a large cyclical element in India’s current prospects. The monetary policy implemented by Raghuram Rajan, governor of the Reserve Bank of India, has been exemplary. Timely increases in interest rates at the end of 2013 swiftly quelled inflation.

  Loosen Monetary Policy
Accordingly, India’s economy gathered steam last year while many others, such as Turkey and Brazil, had to raise rates sharply in the face of high inflation and weak currencies. This week the RBI judged it had enough headroom to loosen monetary policy.
With the RBI having made its contribution, however, Modi’s government has yet to show it can match it by implementing plans to reduce the fiscal deficit and privatize a succession of companies. The privatization campaign has run into difficulty, and India seems likely to miss its deficit target of 4.1 percent of GDP this year without hefty spending cuts.

The enduring gains if Modi succeeds could be huge. India has some long-term advantages over China.
First, its demographics are considerably better, with a relatively much larger cohort of young people entering the workforce.
Second, while China requires great political upheaval to become a prosperous liberal democracy, India has only to improve the imperfect democracy it already has.
Third, China is beginning to exhaust the rapid manufacturing phase of expansion, and may find growth harder to come by in the future.
Predictions of India overtaking China have been disappointed so many times over the decades that it is risky, bordering on foolhardy, to make them once more.
Yet by virtue of his sweeping election victory last year and the happy macroeconomic position that India is currently in, Modi has one of the best chances in a long while to fulfill a little more of the country’s vast but unused potential.


Short URL : http://goo.gl/O21oU0

You can also read ...

Westinghouse Electric, the leading US nuclear fuel producer, said it relies on China for zirconium and zirconium powder  for use in nuclear fuel assemblies
A broad cross-section of US businesses has a message for the...
Argentina Lacks Options to Defend Peso
With interest rates sky-high and the economy heading for...
UK Business Pessimism Rising
Business leaders’ confidence in the British economy has fallen...
Turkey, Qatar in Currency Swap Deal
The central banks of Qatar and Turkey signed a currency swap...
BMW Seeking Broader China Collaboration
The opening-up is an important policy and German carmaker BMW...
Irish Economy in Post-Recovery Stage
The economy is in a strong position and has moved into a post-...
International Labor Organization has called for stronger...
Asian Countries Vie to Set Up Crypto Valleys
The race to establish cryptocurrency hubs in Asia is gathering...