learn lesson

Source: The Hitavada      Date: 24 Jan 2019 12:02:05


MULTILATERAL financial institutions, global rating agencies and economic experts seem to be unanimous in their view that India would be the next focal point of global economic resurgence in the coming years even while China grapples with the imminent slowdown in its growth story. In fact there is much to learn from the Chinese experience, especially for India as the country takes steps to take benefit of the conducive atmosphere that is visible on the horizon. Chinese President Mr. Xi Jinping’s latest caution to his country’s economic planners to be ready to deal with the emerging scenario of slowdown is a pointer to the things unfolding in the second richest economy of the world and draw appropriate lessons from it. 

Former Governor of Reserve Bank of India (RBI) Dr. Raghuram Rajan, like many other international experts, has predicted that India will continue to grow and eventually surpass China’s economic strength and size in the very foreseeable future. And there are enough indicators that the Indian economy is on the verge of take-off from its current high level of plus 7 pc GDP growth. Dr. Rajan feels that India will be in a position to build the infrastructure in South Asia that China has promised. There is, therefore, every possibility of India reclaiming its position as a regional economic power that China has taken of late.

Apparently China is facing the consequences of creation of over-capacity in manufacturing, leading to over-heating of the economy. Creation of over-capacity has now come to haunt the Chinese rulers as there is slow-down in global as well domestic demand for goods and services. Consequently the Chinese factories are witnessing more closures and retrenchment of employees on a large scale. The US trade sanctions could not have come at a worse time for China as the country is in no position to export billions of dollars worth of goods and services to America as that country was a major destination for the Chinese goods. Hence Mr. Xi’s warning to his country’s planners and administration to be ready for economic turbulence should portray the real picture of the Chinese success story and should be a lesson for those countries like India which are poised to launch their own economic success story.

The Chinese seem to have erred in making too many promises and commitments of financing grandiose development projects. The promises appear to have been made when there was not enough money to take the projects to fruition. This at a stage when the projects had already been launched. Thus it was a case of initial investment turning into dead investment and the project getting bogged down for want of further finance. It is not for nothing that the Chinese economy, which once consistently grew at nearly double digit rate, suddenly finds itself languishing at a mere 6.6 pc according to 2018 results.

Hence it is necessary for countries like India, which has a long way to go to catch up with China and later surpass it, as Dr. Rajan foresees it, to learn from the pitfalls in the Chinese planning and economic development story. Mr. Xi sounded it like an emergency. It would be educative to study the current phase of Chinese economic story and learn lessons from that. False projections and promises would not help in building the economy. There has necessarily to be a balancing act between promises and the capacity to fulfill those promises.

The current competition among various Indian states to announce loan waivers for the farming sector is a fine example of bad economics. It is an enigma how state after state is announcing billions worth of loan waivers when their own finances are in doldrums and when there is a total mismatch between commitments and revenue earnings. Such populism would not help.