Monday, March 30, 2009

Will india be a match to china's power

Well its been a month since i touched upon blogging and its pretty bad to do that. Mostly was vexed to spend time on typing a blog and of late found no time due to my part time job.With the recession gettin deeper, along with it goes my hope and cofidence but still managing to stay positive with things improving around. Lets look how would my mother country fare against Asia's bully in this times of down spiralling fortunes. This is idea i got from rediff and jus improvised on it.

To be frank the Indian tiger isn't nipping the dragon's tail anymore. In the boom, India managed a few years of 9 per cent economic growth. That led some to imagine the tiger could catch up with the stellar Chinese economy, which was growing at double-digit rates. Well, not anymore.

One part of the thesis was that India would sail through a global slowdown, while China's export-centred economy would be crippled. India generates less than 20 per cent of GDP from exports, while the Chinese share is twice as high. Yet, India's GDP growth still lags China's -- 5 per cent against 7 per cent in the fourth quarter of 2008. That continues a long-term pattern: for the past decade India's growth rate was 7 per cent, compared to almost 10 per cent for China.

Unfortunately, India doesn't have the resources to fund a big stimulus programme. China's fiscal deficit is 3 per cent of GDP, while India's consolidated deficit is more than 10 per cent. The Indian government's anti-recession package could amount to a mere $8 billion, or 1 per cent of annual GDP. But that pales against China's three-year $585 billion plan, equivalent to 18 per cent.

India can't afford to inject more, for fear of losing its investment grade rating. A junk debt rating could further deter foreign investment, which would more than counteract the possible benefits of a bigger stimulus. As it is, India received just one third as much foreign investment as China in 2007.

Apart from spending more at home, China's vast foreign exchange reserves also allow it to make key overseas strategic investments, buying up stakes in miners like Rio Tinto. That could help the commodity-hungry nation secure long-term resource supplies. India, which imports almost 70 per cent of its oil, can't afford to make similar precautionary investments.

Finally, there is India's woeful infrastructure and recalcitrant bureaucracy, the nation's biggest barriers to growth. As the country lurches to a divisive election, there are precious few signs that these barriers are getting any lower. India could certainly use some of the stimulus funds China plans to plough into addressing its own infrastructure weaknesses.

Indeed, the bust shows that India's idea that it could supplant China as Asia's star growth economy was little more than a boom-time fantasy. The tiger simply doesn't have the financial firepower to contend with the dragon.

1 comment:

sat said...

Good one! Just to add, S&P already downgrade India for unsustainable budget deficit. Indian government has proposed populist budget to win election but I don't think its gonna tick any votes. As u all know Indian democracy is about liquor and caste.