" Can Indian Tiger trample the Chinese Dragon? " The India v/s China Story

In an article posted on my blog few weeks back on the topic " Made in China - A Threat for India? " , I was trying to analyze how we can compete with China. But today, I want to get into an interesting topic. Ever wonder who will win the economic competition between India & China? End of the day who will survive the recession? I am sure, there is no dispute that India & China are emerging as the World's two Economic Super Powers.

The conventional wisdom suggests that China will soon rule the world, because of its world leading population and massive economic growth over the last two decades.

But let me bring a new twist to the ' India-China, who's better ' story. I was reading a report published by Capgemini Consulting Service, which says, ' Made in India' could be the next big economic story in the world. The report says that in the next 3-5 years, India, while retaining its IT hold, could challenge China as the world's manufacturing hub.

Adding on to this, according to the Economic Times, some economists believe that India will overcome China as the fastest growing economy in 2009. If India achieves a better growth rate than China even for one quarter, the message will go across to the world and help India in attracting more foreign capital. Already, Government Officials in India have been highlighting reports of a few investment analysts who doubted China’s official GDP numbers and claimed that it could be just an inflated one. Its true that, the economic slowdown has hit both India & China but i think the situation in China is worse than us. Exports are drastically coming down and China is hit hard. Our economy is driven more by domestic demand and our rural economy is much more dependable than that of China.

We have strong reasons why the Indian economy will be the most successful one when it comes to riding out the current economic storm. Are you surprised with such a statement when all we get is hysterically bad news about economy from media's? Don't be. I have some facts and figures published in Business & Economy to support my views.

REASONS FOR TIGER'S SMILE !

FDI : China comfortably gets more than $ 150 billion in foreign direct investments every year. As a percentage of GDP, it will be between 7% to 10%. On the other side, Indian FDI has crossed $ 20 billion but has never exceeded even 1.5% of GDP. Now, we all know that foreign investments will dry up. But since our GDP growth has been driven by domestic investment, we will be the least adversely affected.

EXPORTS : There are horror stories floating around of how hundreds of thousands of jobs are being lost because exports are slowing down and declining. I read, half a million jobs were lost in the last quarter of 2008 because of contrasting exports. But on the other side, Chinese government admit that, 20 million jobs were lost in the same period and now you know where India stands compared to other nations. Also remember, exports from India is only around 15% of GDP, one of the lowest among major economies in the world.

CONSUMPTION : China's consumption accounts for just about 35% of GDP while it constitutes about 65% of GDP in India. When bad times come, consumption might stagnate in India while investment is bound to fall suddenly in China. No wonder, the Indian GDP growth rate will be around 7% in 2008-09 while it might crash from 13% to 6% in China. Slow & steady is often better!

INTEREST RATES : If every crisis is an opportunity, here is the mother of all opportunities. A few years ago, when major economies of the world had started cutting interest rates because of recession worries, our RBI kept hiking them to fight inflation. After the meltdown, there has been a move to cut interest rates. But the fact of the matter is that no other major economy of the world has interest rates as high as India's. That means, there is enough scope to reduce it drastically which puts us in a better position compared to other nations.

HEALTHY BANKS : This is arguably the biggest advantage that Indian economy enjoys in these turbulent times. Nobody knows for sure the position of Chinese Banks when it comes to bad debts ; but things have started rottening for them post recession. But our banking system is literally in the pink of health for sure.

INDIA INC : Many economists now acknowledge that India holds the advantage compared to China because of two reasons. Most successful Indian companies are private. More importantly, they have used capital far more productively and efficiently than Chinese counterparts. Chinese companies purely rely on Government incentives for growth. Also remember, most of our companies are sitting on billions of dollars of reserves!

DRAGON RUNNING OUT OF FIRE!

DROP IN GDP : China is surely paying price for its past mistake ( heavy reliance on exports for growth ) these days. The GDP growth for them remained in single digit during 2008, now its slipped below 8% and expected to go even further down!

INDUSTRIAL PRODUCTION SLIPS DOWN : Even the much talked Chinese production machines are slowing down. Industrial output, which was dependent on export-oriented industries is rapidly loosing speed. It has slipped down from 17 % during march 2008 to just 5.7% during last December. In fact, this downward trend will continue to haunt China in 2009 as well.

EXPORTS BOUND TO SINK FURTHER : Exports the backbone of Chinese economy, is continuously declining over the last one year. This decline in exports is happening not only in labour-intensive sectors but across all sections of the economy. The factories are shutting down and the manufacturing boom seems to have come to an end in China.

DOMESTIC MARKET SLOWS DOWN : China's strength was always the fact that they have a 1.3 billion population which makes their domestic market the largest in the world. But that seems not coming handy for them during this recession! In fact, China witnessed the slowest pace of retail sales growth since November 2007. The China Retails Sales percentage was 21.6% during May 2008 & its been dropped to 19.0% towards the end of December 2008.

I hope the reasons and comparisons stated above tell us that the Indian economy will ride this storm without much damage. Our government is confident of achieving close to 7% growth this fiscal. In addition to the two stimulus packages, recently, the government announced a Rs,30,000- crore boost to the slowing economy by cutting excise duty and service tax.

The global recession looks to me as an opportunity for India to start closing the lead that China has built over it in the past decade or so. A growing majority of economists predict that India's democratic structure and the resulting transparency will allow it to over take China in near future.

Guess its time for the Indian Tiger to trample the Chinese Dragon !

What do you say?

Shamim