Can India Replace China In Growth?

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Published: Tuesday, 4 April, 2017 10:35 AM

Can India Replace China In Growth?

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Read Current Affairs Topic:  Can India Replace China In Growth?

During the second half of the 20th century, the growth rate of China was exemplary while its southern neighbour India was facing crippled economic growth sarcastically called as ‘Hindu Rate of Growth’. During this period, Chinese economic witnessed a tectonic shift in its economic structure as it transformed from a largely agrarian economy to the manufacturing hub of the world.

The year 1979 marked the watershed in the economic history of China when large scale reforms were introduced in agriculture sector and a policies shift was introduced to attract the foreign capital into the country. This change in policy shift increased the annual average GDP growth rate of 6% during 1953-78 to 9.4% from 1978-2012.  

Similarly, the watershed year for India was 1991 when economic reforms were introduced. In 1991, the GDP of India was INR5.86 lakhs crore which increased by 2216% to INR135.76 lakhs crores in 2016. From 2005-2008, the growth rate of India was in excess to 9%.

The Chinese economy have now started showing the signs of exhaustion and the International Monetary Fund (IMF) predicts its growth rate to decelerate to 6.5% in 2017 and 6.0% in 2018. Now many analysts predict India to fulfil the vacuum left by China.

In the year 2016, the World Bank estimated the growth rate in India at 7.0% ahead of the 6.7% of China. Thus India indeed became the fastest growing major economy in the world; however, it is nowhere near the rate witnessed by Chinese economy in its heydays.

The main reason behind the growth fatigue in China according to the Boston Consulting Group (BCG) is that the cost of production in China is now same as that in the US. An increase in wages, shifting exchange rates and higher energy costs in the past 10 years resulted in manufacturing stress in China. On the contrary, in India, labour cost is still much lower.

However, merely the cost difference is not enough to make India the manufacturing hub of the world. There are many challenges which first needed to be addressed so as the make India the leader to emulate. The first and the foremost challenge is to create a conducive business atmosphere. Traditionally, the bureaucracy and the procedural conundrums have not been very attractive for the businesses. A culture of entrepreneurship needs to be developed. In other words, the red tapism has to give way to red carpet in the country.

Secondly, the labour laws in India are very archaic in nature. They do not conform to the modern needs of industry as well as labour. Government must now manifest its political will and take bold decision to usher the second generation reforms lead by the reforms in labour sector.

For a sustainable growth, the investment in the human capital is second to none. Since most of the future jobs that would be created in the country would require some kind of specialization, it is the responsibility of the government to provide the required skills to its vast labour force. For China, its humongous population was not a burden for the economy but it became catalyst in the country’s growth as authorities have invested in human capital.

Affordable energy is another prerequisite required for India to take China’s place in the future. Without the cheap and assured continuous supply of energy, it is very tough for a firm to produce cost effective goods.

The macro-economic stability is another thing which designs the path of the future growth of a country. Chinese economy is still controlled by the government with fixed exchange rate, interest rate etc. Though fixed rates provide some kind of stability but they also exert pressure on the controlling authorities. So it is essential for India to keep the fundamentals right by keeping a tab on inflation, exchange rate, interest rate, etc.

Thus, there is no element of doubt that India is best poised to fill the gap left by China and it is a great opportunity for the country to change its fortunes for the future but in order to achieve that, government have to prepare a platform for the economy to take off and address the aforesaid challenges.

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