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Can Modinomics help India pip China? Probably not, according to this theory

China has sustained growth for over three decades and overcome a crippling modern history as different from India as heaven and hell.

Updated: Oct 18, 2016, 05.05 PM IST
Actual Indian growth is believed to be slower than the official Chinese GDP growth of between 6-7%.
By Kai Xue

India has recently deployed 120 tanks in Ladakh, cleared deployment of around 100 supersonic BrahMos missiles in Arunachal Pradesh, and within this year has reactivated and upgraded five advanced landing bases in Arunachal Pradesh. These actions are the culmination of a large scale multi-year arms buildup near the border with China that has included drilling of new bunkers and additional troops and artillery at the edge of the disputed line.

China has during this time not moved new weapons to the border and, at worst from India's perspective, engaged in upgrading non-military transportation infrastructure in border provinces. India makes this unilateral move despite keen awareness that China has a much larger economy.

As industrial prowess is the most manifest antecedent of national strength, India's play for a peer-to-peer contest is rooted most fundamentally in optimism inspired under Prime Minister Narendra Modi of a rapidly ascending Indian economy. But Indian strategic bravado dependent on economic optimism is unsound.

India's resurrected economic confidence has a tripartite basis. The newest leg is the latest GDP data showing Indian growth exceeding China, making India the fastest growing major economy in the world. The other legs of this foundation are from the Manmohan Singh era, when Indians were confident about overtaking China based on two often cited assumptions woven into the hare vs tortoise story.

Prime Minister Singh ­ prompted by an American TV interviewer to compare both countries in 2004 ­ held that India's democratic decision making although a slow process would lead to more durable results. India's democratic process in this view is more stable because it runs on broader consensus while China's rush to get things done has temporarily paved over societal contradictions that will eventually lead to instability and hinder growth, if not lead to collapse, allowing the steady tortoise to bypass the exhausted hare. The third assumption oversimplifies the starting point of this race. Economic liberalisation in China and India are commonly thought to have started in 1978 and 1991 respectively. Comparisons in India routinely draw attention to the long gap in start dates to show that the hare had a more than decade long head start on the tortoise.

Indians have themselves assailed officially reported GDP figures from the last two years. The financial press, businessmen, bank analysts and even departed central banker Raghuram Rajan have critiqued stated figures of 7-8% growth as erroneous, inflated, and befuddling. Actual Indian growth is believed to be slower than the official Chinese GDP growth of between 6-7%.

Chinese economic data have a poor global reputation too, but in recent years global experts have flagged not China's official GDP numbers as fabricated but sounded the alarm about a pending banking crisis due to the vast state directed lending necessary to achieve current GDP. While that points to flaws in China's growth, the implication is that GDP is growing by the stated figures but driven by a risky credit binge.

There is no questioning Singh's view that without broad consensus, growth in the present is flimsy in the long term. China knows all too well how absolutism, vesting power in a single leader, dooms a nation. During the Great Leap Forward ordered by 'Great Helmsman' Mao Zedong the economy utterly collapsed from 1958 to 1962; approximately 45 million perished in the ensuing famine.

India in contrast has withered under mediocre governance and slow-growth socialist economics, but never in its post-Independence history has it been misgoverned like the catastrophe of Maoism.

China emerged from apocalypse with an unshakable understanding that leadership must be brooked by a process and decisions draw from an aggregate of intraparty stakeholders. At the epochal party meeting in December 1978 Deng Xiaoping was chosen as paramount leader of China ­ not a god but the head of a system ­ and began the process of "reform and opening up", setting China running again at a maintainable pace.

If anything India was blessed with a head start. Since 1947 India has had stability; the People's Republic of China was born in 1949 and until the fateful meeting in December 1978, fell under extreme mismanagement and allencompassing political violence. Deng Xiaoping was wary of the contradictions created by breakneck change as understood by Singh. It was not until 1992 that the pent-up Shanghai economy was allowed to liberalise, unleashing the spirits of the Yangtze River Delta.

Around the time of Shanghai's liberalisation the same sea change occurred in India. Contrary to notions of a head start China was only able to climb back to a GDP per capita equal to India in 1990 and from then excelled ahead to $8,000 versus $1,600 in 2015.

China has sustained growth for over three decades and overcome a crippling modern history as different from India as heaven and hell. While Modinomics has refreshed national confidence, it is unproven that India is growing faster than China and outright wistful thinking to attribute China's success to advantages India didn't have or hope for China to soon implode.

As Indian development is held back by the threat of border conflict, high levels of spending diverted to defence, and insufficient infrastructure financing and foreign investment, the latest deployments in Ladakh and Arunachal Pradesh seek to irrationally exacerbate its problems. It is behaviour befitting an overconfident hare in a premature sprint for glory before exhaustion leaves him in the dust of the steady tortoise.

(Kai Xue is a corporate lawyer in Beijing)

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