India is trying to copy China’s economic rise. Some things like investing to improve infrastructure make sense but other parts of the model are not.
China achieved a spectacular rise in its exports, from $17 billion in 1980 to $1.7 trillion in 2010. This was aided by a significant inflow of capital from Greater China (Taiwan, Singapore and Hong Kong), Japan, and the West.
India’s investment- and export-led strategy may not deliver the expected outcomes. Despite the economic slowdown, the US, the EU, and Japan continue to be the most significant markets globally. But global trade, which has been growing faster than the global GDP, has now declined to equal global GDP growth rates, plunging even lower the last two years. And even though China is the world’s second-largest economy, it accounts for only 2% of global imports. China is already engrained in global supply chains and despite rising incomes in China, China keeps prices low with increased automation and efficiency.
India’s GDP growth is likely to face near-term headwinds and might slip below 7 per cent mark to a three-year low this financial year, says a DBS report. Two recent policy measures — demonetization in November 2016 and GST rollout in July 2017 had a short term impact on economic activity and aggravated the already slowing momentum.
“These amplified the already weak trends in manufacturing and investment growth slowing first half growth to 5.9 per cent from 7.9 per cent in 2016,” DBS said.
There are politically difficult structural reforms needed such as liberalizing land, labor, and agriculture. There is longing for the boom years where India had 8+% annual GDP growth. However the growth level was less than the 10-14% GDP growth that China had at a similar stage of development. Also, the boom was largely because of lower oil and gas prices from China’s slowdown (lower commodity demand) and US fracking (Supply increase).
India needs a lot of fixes to reach any potential 10+% sustainable annual GDP growth level and India needs to find multi-trillion dollar industries to dominate.
India will need to develop the ability to succeed with more domestic involvement in large scale techno-construction and manufacturing projects.