Overcoming Challenges and Paving the Path to Rapid Growth: India's Journey to Compete with China

Overcoming Challenges and Paving the Path to Rapid Growth: India's Journey to Compete with China

Moody's recently reported that the Indian economy has surpassed 3.5 trillion dollar in size, with the IMF projecting it to exceed 3.7 trillion dollar this year. However, to match China's growth trajectory, India must address key areas, particularly manufacturing, which has been a driving force behind China's phenomenal rise.

A Comparison of Chinese and Indian Economy:

In 2007, China's per capita income was 2,694, dollar and India's per capita income is expected to rise from $2,379 in 2022 to 2,601 dollar in 2023, as per the IMF. In 1980, India's GDP was 64% of China's, but by 2001, it was only 28%. Unfortunately, by 2021, India's economy had fallen further behind, equaling only 17% of China's.

Points of Divergence between Indian and Chinese Economy: Different Drivers of Growth

1. Investments and Exports: China's remarkable growth has been fueled by investments and exports. From 2003 to 2011, China's investment to GDP ratio averaged 40%, compared to India's average of around 33%. The gap between the two countries has widened since then, with China's investment ratio reaching almost 43% and India's falling to around 29%.

2. Tariff Rates: China's emergence as a global supply chain hub was facilitated by the lowering of tariffs. The country's tariff rate fell from 10.69% in 2003 to 5.32% in 2020. In contrast, India's tariff rate declined from 25.63% in 2003 to 8.88% in 2017 but has since risen.

3. High Participation of Female Labour Force: China has consistently maintained a considerably higher labour force participation rate than India. In 2007, China's participation rate stood at almost 73%, while India's rate is estimated at around 50% in 2022. The significant difference is largely due to female participation, with China's rate declining from 66% in 2007 to 61% in 2022, while India's stands at a lower 24% in 2022.

 

Challenges for the Indian Economy:

1. Employment Generation for Agriculture-Dependent Labour Force: India faces the challenge of providing alternative employment opportunities for the declining labour force in agriculture. As the sector's workforce continues to diminish, the Indian economy must identify sectors capable of absorbing these workers.

2. Semi-Skilled Employment in the Manufacturing Sector: India has historically witnessed job creation in sectors such as construction and services, rather than manufacturing. However, formal manufacturing is significantly more productive than these sectors. Addressing the lack of employment generation in manufacturing remains a crucial challenge for India's growth.

3. Export of Goods: While India's exports, particularly services, have shown improvement in recent years, sustaining this momentum is uncertain. The country must also focus on increasing goods exports, as this will have implications for job creation and the overall economy.

 

What the Indian Economy Needs to Compete with China:

1. Increase the Participation of the Female Labour Force: Enhancing female labour force participation is crucial for expanding the market and increasing spending capacity. India must create an environment that promotes and supports higher female participation, leading to significant economic growth.

2. Focus on Mass Production: To establish itself as an economic power, India needs to prioritize mass production. Achieving cost leadership and outperforming China's pricing requires building clusters where MSMEs can collaborate and leverage shared technology, expertise, and labor.

3. Skilling the Workforce: To compete with China, India must undertake massive skill development initiatives. Workers transitioning from agriculture to industries need better skills to unlock better opportunities and contribute to the growth of the manufacturing sector.

4. Strengthen Diplomatic Skills: India should prioritize developing business skills within its diplomatic corps. Skilling and re-skilling diplomats will enable them to pursue strategic and business goals effectively, enhancing India's global economic relations.

 

Conclusion:

Despite China's impressive economic growth, India has the potential to achieve rapid growth and compete directly with its neighbor over the next 20 years. However, India must address fundamental challenges, including labor force participation, tariffs, and skilling the workforce. By focusing on these areas and implementing appropriate measures, India can pave the way for sustained and robust economic development, ultimately positioning itself as a formidable competitor to China.

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