Making Fair Comparisons – A Tale of Two Large Nations : Sandeep Asthana, Country Head India – Sun Life Financial

The History: When it all began

China became a Republic in 1912, and in 1949 chose one party led communism as its political ideology. It chose to be socialist, largely closed to the world until Deng Xiaoping opened up the economy voluntarily in 1979, a full 13 years before India opened up its economy under duress.

India had a different path. It chose to be a democracy after gaining independence in 1947. In decades that followed, India became socialist as the government gradually became the largest participant in the economy. In 1992, faced with a balance of payments crisis, it had to open up its socialist economy to the private sector to access an emergency loan from the IMF. That was a rebirth, and started India’s journey to transform into a capitalist democracy, and this journey continues.

What does that mean for the comparisons between India and China?

When India’s year of opening up (1992) is re-based to the year of China opening up (1979), an interesting trend emerges on US Dollar GDP (Source: World Development Indicators, World Bank). India’s GDP trend tracks China’s quite closely until 2007-08 on India’s timeline when it was hit by the global financial crisis (GFC). That year was 1996 on China’s timeline. After that the trends start to diverge.

India and China initially showed the same trajectory of GDP growth. They tentatively adjusted to private and global capital after decades of distrust of the ‘profiteering’ private sector and the ‘outside’ world.

Indian optimism and exuberance hit global turbulence in 2008, its GDP growth started to slow, and it exposed additional weaknesses in economic and financial structures, which are still being addressed. In contrast, Chinese growth continued unabated 1996 onwards as the global environment was a lot more benign then, aided by an almost secular global growth.

In 2017 (Y33 on the chart), after a long period of stabilization post-GFC, India was where China was in 2004. Interestingly, from 2004 to 2017 the Chinese economy grew over 15% per annum in USD terms.

Should we expect India to match that? While India will continue to grow, I believe its growth rate will always be lower than that of China.

There are good reasons for India’s slower growth

India is a federal democracy, which has arguably the largest diversity of demographics, culture, language and religion in the modern world. That creates its own challenges in designing policies and implementing them. While the capitalist mindset is still evolving, India has taken strong steps in strengthening the institutions that are essential for a democratic capitalist structure. These include judiciary, independent election body, effective central bank and financial market regulators. There is also the independent media. In a capitalist democracy, these institutions provide the checks and balances, but they also moderate growth. Moreover, India’s global image will always be difficult to manage as its diversities and dissonances find instant expression in media – both traditional and social.

The future of New India

New India since its rebirth in 1992 is still a young nation, and like many developed nations it will gradually evolve its own frameworks relevant to its history, diversity and culture. The process is accelerating thanks to the rapid proliferation of digital information and digital tools. While transformation of India will be unique and unpredictable, it will also be self-corrective.

Source: The Hunt Report Vol.14

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