Sino-Indian Economic Competition

By Kumar David –

Prof. Kumar David

China is the workshop of the world; consumer goods, appliances, devices, heavy machinery and all things China made from linen to locomotives flood global markets. It trails the best Western and Japanese top of the line technology (complex microchips, aerospace, medical). But it is closing the gap (5G, AI, robotics, vaccines) and I will have to return to this some other day. The growth engine was ignited by Deng Xiao Ping’s 1979 reforms but take-off was really after Deng’s visit to Guangzhou Province in 1992. The sleepy rice farms of Shenzhen that he turned into a new economic zone is now a more populous and prosperous city than Hong Kong. By about 2010 China had the second largest GDP in the world, and by 2030-2035 it will surpass the USA in economic output (not per capita of course).  

It is not true that India made a later start. While Mao was taking the Great Leap Forward wrecking-ball to the economy and ten-years later stirring up chaos via the Cultural Revolution, India made a well-planned start in the Nehru era. But bottle-necks, the licence Raj and the cancer of corruption (worse than modern China) were never cracked, the private sector remained moribund and lacked the effervescent energy of China’s small and medium capitalism of the Deng era. India’s state-owned industries lacked the direction and determination of China’s state-directed enterprises; gigantic infrastructure expansion unleashed an investment flurry in China that Provincial Governments (States in India) could not match. 

Nevertheless, there has always been a view, not confined to liberal economists, that at a certain stage of growth, free-markets, unfettered capitalism and do-or-die gung-ho entrepreneurship would engender innovation and rapid growth. The earth-shattering impact and energy of the bourgeoisie dominates Part I of the Communist Manifesto, and we have seen it recently in the new capitalists of post-Deng China, albeit under the watchful eye of a non-capitalist state. Many were inclined to the view that political democracy and its concomitant, market-freedom, could set off growth in India in the post-Nehru era and that India’s GDP could catch up with China in two or three decades. It is now clear that this will not be the case. There are three reasons why India overtaking China in economic power is not going to come to pass.

The primary reason is the global context. The capitalist world is already crowded with giants compared to the epoch of, say the rise of Britain and a 100 years later America, as economic empires. Germany and Japan too shot up after war devasted Europe, the Far East and China provided uncrowded space for their economies to expand. Competitive India had nowhere to explode into in this overcrowded globe unlike state-directed China (both domestic and international markets) following an entirely different post-Deng market-capitalist paradigm. From this flows my second reason about which I will have more to say next Sunday (13 December) when I discuss China’s millennial antiquity of centralised state power and natural tilt to authoritarianism. In India Social structure (ethnic diversity, linguistic fracturing and cast obsessions) militated against entrepreneurship and modernisation. Lee Kwan Yew singles this complexity for discussion in a chapter in One Man’s View of the World, Straight Times Press, Singapore (2013). India’s inefficacy is proverbial, her rich are the filthiest rich, her poor the poorest.  

The third reason is the recent rise of Modi-Amit Shah Hindutva authoritarianism and assault on democratic norms, institutions and ideology. When Modi arrived, many expected him to fire up Indian capitalism and entrepreneurial spaces and attract loads of overseas investments. None of this is happening. Hindutva extremism rings the death knell of liberal polity and economic liberalism. India’s best and brightest are migrating in hordes with no thought of returning (more than half Chines to students in the US return). Look at the cream of America’s top corporations or consider Biden’s team for pointers! For these three reasons I have adjusted my hopes of hearty capitalist growth in India rivalling China’s state-led economy and lowered my expectations for India. Prospects would be brighter if one could see the defeat of Hindutva ideology or Modi’s authoritarianism being thrown back. Unfortunately, the masses in the cow-belt, like populist lumpen all over the world, have a death wish for authoritarianism. That’s very sad.