India and China are the two most dynamic economies of the world. Once upon a time in around 1600 AD China and India actually accounted for almost 58% of the global GDP.
This actually shrunk to just about 3% in recent times largely because of the industrial revolution in Europe and what we are witnessing today is the revival of these Asian economies on the centre stage of the global economy.
China and India’s economies are not competitive in nature. They are complimentary to each other. China has been the factory of the world. India has been the back office of the world and it is important that both of us work together. China’s entire strategy of growth and development has been export oriented whereas in India’s case, it has been driven by the domestic market. To my mind the Chinese economy has done exceedingly well.
It has grown at rapid rates, it has lifted vast segment of its population above the poverty line. It has driven manufacturing and as a consequence of that, it has driven urbanization. It has taken vast segment of the population from agriculture and put them in new cities. It has used the strength of its ports to drive its exports and if you are to look down at the breakdown of China’s GDP almost 44% comes from the secondary sector that is the industry. About close to about 46% comes from the services sector and just 10% comes from agriculture.
In India’s case its 65% of our GDP comes from the services sector, just about 18% comes from manufacturing and the balance is agriculture and therefore the challenge for India really is to drive its manufacturing sector if it has to grow at rapid rates like China has done.
Both China and India were at the same level of growth around 1974. But China grew rapidly at double digits, 10% plus after that. When you grow at those rates the power of compounding is so enormous that you double your GDP in just seven year’s time and therefore to my mind the challenge for India today is to rapidly grow at 9-10% per annum year after year for three decades or more to be able to lift a very vast segment of a very young population above the poverty line.
And if India is to grow at rates of 9-10% then the manufacturing sector must grow at rates of 13-14%. If the manufacturing sector is to grow at those rates then the export sector must grow at rates of about 18-20% and the challenge for India is that it must become a very easy country to do business.
Making India business friendly:
Therefore this new government has laid immense emphasis and focus on making India an extremely easy place to do business. The focus is on opening up the economy in India. India has opened up vast sectors of its economy- defence, railway, construction, insurance, medical devices in last 6-7 months and today is one of the most open economies of the world. The challenge for India is that it must drive growth with vigour and energy in the coming years. Therefore if you are to look at China-India relationship the total trade in the region is about $66 billion.
Our exports to China is in the region is of about $15 billion , China’s exports to India in the region is about $51 billion and therefore this adverse balance of trade at such a high level is not sustainable in the long run.
As the global economy slows down across the world, we are seeing India as an oasis of growth. India has grown at about 7% and this year it is going to grow at 7.8%. In the long run, India will grow at 9-10% per annum year after year and therefore the country is an oasis of growth in the midst of a very barren economic landscape across the world. Therefore the Chinese model of export-oriented growth will find it very difficult to sustain this growth and the only way China will be able to sustain this growth is that if their companies which have created very large and enormous capacities relocate their manufacturing bases to India. Actually the strategy for China has to be to invest and make in India. They should cater to the domestic demand of a very vast Indian market and they should not merely cater to the domestic demand but use India as a springboard for export. The challenge which China is facing abroad in terms of in several countries across the world, in terms of dumping duties, in terms of trade sanctions, it has an opportunity to manufacture in India and then penetrate global markets from here. China and India need to work together.
Role of Chinese companies:
The Chinese companies are extremely dynamic and they have huge amount of vigour. I have interacted with many of them. Several Chinese companies have also started investing in India. Many Chinese companies have come into India and have done exceedingly well.
Huawei recently set up one of the largest R&D facilities in Bangalore, and to my mind, Alibaba has come to India. Jack Ma came and met the honourable Prime Minister, had a long discussion. Many of these companies have done very well- Xiomi for instance. Indian is the largest market of Xiaomi mobile phones. The future of companies like Huawei, Xiaomi and Alibaba is in India.
India has opened up investment in railways, in construction and in areas of non-renewable energy. So the Chinese companies need to seriously look at manufacturing in India. When the President of China had come to India, he talked about an investment of $20 billion into two major industrial parks in Gujarat and Maharashtra. We are taking them forward.
India is embarking on a strategy of infrastructure driven growth. It is developing new corridors – it is linking Delhi to Mumbai through a corridor. It will use new cargo train which will link up Delhi to Mumbai.
Today it takes 14 days for goods to reach the ports of western coast of India. In 2018 when the dedicated freight corridor train will start running, goods will reach in 14 hours. There will be a huge amount of focus on logistics.
Similar is the case with Chennai-Bangalore corridor, Vizag-Chennai corridor and Bangalore-Mumbai corridor. These are new areas of growth – with connectivity, with new urban cities and with logistics as the backbone and to my mind these are new areas where China must get into India. Chinese companies must work with India companies to penetrate the India market. One of the huge lessons that India must learn from China is the strategy of taking population away from agriculture and putting it into manufacturing, and how it became the factory of the world and urbanized so rapidly.
Urbanization the key:
What China has achieved is phenomenal and it’s a lesson to India in many ways on how it drove its urbanization. To my mind the challenge for India is that while America is urbanized, Europe is urbanized and China is nearing its phase of urbanization but the process has just begun in India.
By 2030 we will see 350 million Indians getting into the process of urbanization. According to a Mackenzie study by 2050 we will have 700 million additional Indians getting into the process of urbanization. The challenge is that India has to create two and a half Americas by 2050.
We will be doing more construction in the next four decades than what we have done in the last 400 years. And therefore the challenge for India is to do a very innovative and a very sustainable model of urbanization. I think how do we recycle our water, how do we do public transportation, how do we manage our waste- are huge challenges for India. These are areas in which China and India must work together.
So there are enormous synergies, enormous synergies across digital technologies, enormous synergies across make in India, enormous synergies across skilling and enormous synergies in terms of water management, waste management, and the process of urbanization itself.
I think these are two of the most dynamic economies of the world and in many ways will shape the future of the world. China and India – one the factory of the world, the other the back office of the world – need to converge, need to integrate to take the global trade on a high trajectory growth path.
These are fascinating moments of history and it’s an opportunity for China and India to really reshape the history of the world. I take this opportunity to wish the Network18 conference between China-India all the best and a very fruitful discussion.