Point of view: China's slowdown not a totally positive turn for India
Investors in China can look at India: China’s slowdown provides an opportunity, though it is not a totally positive turn for India. In fact, the economic slowdown there would impact different regions of the world in different ways. In countries dependent on commodity exports like Australia, Brazil, Canada and Indonesia, the slowdown could have a negative impact on their GDPs. The inevitable fall in commodity prices could be beneficial, however, for countries that consume commodities — such as the US and India.
The red neighbour is rebalancing its economy to focus on domestic consumption-led industries in-stead of an infrastructure and export-led growth. It is trapped in a pincer of a Lewis moment and a Minsky moment. The Lewis moment refers to the insight of economist Arthur Lewis that poor countries with surplus labour in the traditional sector can provide lab-our to modern sector at very low wages. China has grown to a point where wages have begun to rise rapidly. The Minsky moment derives its name from the now-popular warning by Hyman Minsky that financial cycles become unstable at the end of a boom because of excess borrowing. So, China is battling a structural economic problem as well as a financial instability problem. Either way, the slowdown will need adjustments on the part of the global economy.
Implications of a Chinese slowdown are visible. If the slowdown in China is protracted, it will hit India too. There are three big opportunities here. For one, rising wag-es are forcing China to exit low-value manufacturing. Japan fi-rst exited from low-value manufacturing after wages rose there in 1960s. Production facilities moved to the original tiger economies of Taiwan, Singapore, South Korea and Hong Kong — and in later waves to South-East Asia and then China. The rise in Chinese wages will create space for India to get a bigger share of the global manufacturing pie. India should aggressively pursue “Make in India” to get the Chinese cake.
Second, the growth in China was resource-intensive, that lifted global commodity prices. A sharp slowdown in China will likely be bearish for commodity prices and hence a relief for countries like India that are net commodity importers. Lower commodity prices can work to India’s advantage as it seeks to revive its own manufacturing sector and attract foreign companies to “Make in India”.
The third is to take advantage of demographic dividend that India enjoys as the effective working age population growth in China is slowing significantly. India can benefit from reforms like implementing GST Bill, Bankruptcy Bill, rationalising tax regime and improving the eco system for doing business. Investors fleeing from China could get attracted by “India Story”.
Cherukuri Kutumba Rao, The writer is Deputy Chairman, AP State Planning Board
Making, unmaking of China and India: During my last visit to China in May 2015, the manufacturers there were heard complaining about the slowdown in exports, inflation and rising labour costs. On the way to airport, the taxi driver in his broken English pointed to the Schenzen stock exchange and said people were “running away” from it.
The lessons I learnt in India were that:
1. The state of economy and stock market crash are synonymous with each other. Stock market boom implies a strong economy and stock market crash means an economic crisis.
2. If a taxi driver is excited about the booming stock market, a crash (stock market crash) is also round the corner and it is time to exit. The taxi driver’s words meant that the crash had already occurred, but the world has not seen it yet.
In China, the government can cover up a stock market crash or an economic crisis for a limited period. Several analytical reports have already published the facts and figures of China’s GDP, growth rate, inflation, relative position in global economy and consequent impact on the US, global and Indian economies. Global consumption of manufactured goods from China has fallen, which has impacted not just China but also those supplying raw materials to it.
China was a manufacturing economy and has grown with that model for the last 25 years. It is not possible for it to find any other positioning in the increasingly global economy in the foreseeable future. Quietly, but surely, America has become an efficient and self-sufficient oil and energy producer and Robotics/Artificial Intelligence based high-end manufacturing centre. Retailers in America continue to buy the “5 T-shirts from China, but clothes that retail in the range of $50 are already available from US manufacturers at more competitive rates than their Chinese counterparts. Without doubt, high-end manufacturing will continue to grow in the US.
While China is optimistic that the current suffering is only short-term, the key issue — inflation and rising labour costs — is not easily resolvable. Yuan has already been devalued twice, but did not yield the desired effect. With China’s forex reserves falling by half a trillion dollars in a short time, US is smiling and China is worried. The key question is how does it affect India?
Our two largest sources of foreign income are IT/ Pharma exports and money sent in by Indians living abroad. Both these sources are not hit by the China crisis. They will continue to be our champions, but may not grow at earlier rates. We have to discover the new engines of growth. Make in India and Start Up India, and both are good initiatives. Make In India should attract more from the West, nations that have a greater interest/need of building a long-term partner, in place of China.
P. Srikanth Reddy, The writer is Chairman, Palred Technologies Ltd, that was formerly Four Soft Ltd.
