Focus on China – The Hindu BusinessLine

India could benefit from the recalibration of China’s economy

Whether it is the World Bank, the IMF or the World Economic Forum meet at Davos, all eyes are on the $13 trillion Chinese economy. The IMF expects China to grow at 6.2 per cent in 2019 and 2020, after growing at 6.6 per cent in 2018, the lowest growth rate since 1990. In contrast, the IMF is sanguine about India, pegging a higher growth rate for 2019 and 2020 (7.5 per cent and 7.7 per cent, respectively) than most other forecasters. However, these percentages can be misleading. The fact is that China’s economy, which is about five times India’s size, is still growing strongly in absolute terms. An economy cannot be expected to grow endlessly at double-digit or close to double-digit rates, after it has reached a certain income level. That said, the combined effect of two of the largest economies in the world, the US and China, slowing down over the next two years cannot be brushed aside. The tariff war as well as monetary tightening the world over has triggered apprehensions of an extended slowdown. The Euro Zone, now rocked by a messy Brexit, is expected to slow even further. For India, export prospects may look unexciting, but another run of moderate commodity prices — “average oil prices are projected at just below $60 a barrel in 2019 and 2020”, according to the IMF’s World Economic Outlook — provide a window of opportunity to industry.

The disappointing sale of Apple’s products in China, along with the dip in the financial performance of China-based corporates, is being seen as a sign of a tapering off of consumer demand. Corporates have been moving out of China in recent years to ASEAN countries in particular, on account of rising wage costs in that country. India could emerge as an alternative investment destination, as the world’s fastest growing economy. The time is ripe for India to push its reforms agenda, going beyond tax reform and the bankruptcy code. India needs to develop not just its infrastructure and logistics, but also its workforce skills. As China seeks to reap the AI wave, and calibrate its economy more in favour of services by retooling its workforce, India needs to move much faster than it is in this area. Failing to do so could create a socio-economic imbalance, signs of which are already in evidence. The forthcoming Budgets would reflect both a commitment to reforms, as well as an awareness of the emerging challenges.

Finally, the US-China trade stand-off may subside, as each side realises the limitations of playing this retaliatory game. China, for instance, cannot afford a firesale of its over $1 trillion stock of US treasuries merely to throw US interest rates out of gear, as that will impact its returns as well. US consumers need Chinese goods. A return to a new normal in globalisation is on the cards, for which India needs to be prepared.

via Focus on China – The Hindu BusinessLine

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