Can’t beat China with this GDP – The Financial Express

Clipped from: https://www.financialexpress.com/opinion/cant-beat-china-with-this-gdp/1995738/

No China-containment plan can work till GDP booms; from defence expenditure to battling Covid, 24×7 reforms to boost growth critical

It has to be a source of some comfort that, central to the Chinese aggression at Galwan is India’s ability to build good-quality roads in the area and having an airstrip at that altitude; in short, should the need arise, India has the infrastructure that will allow it to deploy troops and equipment much faster than it could have earlier. Not surprisingly, a major Chinese demand is that India stops further construction in the area. Indeed, till some years ago, it was only the Chinese side that was building such high-altitude roads, and in such unfriendly terrain; so India is clearly doing something right if the Chinese are worried.

While prime minister Narendra Modi will probably discuss this at Friday’s all-party meeting on the Chinese aggression, there will be several suggestions on how India should curb Chinese imports—of India’s $184-bn trade deficit in FY19, $53.6 bn was with China—on how Chinese firms shouldn’t be allowed to do business in India, etc. While the Swadeshi Jagran Manch has its eyes fixed on the Delhi-Meerut rapid transit system contract given to Shanghai Tunnel Engineering Company, the state-owned BSNL has reportedly also been told to keep Chinese vendors out of its latest tender.

To the extent the Chinese don’t play fair, India too should keep China off its guard. After all, India de-escalated as per the agreement, but China built up its forces at Galwan. So, there is no harm in cancelling some contracts, barring some Chinese firms—like Huawei—from participating in the 5G tenders for instance …but keep in mind this will have limited impact.

Just 3.1% of China’s total exports, for instance, are made to India, and it is unlikely that Chinese investments in India are a much larger share. While China may not hurt as much as we’d like, higher import duties on Chinese products will impose certain costs on India as well. Around 45% of India’s electronics imports come from China, it is 65-70% in the case of pharmaceuticals API, 28% in the case of fertilisers … Restricting supplies from China will certainly raise prices for Indian users and, in some cases, there may not even be alternative suppliers readily available; China accounts for three-fourths of global battery manufacturing capacity, so India’s ability to move to electric vehicles is critically dependent on China.

Indeed, around half of Indian imports from China are intermediate goods that India processes for the local or exports market; restricting Chinese imports, therefore, will also have job implications. It is possible to argue that the price may be worth paying, but the exercise is not costless like most WhatsApp warriors seem to suggest. And, since China will almost certainly reciprocate, keep in mind China is India’s third-largest export destination.

Much of China’s military prowess, it is important for PM Modi to explain to the all-party meet—indeed, to the entire nation—is directly related to its GDP. So, while China spends a lower share of GDP on defence than India—1.9% versus 2.4%, respectively—at $250 bn, the absolute value is several times higher than India’s $67 bn; convert that into planes, drones, tanks, missiles, etc, to really understand the difference. Indeed, India’s ability to build top-quality roads in the Galwan area is also a function of its growing GDP and the greater abilities—including the possibility of using higher-quality supplies and equipment—that you get as economic prosperity rises.

And if India isn’t able to fight the coronavirus as well as China has, it is not just because it wasn’t able to completely lockdown cities the way the Chinese did, it is also because India spends just 3.5% of GDP on health versus 5.2% for China; a higher proportion of a GDP that is five times higher. As a result, World Bank data shows that while India has 0.9 doctors per 1,000 population, China has 1.9; it is 4.2 hospital beds per 1,000 population in the case of China versus 0.7 for India and, in the case of nurses and midwives, it is 2.7 and 1.7, respectively.

Similarly, China has 1.3 mn domestic patent applications versus 16,300 in the case of India. In 2018, China installed 154,000 industrial robots versus less than 5,000 in the case of India. Since this, in turn, boosts China’s ability to be competitive, the gap between its economy and India’s is only getting wider; that, in turn, boosts its military capability even more.

This is what prime minister Modi needs to impress upon participants in Friday’s all-party meeting. That, even at current levels, India’s ability to inflict economic pain on China is limited; and since military might cannot be divorced from economic might, India just has to buckle down and fix the economy first if it wishes to even contain China. Containing China is not a one-time or even a one-term exercise, it will take decades of painstaking reform. There is little point, for instance, bragging about coal sector reforms—as is being done right now—since this should have happened several decades ago, or in announcing sporadic reforms in response to the Covid pandemic; while even these reforms haven’t been broad-based enough, reforms have to be a daily process. So far, there is little to suggest that either the government or the opposition—which was in government for 10 years at a stretch—or the people of the country realise this. And yet, everyone believes India can take on China.

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