China and India, many argue, are among the tallest pillars of the new economic order. A United Nations Intelligence Report, titled ‘Mapping the Global Future by 2020’ has likened the emergence of China and India in the early 21st century to the rise of Germany in the 19th and the US in the 20th. Though China is far ahead of India in terms of the size of the economy, innovation and infrastructure development, many economists feel Indian model, built on democratic consensus, is sustainable in the long run. Network18 founder Raghav Bahl, whose book, “Super Power? The Amazing Race between China’s Hare and India’s Tortoise,” was released in the capital recently, feels India can eventually overcome its Asian rival, but for that the country needs to fix its key problems immediately.
“Our governance needs to be improved; the leadership should not turn their back to important policy decisions. We have to get the growth rate up. We have to increase the size of our economy,” Bahl told Zeebiz.com on the sidelines of the launch of his book.
“Thirty-two years back, our economy was bigger than that of China’s. Two decades ago, Chinese GDP was the same size as that of India. But what’s the scene now? China is almost five times the size of India in terms of nominal GDP… We should ask ourselves why we were left behind,” Bahl said.
India’s GDP is estimated to be around USD 1.2 trillion while China’s is close to USD 5 trillion. The dragon has overcome Japan in the second quarter this year to become the second largest economy of the world. According to Goldman Sachs, China would move past the US in 2025 to become the largest economy.
Should India compete with China? Should the government pay greater attention on increasing the size of its economy or on better income distribution given that a huge majority of the population is still left out of the growth process? Bahl thinks both the expansion of wealth generation and redistribution should go hand in hand.
“For bringing most of the people of the country into the growth process, we should increase the size of the economy. GDP is the pool. Only if there’s a pool, can we talk about redistributing the wealth. I think the common man of this country needs a better quality of life. For this, we have to get the level of growth up,” he reiterated.
The entrepreneur-cum-author, however, agreed that there is a “structure problem” in income redistribution.
“There is a structural problem. Actually our country has a history of centuries-old inequality. How do you address this structural deficit? For that you need to increase wealth at the lower level.”
Bahl thought the country’s leadership should take risks while deciding policies like the Chinese. “You look at the insurance sector reforms… The BJP when it was in power promised that it would reform the insurance sector. The Congress party has also made similar promise. This means 70 percent of Parliament agrees on insurance sector reforms. But still we are not able to pull it off! I would say this is leadership failure.”
Asked whether further opening up the financial sector would be dangerous given the fractures in the global recovery, he said reform was not a problem.
“That’s not an issue. See we survived better the financial crisis as there was better government regulation.”
“There is no systemic crisis in the financial sector. The issue is that the government should not give the financial industry a free hand. There are lots of private banks. Do they pose any challenge to the financial sector? So, reforms are not a problem. The issue is that we need to have stronger regulatory mechanisms where risk parameters are set at a lower level, or I should say, very conservatively,” he said.
If India immediately addresses these key challenges, there is no doubt that the country would rise to prosperity at a faster pace. As Bahl wrote in the August issue of the Forbes magazine, the success of India and China lies in how each country ends up handling its politics and economics.
“If India fails to harness its runaway democracy and create jobs, food stocks and literacy on a massive scale, its politicians may be tempted to cloak their failures in jingoism,” the article reads.