India and China! Challenges ahead

The Raging Elephant and The Red Hot Dragon


The Raging Elephant
India, the land of temples and snake charmers. China, the land of Dragons and Emperors. These were the two adages how the European travellers, invaders and merchants labelled the two countries. They did not like to share any other information of these two great nations. They just kept plundering, dividing, using the citizens of the two nations for all they wanted and kept coming for more until they left both to utter poverty and chaos. Things changed, both the Nations, great in their own right, chose different routes, slippery paths, chaos after chaos, wars, internal tensions, Communism, Mixed Economy and what not. One country choosing a path to keep a vastly diverse culture together purely based on passion, patriotism, spiritual togetherness, sometimes callous attitude towards systematic governance, but overall a hugely successful Democracy. The other through raw aggression of the government, clearly choosing the path of state rule and by an Iron rod, dictatorial public rule to say the least. Both the countries, having engaged in a fierce war in 1962, have not quite forgotten the conflict and the continuing after effects.
The Red Hot Dragon
The boundary disputes continuing despite the significance of increasing commerce (which was otherwise also a significant part of Indo-China relationships since eons). Come Circa 1991, both the great nations, decided to have a take on the world and that brought about the "Great Reform Revolution" for both the countries. Now different paths again, One choosing the cheap labour route for becoming the "Manufacturing Hub of the World" and the other "Services, Services and Services" a simple concept of "Serve to Rule". Then began the rule of the Indo-Chinese Super economies supremely competitive, significantly confident and quality conscious about their respective products and their abilities. However, have we all been deceived to believe that all is well? Where is the inclusive growth? Both the economies, continue to having thriving chaos, Poverty alleviation is still a dream, while the urban lands are growing at scorching pace, the rural hinterlands are still facing the heat and continue to lag behind in various aspects. 
OR? Is it The Sagging Elephant and The Huffing & Puffing Dragon?

This makes one doubt the resilience of both the economies. Administered foreign exchange in one country trying to keep the cheap manufacturing costs under check so that the competitiveness in the global scenario is not affected, while the other completely missing a trick or two with inflation running amok and slowly but surely derailing the services sector significantly. How does this affect the economy? India having given importance to the Services sector with more than 14% of GDP being contributed by this sector will slowly face the heat for not giving enough importance to controlling inflation, controlling forex gallop and again not giving enough importance to Infrastructure development in the manner it should have been. The SME sector is completely battered, the large corporates which took the risk of investments when the going was good, are battling the increasing spectre of Interest rates, while the services sector is facing the changing competitive environment. In the same manner, the Chinese are facing a different problem altogether which although they have realized is not properly being factored. This is the real danger of having a governmental control on everything in the economy. What would happen ultimately? A simple analysis would show that the world over, manufacturing is facing huge problems on account of the 2008 financial melt down and the Euro crisis. These are the parasite economies of the world. The better half. When in problem they take the entire world into crisis and when things turn around they take the whip again and the favourite whipping boys are China and India. The best thing which these parasite economies did was to ensure that the growth of both the countries fell(China's growth rate has tapered significantly from the highs and one needs to factor the non-inclusive growth). The parasites are nothing but speculators who come when they want and go when they want. And that has left both India and China the "Sagging Elephant and the Huffing & Puffing Dragon" confused. 
The Sagging Elephant

The Huffing & Puffing Dragon

The Burdened Donkey with the Elephant's Mask and The Sacrificial Goat in the Dragon's body

Now what? Both the countries have been and would continue to be taken for a ride. While riding the Elephant is easier than the Dragon, one has to take into cognizance the fact that with the changing dynamics and the thrust given by USA (main predator) and EU countries to retain work and go against outsourcing will ensure that the first hit will be felt by the Burdened Donkey in Elephant's Mask. India will be the first casualty since we will have to compete with the local service providers and also manage our increasing expenditure on account of ever increasing forex. The first time when we will start realizing the negatives of being too much focussed on Service Industry. But, when has the Donkey ever realized that she is being burdened? Customer care jobs, quality assurance checks, medical transcription, billing clerks, mortgage verifiers? Is this all the service sector would do? We will end up having these jobs and more of these for sure. And to top it we will have all these at a very cheap rate. Our Knowledge protagonists are unfortunately lowly priced. The "Big Data" analysts especially in Healthcare, Insurance, Banking & Retail will for sure come from the more studious and significantly intelligent Indian. However, will we be able to get these jobs? Will we be competitive enough? I am not really sure.
Burdened Donkey with the Elephant's Mask


Sacrificial Goat in the Dragon's body
In the same manner, China on the other hand is ending up as the "Sacrificial Goat"in the Dragon's body. The Manufacturing Hub of the world? Once the world economy starts to look up, the critics of the Chinese product would come back strongly and change the situation significantly against China. The Country would end up becoming the Hub for Cheap products and the Toy Maker would end up making only toys. What will then happen to the Manufacturing companies competing with each other within China (to get a piece of the global cake), there would be utter chaos and Chinese economy would plunge and the best possible scenario would be internal strife. There is a strong case of Have nots striking strongly against the Haves. This is true for India too. We will have the poverty stricken rural hinterlands striking strongly and believe me very soon we will have complete chaos.

The Best thing possible to ensure that this does not happen is for the Governments of both India and China to bring to fore the Hindi-Chini bhai bhai strongly and start co-operating more and more on the trade and commerce front. Sharing knowledge freely, ensuring that Infrastructure and Manufacturing tie-ups happen frequently and as MFNs. A simple case of India having MFN status for Service Sector and India taking cue from Infrastructure development from China. Let China get Bangalored while India becoming Shanghai. The sooner the better. How, this will be achieved is entirely to the who's who of the Indian and Chinese authorities. Hope this happens and once again we see "THE RAGING ELEPHANT" and "THE RED HOT DRAGON"

Comments

  1. Rajiv Bahl19 December 2012 at 08:36

    Very Interesting article, very thoughtful. Here are my observations as a person who has lived overseas most of his adult life. China, no doubt is the manufacturing hub of the world. They did a few things right for starters. Development of infrastructure right off the bat to attract foreign investment, they did it very well and very fast, once again we may agree to disagree by the means adopted, state control. Shanghai, Beijing are world class cities. And of course, china is the most populous country in the world. China, will always be one up on any major competitor in the world, as long as they are holding the treasury bills of the USA. China needs USA and USA needs China, despite the cheap quality and shoddy products made in China. Walmart in USA is called made in the United states of China. they will always be there because of disparities in income in the USA. Everyone in the country can't afford brand name stuff. The problem with India is that we are not a democracy, in the true sense of the word. It is still mobocracy. There is too much freedom, lax criminal justice system, as a result there is widespread corruption, and delays in any or all infrastructure projects which delays foreign investment. If the forigners invaded our nation it was because we were weak and not united, which is still the case. Now the rich and powerful politicians exploit the situation by inviting communal riots and playing the religion or caste card to their advantage. Widespread disparities in income all over the world really bother me. I feel very strongly that Vietnam is country to watch in the next 4 to 5 yrs.
    Very good article, Rama, congrats. I wish I could stop bothering you with my questions. Now, I can really understand how busy, you always are. Thanks for making time to answer my queries.
    Rajiv

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