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Home / Analysis / To deal with China, focus solely on economic growth | Opinion

To deal with China, focus solely on economic growth | Opinion

China is where it is because of its relentless drive for economic power. India needs to make wise choices

analysis Updated: Jul 13, 2020 18:49 IST
Govind Sankaranarayanan
Govind Sankaranarayanan
India needs to want economic success as badly as China does. If this desire is too mitigated by its desire to address many other issues such as retribution for past injustices, regional or linguistic reaffirmation, or fears about elite domination, the country may fall short of its optimal economic potential
India needs to want economic success as badly as China does. If this desire is too mitigated by its desire to address many other issues such as retribution for past injustices, regional or linguistic reaffirmation, or fears about elite domination, the country may fall short of its optimal economic potential(AP)

Much has been written about China following the clash between Indian and Chinese troops in the Galwan Valley. These discussions have often suggested that the Indian corporate sector should in some way exact retribution on China. The government has, perhaps, with some merit, banned a number of Chinese apps. Others have encouraged consumers to boycott Chinese goods. Neither address the basic issue that needs to be fixed, which was more accurately pinpointed by in jest by a senior Chinese media figure.

This gentleman commented that an economic dispute with China was farcical because there were no Indian goods that the Chinese could boycott. There is a deep resonance in this satirical remark. No mechanism to strengthen India’s influence with respect to China can be created without a unidimensional determination to become an economic superpower. There are choices to be made.

India must also, as China has done, build up financial reserves through the creation of industrial powerhouse companies. This requires a combination of cheap financing for domestic companies and possibly a devalued currency. India must substitute the mental hang-ups that have prevented it from systematically adopting these practices if it is to gain greater economic relevance.

Since great economic institutions require capital, we need to relook at the ease of business processes which attract capital. In the case of China, local governments have been incentivised to run their provinces in the manner most likely to attract foreign direct investment (FDI). Those who have done business in China speak of the overwhelming support they get from local governments. These include the identification of land, provision of ready lists of architects and contractors, free legal services, often to the point of providing dosa makers to encourage engineers to work there. The nature of factory inspections tends to be infrequent in contrast to the Indian licence-permit raj.

International capital has choices and will naturally flow where it is made most welcome. China is simply easier to do business in. India has followed a different growth path. That path influences how vigorously we can respond to Galwan.

Building economic powerhouses can also mean supporting national champion companies, as Japan and South Korea have done. India has been beset by concerns that such choices are prone to nepotism and the misuse of scarce national resources. It needs to enquire why these negative externalities of national choice were not equally applicable in Japan and South Korea. Even the United States (US), portrayed as a champion of market freedom, selectively awarded contracts for European/Iraqi reconstruction to a handful of chosen American companies. These policies did not result in the preferred companies falling to the lowest common denominator of quality. Instead, they often became world leaders in their chosen industries.

China has systematically sought to develop its soft power through investment, aid to countries, influence over multilateral institutions and the provision of research funding to universities around the world. It has chosen to be the driver behind the creation of banking institutions such as the Asian Infrastructure Investment Bank and the New Development Bank. While these banks or universities are all professionally-managed institutions, such largesse provides China with a degree of soft influence that others do not possess. Most meaningful infrastructure in Africa is today built by China with quid pro quos in play. These include preferential access to manganese, cobalt and other rare earth metals. China should not be blamed for this, as it is only copying the playbook used by European nations earlier. India is free to also make these choices. We need to introspect why, for instance, Indian apps could not become the world standard.

An argument may be made that in a democratic country, other policy choices are also important. Social justice has its place and economic growth cannot be the sole criteria for decision-making. These choices are not mutually exclusive or unique to us. It is India’s resistance to common sense reforms in labour, land or judicial processes has also led to an attenuation of economic wealth and the concomitant inability to push back against China.

India needs to want economic success as badly as China does. If this desire is too mitigated by its desire to address many other issues such as retribution for past injustices, regional or linguistic reaffirmation, or fears about elite domination, the country may fall short of its optimal economic potential.

At a philosophical level, it is entirely possible for a country to be successful and satisfied, with the kind of balance India has apparently sought, between being a mid-level economic power while also a disorganised democracy. However, in a world where the metric of power is largely Gross Domestic Product per capita, such a nation will need to accept a position of lesser influence. These choices can cause the angst of seeing others whom we may consider the “bad guys” finishing first. This government, more than others in the past, believes in an aligned pan-national vision around a common goal. This dispute with China provides an opportunity for policymakers to introspect about the choices we have made, as a nation. The road to victory in Galwan runs through the choices made in bureaucracy, the judicial system and the legislature.

Govind Sankaranarayanan, former COO and CFO at Tata Capital, is currently vice chairman at ESG Fund ECube Investment Advisors
The views expressed are personal
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