Can we tame the Dragon?

While India has been one of the fastest growing economies since the early 1990s, China has constantly outpaced it by a fair margin. Between 1991 and 2000, India registered an average GDP growth of six per cent behind China's 10.5 per cent growth. Can we really grow big and soon enough to tame the dragon?

india Updated: Nov 20, 2003 16:42 IST

 

Chinese soldiers keep a watch on Indian military movements in North East Front during the 1962 Sino-Indian War.

Ask Indians who they think is their biggest enemy

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and by any conservative estimate at least 8 out of 10 will say: "Pakistan". But ask them to name the country they are anxious about and the answer one hears, more often that not, is "China''.



India is wedged between two hostile neighbours. It believes Pakistan is dangerous and holds it responsible for promoting terrorism and unrest in the country. Nonetheless it does not fear Pakistan. Our attitude towards our western neighbour vacillates from being overly suspicious to dismissively contemptuous. The former, due to its long history of fomenting terrorism. And latter, due to its failure in creating a proper governance system and a coherent strategy of economic growth. And when it comes to the battlefield we are confident that we can best them anytime.



China, on the other hand is a different proposition altogether. Here is a neighbour with a population 25 per cent greater than ours, a defence budget much bigger than ours, and an army that is at least double our size. The Chinese crushed us in 1962, a defeat that is still fresh in our memory. Little wonder then, that the Indian government had cited the Chinese threat as the main reason for its decision to go nuclear.

Galloping dragon spits FDI fire

India's unease with China is not confined to the strategic and defence arena only. Over the last 20 years, India has watched with envy the emergence of China as a major player in the economic arena. And while India has been one of the fastest growing economies in the world since the early 1990s, China has constantly outpaced us by a fair margin. Between 1991 and 2000, while India registered a healthy average GDP growth of 6 per cent, it lagged considerably behind China's 10.5 per cent growth during the same period.

While Goldman Sachs expects the Chinese economy growth rate to slow down to less than five per cent post 2020, it has projected that the Indian economy will grow between 5.5 to 6 per cent till 2050.  
  India-China Report Card

With a GDP of $1,078 million in 2000, the Chinese economy is about 2.3 times greater than India. Per capita GDP in China is $854 as against India's $468. And while 25 per cent of India's population lives in poverty, the corresponding figure for China is 10 per cent. On the export front, too, India lags far behind China. While exports accounted for 23 per cent of China's GDP in 2000,it amounted to only 11 per cent of India's GDP that year.



Perhaps the biggest success of the Chinese economy lies in its ability to attract foreign direct investment. In 2001, FDI inflow into China amounted to $44.2billion as against $3.4 billion in India. While there is a controversy about the veracity of the Chinese figure, the fact remains that most big MNCs have made significantly larger investments in China than India.



Only 30 year wait for the 3rd Rank

But what of the future? A recent Goldman Sachs report (Dreaming with BRICs: The Path to 2050) has made some very optimistic projections about India. According to the report, India could become the third largest economy in the world by 2032, and it has the potential of being the fastest growing economy in the world over the next 30 to 50 years. While Goldman Sachs expects the Chinese economy growth rate to slow down to less than five per cent post 2020, it has projected that the Indian economy will grow between 5.5 to 6 per cent till 2050.

Chinese soldiers stand at the India-China boder at Nathula Pass in Sikkim. China-India agreed to border trade in 2001. 

Even if these projections come true, India will still lag behind China, which is expected to emerge as the second largest economy in the world by 2015. Nevertheless, the discrepancy between the sizes of the two economies will narrow. While today, the size of the Chinese economy is 2.3 times the size of India's economy, by 2050, it is expected to be only 1.6 times larger.



Therefore, India appears set to emerge as a major economic superpower besides China. For many years, economists and investors all over the world have asked: "India or China?" The answer could soonappear to be: "India and China".

The rise, or even the possible rise, of India as an economic powerhouse will definitely alter geopolitical equations in the region. On the one hand, economic prosperity may result in both countries realising the futility of conflict, and deciding to follow a policy of peaceful co-existence.

On the other hand, the existence of two economically powerful nations could create new tensions, as they both strive to stamp their authority on the region. Only time will tell which of these two scenarios gets translated into objective reality.

First Published: Nov 14, 2003 01:55 IST