Paper: GS-II, Subject: International Relations, Subject: India and its neighbourhood, Issue: India-China ties.
Context: India-China, despite strong leadership and political dominance, have failed to address deep structural issues in their economies.Both show reluctance to undertake reforms necessary for sustainable growth.
India’s Situation:
Manufacturing Deficit
- Share of manufacturing in GDP remains low compared to National Manufacturing Policy which targeted 25% of GDP by 2022.
- But growth remains concentrated in 4 states such as Gujarat, Maharashtra, Tamil Nadu, Karnataka.
- Corporate reluctance to invest characterised by unequal distribution of manufacturing growth.
- Recent signs of pick-up: new production-linked incentive (PLI) schemes, record-high corporate tax collections, and rising investments.
- There is a need for deeper reforms in land, labour, and infrastructure.
China’s Situation:
Investment-Led Growth Model
- Historically dependent on exports and investments but household confidence and spending remain weak.
- Government wants shift to domestic consumption.
Currency Management
- Past: Undervalued currency boosted exports but suppressed household purchasing power.
- Present: “Stabilised arrangement” approach (S&P) ensures balance but slows consumption growth.
Structural Issues
- Excessive capacity in production.
- Weak job creation in formal sector; dependence on informal employment.
- Aging population and shrinking workforce.
Similarities in Reform Deficit
- India: Reluctance of private sector to invest in manufacturing.
- China: Reluctance of government to fully empower households.
- Both avoid structural reforms due to political risks.
Political Economy dimension:
- India: Political leadership prefers welfare schemes & short-term optics over long-term structural reforms.
- China: Xi Jinping stresses “common prosperity”, but without giving citizens consumption autonomy.
- Both systems prioritise control and political stability over reform-driven restructuring.
Way Forward:
Conclusion: India needs to increase investment rate, boost manufacturing, and rebalance economy towards production. While China needs to shift from investment-driven growth towards domestic consumption.
https://indianexpress.com/article/opinion/columns/ishan-bakshi-india-china-reform-deficit-10208686
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