James Gruber, Forbes Asia 5/04/2014
On the face of it, the title of this article will seem absurd to many. While China’s economic growth has slowed, it’s still running at a brisk 7.4% annual rate. Moreover, the Chinese government seems to be successfully slowing credit in order to rein in a burgeoning debt issue. And it’s implementing a plethora of reforms which should propel the next phase of growth.
Meanwhile, India’s a mess. This fiscal year’s GDP will be below 5% and near decade lows, government and corporate debt is high, the current account deficit has been out of control until recently, inflation reached double-digits late last year, business confidence and investment are at extreme lows and corruption remains rampant.
Dig a little deeper though and the picture doesn’t appear as favourable for China’s economic prospects vis-a-vis India’s. First, it’s highly probable that China’s GDP growth rate is slowing much more than the fraudulent figures put out by the government (I’m not picking on China here as many governments are guilty of this). Second, credit tightening in China will almost certainly take years rather than months given the boom which preceded it. Third, Chinese economic reform will be a drag on growth in the near-term, as can already be evidenced by the crackdown on corruption and its impact on retail consumption.
On the flip side, there are many signs that India’s economy may have bottomed. The current account deficit has significantly eased, the currency has stabilised, inflation has substantially pulled back and corporate earnings are improving. With inflation down, interest rates will soon be cut, which may prove the catalyst for the next investment cycle. The election of a new, economically-friendly government should ensure an acceleration in investment and improved productivity.
There are other positive developments which augur well for India too. For instance, there’s an ongoing boom in the agricultural sector with rising investment and wages. This has resulted in India becoming a net food exporter – an important development given the country’s dependence on agriculture.
For a long time, India’s decentralised, often chaotic economic model has been seen as inferior to China’s authoritarian, top-down model. A reappraisal of that view may soon be in order.
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