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Discussit Should The Indian Elephant


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Discussit Should The Indian Elephant

  1. 1. %,EI?KII1J Read on ................................... Should the will contribute most to the global working age population over the next few decades, while most Indian Elephant developed countries will actually witness large drops in this segment. India already has the highest availability of qualified Walk the Chinese engineers and almost the largest availability of skilled labour, with only the US and Singapore slightly Dragon’s Steps? ahead,” opines Paul. According to the BRICS report, the return on capital employed in Indian companies is high at 21 per - Prakash Patil cent, as compared to 16 per cent in China and seven per cent in the The dragon and the elephant are two mammoths: one from ancient mythology, the other from the real world of the present. The fire-spewing dragon symbolises USA. But the deterrent for China while the gentle giant elephant represents India. Nothing could be more investments in India is that the real appropriate, considering that the Chinese dragon has been gobbling up global interest rates in India are a high 5.7 resources (raw materials) and spewing fire (exporting finished goods) all over per cent as compared to four per the world. As a consequence of its massive appetite for resources and capacity cent in China and two per cent in for exports, it has been growing exponentially at over nine per cent per annum the US. This has resulted in low over the last two decades. level of investments, which are n stark contrast, the hesitating Indian elephant got off the blocks late (in the crucial for economic growth in a early 90s) and from thereon, it has been ambling along the tortuous route to labour-surplus country like India. economic growth. India has succeeded in creating a buzz among Western investors. This is nothing compared to the mad frenzy out there in China where The investments here are 23 per Westerners are pouring in billions of dollars every month to reap a rich harvest cent of GDP, which is way below of super-profits on their investments. No wonder the Chinese economy has been China’s 40 per cent. India has on a roll for over two decades. removed many barriers against 1 t is largely believed that the 21st double that of the US. century will belong to India and “The economic China. The share of India in the growth that will make world GDP is projected to rise this possible will be from six per cent to 11 per cent driven by three in 2025, while that of the US is factors—labour, expected to fall from 21 per cent to capital and 18 per cent. This will lead to the productivity,” says emergence of India as “the third Vivek Paul, Vice pole in the global economy”. By Chairman and 2035, the Indian economy is President, Wipro expected to be almost equal to the Technologies. “Labour US economy, while China’s is clearly India’s economy is likely to be almost strongest suit. India
  2. 2. %,EI?KII1J Read on ................................... This, however, is not the case in worldwide average, China. China’s banking system is and even higher than dogged by high rate of default, the average of constituting about 50 per cent of developing countries. bank lendings. Says “The There is acute power Economist”: “China’s reckless shortage, with only 40 investment owes a lot to the per cent of India’s land heedless lending of its banks. being irrigated. The Chinese households still save way forward to bridge about 45 per cent of their income. the infrastructure gap They deposit about two-thirds of is privatisation and these savings in China’s four big lowering of regulatory state-owned banks, which lend barriers and higher about two-thirds of these deposits government spending to state-run firms. The banks pay on infrastructure. little attention to risk and do not The more pertinent expect much of a return: perhaps question, however, is 40-50 per cent of loans are non- whether China should performing. In fact, their lending be considered a FDI inflows and is moving fast is best seen as a form of state benchmark for economic towards removing the remaining subsidy.” development of India. The answer vestiges of the socialist era against The inefficiencies of the banking to this question cannot be a capital inflows. Due to this, the FDI system are bound to have an straightforward ‘yes’ or ‘no’. “The inflows have swelled during the adverse impact on the Chinese Chinese ‘FDI-export’ led growth last couple of years. But we still economy in the long run. The huge model is worth emulating. The have a long way to go, since China build-up of excess capacities in “FDI-export” model transformed attracts five times more FDI than sectors such as steel, cement, ASEAN countries into “miracle” India does. (However, if a recent metals and electronics may growth economies, but the Asian report is to be believed, India’s FDI ultimately lead to a situation of crises showed that it was heavily inflow for 2004-05 will be $50 deflation, hurting the economy. dependent on creating and billion as against China’s $60 And when the chickens come sustaining optimistic billion, if the Chinese method of home to roost, this economic expectations,” writes Arvind computing FDI inflows is setback may shake the confidence Virmani, Director and Chief adopted). of the foreign investors. The Indian Executive, ICRIER on rediff.com. Productivity is driven by economy faces no such prospects, But India’s economic system does infrastructure, regulatory thanks to the robust banking not allow for ‘zero capital cost’ to environment and governance. system in the country and the producers, since the banks here are There is a yawning gap between market-determined allocation of run on prudential norms. In fact, the Chinese and Indian resources. In view of this, it would since the last few years, banks have be prudent that we chart our own infrastructure. China is miles been striving hard to reduce their course of economic development ahead on highway and road non-performing assets (NPAs) in rather than following the Chinese construction, while freight costs at order to adhere to these norms. dragon blindly. Indian ports are almost double the