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Roaring Tiger Bleeding Dragon

[tps_header]Roaring Tiger Bleeding Dragon[/tps_header]

The recent devaluation of Yuan and crash of Chinese economy has led to the speculation that finally the dragon has started colliding under its own weight. Experts suggest that it might be a start of declination of Chinese economy. The proponents of tragic end foresee India taking over as Asian superpower in next few years both in terms of GDP growth and Investment rate. A macro view certainly suggests that world’s largest democracy is on the rise. The euphoria around Indian economy has been augmented by placement of a popular leader with a task master image at the helm of affairs led by newly elected PM Narendra Modi. Is it all over for China or is it the dawn of Indian Tiger?

A closer look at the two economic powerhouses indicate that while both countries have similarity in terms of issues facing, however, both countries have different ideological governments. The two countries have been long competing with each other for resources such as Coal , Oil & crude and global market share in the world market. Both countries today face challenges in generating adequate “Quality” employment and mitigating the growing “inequality” within the nation. The social Sector has remained a non-focus area for both nations with higher living standards and good life limited to few privileged class. In addition, since both countries have agriculture as primary sector, both struggle to overcome the acute agrarian crisis. Corruption and Red Tapism is an everyday struggle for both Chinese and Indian Governments.

The primary difference is the way the two economies are oriented and function. At one end of spectrum is the Chinese economy, predominantly outward looking with major growth stimulus from public sector and infrastructure development, at the other end is occupied by Indian counterpart which is more inward looking and banks on huge internal market size for its growth and development. While both economies started as agriculture majors , China made a sequential shift to manufacturing segment riding upon its higher working population and ability of People`s Bank of China to offer low cost funding. India on the other hand made a transition directly from agriculture to service sector dominated economy owing to rise of its educated English speaking work force. Riding on its export oriented economy and dragon size manufacturing, China has managed to pull its majority of population out of poverty with only 4% currently below poverty line. However India failed to deliver on this front with almost 26% of population still struggling to meet ends and earning the infamous BPL status. However, China paid a huge price for this growth. In order to keep the engine running, both Wen Jiabo and Li Keqiang adopted a heavily subsidized infrastructure and low cost of yuan model. Although this did establish China as leader in exports and led to creation of world class infrastruce and Job opportunities at neck breaking speed, it also created ghost cities, highways leading to no-where, malls with no buyers and limited private sector involvement. A restructuring of wage structure in sweat factories has also eroded the advantage of being a low cost manufacturer with major private players now looking at South Asia and Africa as next destination for low cost manufacturing. The decrease in International trade and capital flow has reduced Forex reserve of Dragon nation by almost USD 94 billion in August 15’ to reach USD 3.56 trillion.

Similarly India has problems at hand no less than China. While share of the primary sector in GDP fell by 35% to 25% of GDP in last forty years, the share of population employed in the primary sector has refused to bulge inwards. Further with poor infrastructure and land acquisition issues, it has “almost” lost an excellent opportunity as next manufacturing hub. The ever surging Nifty and BSE are more a result of lack of options to park money elsewhere than strong fundamentals within Indian markets. Baring services and IT outsourcing, exports is still not the strength of Indian economy and is more dependent on internal demand to keep the engine up and running. The reduction in Current Account Deficit is primarily attributed to global softening of demand for crude and Black gold than better management of internal demand. The recent devaluation of Rupee does not help much since it only increases import bill without counter increase in export revenues.

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