Article No. 18/2019
The following is the full text of the Keynote Address delivered by Mr. M. R. Sivaraman IAS (Retd.) Former Revenue Secretary GOI, ED IMF and Adviser UN SC CTC; Vice-President, C3S, at the International Conference on “Chinese Economy: Current Status and Prospects”. The event was jointly organized by the Chennai Centre for China Studies (C3S), Indian Council of World Affairs (ICWA), New Delhi and The Southern India Chamber of Commerce and Industry (SICCI), Chennai, at SICCI, on May 3 2019.
China has attracted universal attention for many of its achievements and its potential to become a military super power. As China appears differently to different people, depending on the colour of the spectacles they wear, it is difficult to come to any single conclusion about China as to whether its intentions are going to be one of peaceful co-existence or of a conquering nation to establish its supremacy. The period since the past 75 years after the end of World War II and the many conflicts that the US engaged itself in, some alone and some with its allies, in the holy pursuit of establishing democracy of its type, has not been of success; rather the failures have been more whether it be in the Middle East or South America. The first failure was Vietnam and the rest are known whether Afghanistan, Libya or Iraq after a loss of thousands of lives. What is seen in such a scenario is more confusion than order.
China will be very cautious in undertaking any such adventure as China has not been known as a conquering country even when it was a great kingdom. It must be noted that neither was India, even when it militarily and economically rivalled China. China has had a continuous history of thousands of years and it knows well, subjugation of a people and forcing them into a particular way of life may be a work of hundreds of years.
So as I see it, its mission is to first carve out for itself a sizeable portion of the world market for its goods and services by means fair and foul, the most important being the Belt and Road Initiative (BRI). It can be likened to a giant octopus with its tentacles being the economic corridors it has proposed for mutual prosperity and advance. It is not necessary to repeat the underlying objective as it is well known. It is what I would call ‘Belt Road Imperialism’, one of its kind the world has seen so far.
The BRI could benefit many capital starved countries so long as the projects are properly evaluated for their social and economic benefits and only those are taken up for implementation where the receiving countries have a say in selecting the investor on well-laid down economic and social criteria. So far there is no record to show how China selects the projects and what role the participating countries play in the process and when the projects are executed, how the contractors are selected and how much employment is generated for the recipient country. Nor is there any clarity on the terms of assistance. If any we have only the Sri Lankan port project where the latter had to virtually cede a portion of its economically valuable territory in settlement of the amount it owed on the port. Unlike in the past when aid giving countries made clear the terms of assistance leaving the choice of projects to the recipient countries, there is no document by China on its BRI.
India wisely decided to opt out of it.
Would it be possible for India to join it in the future will depend on many of the factors discussed above and also the peculiar position of China Pakistan Economic Corridor (CPEC) that passes through Pakistan occupied Kashmir. Is there a bargaining position for India on this, like settlement of its border disputes with China? In my view, there is and it could be one package of settlement of border disputes with China and Pakistan and then let the economic juggernaut move on. But this may require huge political courage from all the three countries involved. In the interest of peace and prosperity in the region it is well worth a try.
Although comparison between India and China has been done innumerable times it is to be noted that in the last 30 years the difference in the rates of growth between the two countries has not been more than 2.5%, with China growing at about 8.5% and India at a little over 6%. But compounded, the 2.5% has made a big difference. The major failing of India has been to ignore investments in education and health at the beginning of its planning era which the South East Asian countries and China did as the foundation for growth.
Bureaucrats like oneself are also to take the blame. China as a policy ensured that its population growth was contained but India muddled and its policies failed. But it is heartening to note that more than 18 states of India are close to the net reproductive rate of 1.2 and some are even less. If we had made the population healthy and literate by the 1980s probably our population would have been much less than a billion. This would have made a significant difference in investments in the social services sector.
China has one decision-making authority while India probably has over a thousand counting all the ministers in the states. There is one ideology and one goal for China to make it a super power whereas in India there are as many as there are NGOs and political parties. In China bureaucrats are selected and judged by merit, responsibility, performance and held accountable for failure. In India it is caste that determines everything. Performance and accountability are relatively unknown as measures for judging a bureaucrat.
Significantly, the Provinces in China account for 85% of public expenditure in 2014 as against 54% in 2000 by a study of the IMF whereas in India it is about 50%. The provincial governors enjoy huge autonomy in so far as development is concerned and while the states in India have similar autonomy, each state follows its own path. For the first time we have a GST which has integrated the markets in India. Still there are huge differences in land laws, pricing of utilities and availability of infrastructure. Even after 5 years of struggle against corruption in India still many states consider investors as resources for their political ends.
The lending rate of China is around 5%. In India it could be more than 12% in most cases particularly for the MSMES the back bone of employment and income generation. Even if land is available for an industry, it has to pass through many obstacles before the ground could be broken. The next five years for India should be the time duration for energising the MSMEs and the rural sector ensuring credit at international rates of interest, now that inflation is under control. Imposing a ban on fragmentation of land holdings below one hectare and transferring surplus labour to skilled occupations in demand through a village-by-village approach. Let the large industries take care of themselves as they have failed India in more ways than one most importantly by defaulting and clearly depriving the the people of India and banks of billions of rupees. All incomes above hundred million rupees per year should be taxed at a higher rate and proceeds exclusively used to revive the MSME and rural sectors. There should be a conscious reduction of inequalities in incomes both through taxation and through raising the incomes at the base levels.
And yet it is a miracle that India could achieve an average of 6% growth.
Should we emulate China perhaps in the investments in the social services sector, rate of interest on borrowed funds and in several other areas of doing business where arm’s length transactions would result in a major breakthrough in the manufacturing sector.
The question arises on whether India should be an export-oriented economy as China is; perhaps not necessarily looking at the trouble China has with the US. India should balance the sector of manufacturing for exports with that of domestic demand so that international trade movements do not jeopardize employment and incomes within the country.
Our attitude to China should be on a basis of equality. We should try to bridge the trade gap by increasing exports or cutting down unessential imports and finding domestic alternatives to basic chemicals for the pharma sector as is being attempted now. Unfortunately, Indian companies established units for manufacture or purchased cheap parts from China, and had consumer electronics assembled, which made profits for them, but destroyed employment in India and at the cost of the consumers getting poor quality stuff. We should bring back all these manufacturers back to India. It may be bad for the profits of the corporates but the country has to do it in view of our growing trade imbalance. We cannot afford it.
On the political side we have adequately demonstrated that India can no longer be bullied by any other country. We want friendship with all our neighbours but not at the cost of our nation’s image or its economic growth.
(The views expressed are the speaker’s own.)
