Why India Can Be The Preeminent Power In Asia
Paul Kennedy's seminal work 'The Rise and Fall of the Great Powers' claims that to qualify to be a great power depends on economic and military capabilities and that these two aspects are linked and ,ideally, mutually self-fulfilling.
I feel the role of ‘soft power' is even greater. Military and economic action may not be 'always on' but the cultural forces are never at rest.
China is, in PPP terms, the biggest economy in the world and it is only behind the United States in military might. However the gap in nominal GDP and military power between the USA and China is substantial. So substantial, that the US is not yielding any strategic space. Therefore China will aim to become a regional hegemon first.
China's rapid economic growth is not endless. It has already plateaued before the inevitable decline. The assumption that China has the momentum to ensure regional dominance without contest is simply incorrect.
The elements that constitute China's national capabilities are not of a quality that make its dominance a foregone conclusion.
China is an over prepared but improbable superpower.
India is an under prepared but definite regional power.
Firstly China's growth rests on cheap labour as the most abundant resource. That demographic dividend is over. China's population is ageing. It will be old before it is prosperous in ‘per capita terms’.
In 1979 China had 7 working people for every 1 retiree. That changed to 5.5 working people to 1 retiree in 2015. It will become 2 working people to 1 retirees by 2035.
However, India and USA’s working population will continue to grow till 2050
So, China's labour factor of productivity is diminishing. In any case, the advanced robotics that has been commercialized in Japan, European Union and the US has obviated the need for unskilled, semi-skilled labour to a great extant.
Capital inflow is also under constraint. Early industrialization in China was driven via small scale enterprises. Then 1990s onwards, 'Made in China' transition took over. The gold coast policy exploded export intensive manufacturing. This wasn’t new. Japan, South Korea and Taiwan had done the same earlier but China had more capital and labour.
However, China's growth is not efficient in terms of productivity. It is a state enterprise dominated economy. In its second phase of growth in 2000 - 2015, China grew 6-8% each year depending on how you do the computation but the growth was not driven by labour or productivity. It was on account of growth in investment /fixed assets thanks to infrastructural surge.
From 2008 - after the global financial crisis - the West began a gradual decline in China centered manufacturing because demand itself began to gradually decline. Corporate level of debt as a percentage of GDP doubled in China.
China's government ordered state owned banks to lend to state-owned companies. This was clearly not organic economic demand. It was the largest national building program in world history. Perhaps also the most wasteful one. What happened in Europe in 400 years happened in China in 40 years. Manufacturing moved 400 million people from rural poverty to urbanized mass middle standards. That's suggestive of a possible high tide of bad debt. Japan also had this boom and then went to 25 years of near zero growth.
China's capital output ratio is about 50 times worse than India's. This is a remarkable fact. But it is very poorly publicized because India gets much smaller investments due to infrastructural challenges. India is superior in the efficient use of capital. Another area where India has enormous headroom is agriculture. Our yield per hectare is much lower and if we match China's level of yield we will have some 600 million tons of food grain more to store. This will also explode Indian economy because 65% of our workforce is rural and dependent on Agriculture.
Lastly India is a private economy when compared to China where 150,000 state owned enterprises get nearly 80% of all finance and the 6 million private companies survive on the rest.
The top 3 state enterprises in China ,in 2015, had revenues exceeding the combined revenue of the top 500 private companies. It has become even more skewed with the general economic slowdown.This is where the Chinese Communist Party derives its strength. It has commercial empire which gives it ability to extend patronage and control every part of the economy.
China has no rule of law, intellectual protection or democracy. India, which does, is more prepared for the future in the real world.
Finally, let's look at soft power. This term was coined by Joseph S Nye Jr. in 1990. But India’s and China’s civilizations have engaged in soft power for the last 5000 years. China has been an insular country. India was colonized and from the year 1100 AD, the country was in turmoil because of invasions including widespread cultural destruction.
Despite this, India is ahead of China in art, culture and public sentiment when it comes to recognition across the world community.
China is getting soft power from projecting strength economically in Africa and Latin America. Whereas in Asia, it has issues with all neighbours - Vietnam, Taiwan, Japan, India, Philippines. This is not true for India. We have bilateral and multilateral friendships.
When Zui Xieobo won the Nobel Prize in 2010, he was the first Chinese citizen to be awarded a Nobel prize while still a resident in China. He was not released from prison, nor was he allowed to accept the award in Oslo. This shows the system currently in power in China.
China has internal weaknesses, external strength projection.
India and China can be the story of the tortoise and the hare.
Keep walking India…
