India: China-like Economic Reforms

Author: Zheng Nie

Published:

China and India have been in an economic race for many years and although China is still ahead, the gap between the two countries is shrinking. While the public fears that China’s GDP growth will continue to decrease, India seems to be making a revolutionary growth story of its own, as the new Prime Minister Narenda Modi takes control. Many find that Modi’s economic revival strategy mirrors China's economic strategy in the early 2000s and India hopes to achieve a similar level of economic success and growth.

“Sell anywhere, but manufacture here” is the key component in Narenda’s economic boosting plan. The plan basically indicates that the government will ensure stability in the manufacturing industry and give out subsidies so that “Made in India” becomes a brand. This is reminiscent of China making use of its low labor costs to attract foreign investments in the early 1970s. Benefiting from its remarkable marketing campaign and low labor costs, China grew to become the world’s largest exporter in 2010. With Chinese labor costs increasing, will India soon replace China as the world's largest exporter?

Just like China did at the beginning of its economic reforms, India is trying to build up its transportation network. India’s latest federal budget shows a $6 billion investment in roads and highways and a $10 billion investment in railways. Having a strong infrastructure base is really important for India to develop its manufacturing industry because manufacturers need a smooth supply chain to transport goods efficiently. Investments in infrastructure will also bump up India’s ranking in ease of doing business and attract more foreign investments, both of which can contribute to increased growth.

Despite China's economic success, India should do more than just copy China’s growth strategy. Since the global manufacturing industry is fairly crowded, with Bangladesh making clothing, Philippines making electronics, and Thailand and Vietnam exporting machines and computer parts, India has to explore new markets. The good news for India is that technology is always evolving and new markets are constantly popping up in the industry.

China has long been the best performing emerging economy. Will India catch up with China in the near future? It is difficult to know for sure, but the possibility is definitely there.