Can India Overtake China - Case Study Example

CAN INDIA OVERTAKE CHINA Name Institution Professor Course Date Huang, Y & Khanna, T. 2003. Can India Overtake China, Foreign Policy, Jul/Aug: 74-81. Introduction Over the last ten years, China has been the most essential driver of product markets given its exponentially developing economy. However, lately, the county has shifted from energy intensive economy to a service-controlled economy. The reduction in energy-intensive economy slowly affects the country’s economy, which is now on the slow-down. India, on the other hand, has surfaced as a powerful contender to close the gap developed by China’s declining oil demand. This is the situation as at now. However, drawing from the article by Huang and Khanna (2003), the question whether India can overtake China is a feasible and debatable. China has a faster rate of economic growth compared to that of India because of its increased focus on Foreign Direct Investment. The FDI approach employed by China serves as an alternative for domestic entrepreneurship. India, on the other hand, has not attracted the amount of foreign direct investment that China employs. The amount of FDI employed by China increases the confidence of international investors. More so, China’s wealthy Diaspora is eager to support their nation while Indian Diaspora is less willing to support the nation through investing back at home. While India supports private enterprise that promotes transparency and efficiency, China economic growth is driven by FDI. Although India exhibits as much dynamism as China, India cannot outperform China. Summary Huang and Khanna (2003) explore the fastest route to economic growth. The authors compare the Chinese approach and Indian approach to economic growth. The assessment includes China Foreign Direct Investment approach and Indian homegrown entrepreneurs. According to the authors, Indian focus on local and private initiatives may demonstrate a long-term advantage over the Chinese FDI approach and ineffective capital markets and banks. Huang and Khanna (2003) assert that China’s export-instigated manufacturing boom serves as an alternative for domestic entrepreneurship. The FDI helps China to gain investors confidence an aspect that increases foreign investment that in turn supports the country’s economic growth. Another aspect that supports Chinese enormous economic growth is the Chinese Diaspora that supports the country’s growth through investing back at home. While China focuses on FDI, Indian focuses on private initiatives. India has numerous local firms that compete internationally. These firms are knowledge-based in nature. Contrary to China, India has established powerful infrastructure to promote private enterprise while its capital market functions increase transparency and efficiency compared to that of China. Indian growth is also propelled by its legal systems that are more advanced. According to Huang and Khanna (2003), India and China are the globe’s next major powers. China is on the faster track drawing from its Gross Domestic Product figures. The authors maintain that India makes complete use of its resources and has selected a route that may deliver more sustainable development compared to the Chinese FDI approach. The authors believe that India has made a wiser bet by focusing on local entrepreneurship. Another aspect that the authors believe could allow India to overtake China is the contrasting political systems employed by the two nation. While India is a democracy, China is not. China’s Communist Party functions to eliminate private ownership. India, on the other hand, employs a logical brand of socialism that does not prevent flourishing of private and local entrepreneurship. China implemented restrictions aimed at preventing Chinese entrepreneurs from competing with SOEs (China’s state-owned enterprises). The Chinese approach to economic growth benefits foreign investors at the expense of local entrepreneurs. While China has established barriers for local entrepreneurs, India has made it easier for local businesses. Indian firms have topped the Asia markets with some of leading firms including Infosys, Offshoots and Sundaram Motors. The Indian government has created a conducive environment for local entrepreneurship while the China bureaucrats strictly control capital allocation and restrict the success of private firms. The financial markets are used to sustain SOEs an aspect that prevents the maturity of the Chinese markets. Critique The authors maintain that India has surpassed China at grassroots level given its support for private initiatives and local entrepreneurship. Although this is the case, India’s growth is not reflected in numbers. This is because of the messy democracy characterised by religious and ethnic tensions. China, on the hand, has long enjoyed comparative tranquillity that continues to attract international investors. The authors maintain that Indian annual economic growth is lower by twenty-percent compared to that of China. This is an indication that Indian economic growth is catching up with that of China. The authors assert that misallocation of resources in China is a probable obstacle to China’s economic growth. The authors also consider recapitalisation of the markets by the Chinese government as a restraints to the country’s economic growth. In this regard, the authors consider Indian economy as being anchored on a better solid footing compared to that of China. They conclude that China and India have adopted radically dissimilar development strategies. While India is not outperforming China, it is doing better and its success may allow it to catch up and may be overtake China. The sentiments presented in the article are informative and feasible. Drawing from the weaknesses of China and Strengths of the India’s approaches to economic growth, the authors maintain that India stands the chance to catch up or overtake China’s economic growth. The arguments supporting India’s promising economic growth are feasible and so are arguments that challenge the economic growth perspective adopted by China. It is evident that the article was written and published in 2003, almost 13 years now, and India has not yet overtaken China. According Bajpai (2016) China is the world’s largest economy with a GDP of 19.4 trillion dollars against U.S GDP of 17.95 trillion dollars in 2016. Nevertheless, I want to commend the authors for presenting a logical analysis of the Chinese and Indian economic growth. The authors link the Chinese outstanding economic growth on FDI while that of India is linked to the promotion of local entrepreneurship. According to Singh (2012), India can overtake China economic development because of its emphasis on the development of home-grown firms. The large numbers of MNCs that offers world-class product and services have the potential to promote further the nation’s economic growth. Knowledge-based firms and automobiles firms put India in better position compared to China. More so, India demonstrates dynamism with more focus on entrepreneurship. The two nations employ different strategies towards economic growth. While China employs a top down approach, Indian employs a bottom up approach (Hofmann, P 2013). I support the authors’ arguments that the bottom up approach is promising and stronger. It is with no doubt that the efficiency and transparency of Indian capital market is undeniable and key to the nation’s economic growth. According to Paul (2007), better capital markets are essential to mobilise savings into more productive capital markets. These markets can increase foreign savings to India. India is a democratic nation, an aspect that makes its economic growth stable and progressive. Despite its being a democratic nation, India’s war and strife prevents it is from overtaking China’s economic growth. While I cannot dismiss the authors’ assertion that India can overtake China, I concur with their arguments against China’s economic growth perspectives. I believe that while India surpasses China at the grass root level, its growth is not reflected in numbers in terms of GDP. Apparently, at macro level, China is way ahead given the greater flow of FDI and heavy investments on SOEs. According to IBP (2012), increased foreign investment and exports are the key drivers of the continued economic growth of China. More so, China is a communist nation that is not prone to unrest and strife an aspect that attracts foreign investors. China’s economy depends highly on the manufacturing sector while India centres on knowledge-based industries. The arguments presented in the article assume an economic perspective. The authors scan the economic growth of the two nations through the lens of China’s FDI and India’s home-grown growth strategies. Drawing from these strategies and from economists’ perspective, India has the ability to overtake China in the long-run (Sornarajah & Wang 2010). However, I do not fully support the views that India will overtake China. This is because foreign direct investment is pivotal to economic growth. According to Michael (2012), the effects of economic growth depend on repatriation level by capital investors. The more the investor retains its earning realised in the invested business, the more FDI contributes to the overall economic growth of the host nation. FDI supports trade, export and economic growth of China in a way that home-grown strategies cannot do. However, for stable and sustainable economic growth to occur, FDI should not fully substitute local investment. Conclusion The article is informative and debatable. It is well organised in sections that enhance the reader’s understanding. The article clearly highlights the radically diverse development strategies employed by China and India. China up to date remains as the world’s number one economy. This is clear indication that India has not surpassed China’s economic growth since 2003, the time the article was published. However, it is evident that India is gaining momentum and may catch up with China based on its entrepreneurial spirit, effective and transparent markets besides a fair judicial system. In addition, the commitment to capitalism and competitive entrepreneurship hold the potential to enable India to make more impressive development than China in coming decades. References Bajpai, P 2016, The world’s top 10 economies. Retrieved from http://www.investopedia.com/articles/investing/022415/worlds-top-10-economies.asp Hofmann, P 2013, The impact of international trade and FDI on economic growth and technological change, UK, Springer Science and Business Media. Hofmann, P 2013, The impact of international trade and FDI on economic growth and te technological change, UK, Springer Science & Business Media. Huang, Y & Khanna, T. 2003. Can India Overtake China, Foreign Policy, Jul/Aug: 74-81. IBP 2007, China telecom industry business opportunities handbook volume 3 strategic information, development, regulations, UK, Lulu.com. Micheal, H.K 2013, Foreign direct investment in China: Theories and practices, UK, Routledge. Paul, 2006, Business environment, USA, Tata McGraw-Hill Education. Singh, O.P 2012, Art of effective communication ingroup discussion and interview, UK, S.Chand Publishing. Sornarajah, M & Wang, J 2010, China, India and the international economic order, USA, Cambridge University Press. Read More