LINE AND LENGTH
India and China are different in many ways but they are similar in one very important way: neither can withstand US pressure for long.
Like every democracy, India likes to flagellate itself often over things which, in the overall scheme of things, are quite insignificant. The series of fiascos that have dogged the Commonwealth Games are an example of this. True, it has been a shameful exhibition of incompetence, and possibly even corruption. But a sense of proportion is surely also needed.
Not just that. Indians like to compete with China, just as Pakistan likes to compete with India, which is rather silly because just as Pakistan is not like India, India is not like China in a very large number of very positive ways.
Thus the key difference between India and China is that India is has learnt to swim in the choppiest oceans — political, social and economic; China, in contrast, prefers placid lakes where there is not even a semblance of a wave because — and this may sound absurd today — it lacks the self-confidence.
Self-confidence
It is true that things appear to go off marvellously well in China. But that may well be because we don't know what actually happens: after all, their mishaps are not allowed to be reported in the scale and manner of India. Also they have a very different system of accountability there which is top-down but unfair. The boss can fire anyone below him and can be fired by the man above him. “Chop-chop, Mr Chop Suey, off with you then and don't come back”, which is the exact opposite of what we have here.
But conducting Games, building stadia or even massively impressive infrastructure and so on are, in the final analysis, small beer. The USSR also used to have its show-pieces and could put up magnificent parades.
But look what happened to the erstwhile union because it lacked the self-confidence to face turbulence. This, I believe, is exactly true of China also. In cricketing terms, it prefers to play spinners — with tennis balls, if possible — rather than go out and face some quick bowling. But alas, there is a problem: big boys can't go on wearing half-pants and being stubborn (not so long ago, China even used to throw tantrums). If China wants to play with the grown-ups in the economic arena it has to grow up. This price of growing up brings out the similarities between India and China.
For the last two decades, India and China have both had to do some growing up by liberalising their economies. Both have done well as a result. In some areas China has done better than India; in others India has done better than China. For one thing, India has used capital much more sensibly than China. With a savings rate of 34-35 per cent India has managed to grow at about 8 per cent.
In contrast, China with a savings rate of 45 per cent manages only about 10 per cent. Such examples of better macroeconomic outcomes in India and better microeconomic outcomes in China can be multiplied.
For both, however, the binding constraint is the same: the political system. China has this thing called the Communist Party of China which shivers at the thought of political competition; we have our democracy thing which thrives on competition. But both systems ensure tremendous risk-aversion by the respective governments in the economic sphere, for the same reason: the incumbent wants to hang on to power. The difference is that in India the Constitution forces periodic tosses of the coin to see whether or not the incumbent can stay put; the Chinese Constitution reaches for smelling salts at the very thought of such Bernoulli trials.
External force
The similarities don't end there: because the power-incumbent is risk-averse, change has been forced on both, China and India, either by external circumstances or by an external force, namely, the US. I have documented elsewhere how every policy change in India in the financial sector, in which the US has a massive comparative advantage, has been because of intense US pressure. Starting with 1993 and coming right down till Thursday, when it doubled the limit for FII investment in Government bonds, which is the safest instrument available, India has sought to accommodate the US. The results have been wholly beneficial to it.
Now we are witnessing the same sort of thing in China in respect of the yuan's exchange rate. It has been a like an arm-wrestling match where its arm has slowly started to bend. After appearing to hold firm with the rate, since June 19 this year it has started to give in. Since then, the yuan has appreciated 3 per cent.
The process will go on, as has been made clear by the head of China's central bank. The exchange rate depends on trade surpluses, he has said. So, in that one sense at least, India and China remind one of that lovely Sikh joke that says “Prem Singh and Nattha Singh, one and the same thing.”
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