In our little book on India (‘Can India grow?’), Gulzar and I suggest that India should stop obsessing about China. In particular, this paragraph is worth highlighting:
There are compelling reasons to argue that China’s path to growth may not be the
appropriate model for India. First, unlike China, India does not have the requisite
human, physical, and financial capital or state capability needed to sustain such high
growth rates over long durations. Second, the proximate domestic driver of Chinese
growth was its extraordinarily high public investments, in the range of 45–50 percent
of GDP, which India cannot come close to matching. Third, the external counterpart,
export-led growth, was facilitated by favorable global geopolitical and economic structures, which may have turned against continuing Asian growth. Finally, as recent events have shown, such breakneck growth is inevitably distortionary and engenders profoundly destabilizing risks with the potential for long-term damage.
The information below was always available there in the public domain but it just struck me with some force on Sunday. It reinforces the last sentence above:
In the last decade or more, China’s growth has been achieved at the cost of massive debt accumulation. Its nominal GDP in 2005 was USD2.257trn. The figure in 2015 was USD10.866trn. India’s nominal GDP in 2015 was more or less in line with China’s nominal dollar GDP in 2005. As per data from the Bank for International Settlements, China’s non-financial sector debt/GDP ratio was 151.9% in 2005. It has ballooned (or, exploded?) to 254.8% by the end of 2015 – from USD3.5trn in 2005 to USD26.5trn in 2015. GDP up 4.8 times and debt up 7.6 times in a decade. Hence, the quality of growth is low and unsustainable. India does not have to flap its wings. It can and should do better.