Rajani Das
Assistant Professor
St. Joseph’s College Jakhama
China being one of the largest countries in the world has always been a smart economy in almost every aspect of economic growth. In comparison to India, China has made tremendous moves in reaping the benefits of globalisation. For instance, over the past decade, FDI flows in India have averaged around 0.5 per cent of GDP, against five per cent for China. However, the recent slowdown of the Chinese economy has drawn scrutiny on the policy decisions in running this largest economy. This problem is clearly seen as the Chinese economy expanded at its slowest pace in 24 years at 7.4 per cent in 2014.Now this process in China will surely have some impact on the global economy.
China is India’s largest trading partner and hence some impact can be expected on the Indian economy too. As far as negative impact is concerned, our automobile industry will suffer some setbacks. However, the most important impact of the Chinese problem will be more prominent from the government’s actions in the foreign exchange market. For example, if the Chinese Government takes consistent steps in devaluating their currency to attain immediate growth the entire global market will be flooded with Chinese goods which will surely affect India’s exports.
The recent slowdown in China’s economy is also manifested in its industrial sector. This slowdown is advantages for India to catch up in the economic race. India’s long term prospects now look stronger. While China is facing shrinkage in the working-age population, India is enjoying a surge in manpower. As a rapidly growing economy, India is a decade behind China, considering the basic indicator of income. Every percentage point growth differentiated in the coming years will expand the gap between the two countries. Therefore, a lot depends on how fast the two economies grow in the coming years. Any downturn in the global economy will have repercussions on India’s fiscal growth .While investors pull out funds from China; India is still an attractive market destination.
The fall in the equity markets is ephemeral. But the biggest losers from China crisis could be the Government of India’s ambitious’ disinvestment plans’ and the much needed’ capital infusion’ in the public sector banks. The downturn may be good for ‘smart cities’ and deficit-cum- inflation management but bad for automobile manufacturers. Gold might shine and mobiles can be cheaper. The lower commodity prices could work towards India’s ascendancy as it tries to revive its manufacturing sector and attract foreign companies to ‘Make in India’.
The Indian export sectors that could be affected due to the Chinese economic downturn include textiles, garments, automobiles, etc.The devaluation of the Chinese currency is expected to make India’s exports expensive and widen the trade deficit with China. However, India’s push for infrastructural development perhaps could get boost from cheaper Chinese funds and resources. Chinese cooperation in the development of India’s high-speed rail network, renewable energy sector and smart cities could become more possible in the wake of reduced possibilities and opportunities for Chinese companies in their home country.
China’s Gross Domestic Product (GDP) growth rate drastically declined to 6.9 per cent in 2015 than the previous fiscal’s 7.3 per cent which was the lowest ever since 1990. Narendra Modi’s key economic policy-that is aimed at attracting more FDI (Foreign Direct Investment) can suffer a setback. In order to push the growth rate if the Chinese Government adopts fiscal measures the Indian markets will be flooded with Chinese goods at lower prices. Eventually this would not only restrict India’s exports but also pose a threat to the indigenous industrial output to some extent. India needs an expanding export market. But China’s economic slowdown affects the count of some exporting commodities like engineering product, cotton, etc. Driven by the weak demand from China.
As per a November- December 2015 report the decline of engineering products export was down by 15.68 per cent at USD 5.58 billion. Now India is facing a trade deficit. But in another aspect this slowdown will lead to lower level commodity prices in India which can also indicate lower inflation and higher GDP.The decline in the copper and iron export has decreased the market prices of these material significantly.
The slowdown in China’s economy must encourage Indian manufacturing companies to start making its own goods, at least for domestic consumption. India must go ahead with the ‘Make in India’ tag from India. It must be ensured that newer export markets are ventured into. China’s weakening growth and volatile stock markets have drawn global attention in recent months sparking concerns about their impact on the already fragile global economy. But some suggest that they also present opportunities for some several countries.
The slowing growth is partly attributed to the Chinese Government’s efforts to reconfigure the country from an export-reliant economy to one driven b domestic demand. South Asian countries like India can venture to capture some of China’s excess capacity with fresh investment in infrastructure and making their manufacturing sector competitive.
However, India will have a bad impact from the China’s slowdown as the impact would be visible on India’s export of cotton, copper and iron and steel which could further lower India’s export to China. Overall China’s volatile stock markets could become a boon for Indian stock markets. The slowdown of china coupled with increasing manufacturing cost, provides great opportunity to India to attract FDI as it has a huge consumer base. However, the focus on infrastructure, ease of doing business and predictability in taxation would be a key to attract FDI.
