Saturday, September 18, 2010

India, China not in a position to be engines of growth

There is the usual mix of bad and good news on the recession-plagued economic front. The United Nations Conference on Trade and Development (Unctad) report for 2010 says that the world economy will grow at 3.5 per cent this year and 2.5 per cent in 2011. The dip in 2011 will be mainly due to either the withdrawal or phasing out of governments-backed stimulus packages. The warning is that it is too early to take away the stimulus even if it means growing governmental deficits. This has been the refrain of liberal economists like Paul Krugman.

The good news is that India, China and the rest of Asia will continue to grow. But that will not help pull the global economy out of the woods. China at 10 per cent, India at 7.9 per cent, Asia at 7.8 per cent, east Asia at 8.9 per cent and south Asia at 6.6 per cent in 2010 continue to buck the trend, but it is clear that India, China or Asia on the strength of their own growth rates cannot help the world economy to recover.

This calls for a serious rethink among experts in Asia and elsewhere who are looking to next engine of growth, a slot that the United States had filled for the last few decades. The projections that China is going to move ahead of the US by 2050 or that India will catch up with China before 2030 might be a poor solace if the world economy remains in doldrums, and these two Asian giants are not in a position to occupy the driver's seat.

The question to be asked is what does it take to become the world economic leader? Consumption is certainly one of them. Americans can be blamed for living beyond their means but it is their consumption that helped the Asian economies to grow by leaps and bounds. It is now estimated that China's household consumption though huge is not big enough compared to that of the US. Secondly, the US was a leader also because of big dollar investments in Asia and other parts of the world, apart from funnelling funds in the form of aid to vulnerable developing countries. Both China and India are not yet in a position to spread investments in the world or contribute by way of aid. It can be argued that the single dominant economic power like the US is not the model for the future and that there will be a multi-polar global market much like in the strategic sphere. That may indeed be the case but what we are now witnessing is a transitory stage which has created an economic vacuum.

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