Indian Leaders Betray Their Sense of Inferiority by Comparing the Country’s Economy with China
Earlier this month, a state-run Chinese think-tank said that “very few Indians are able to treat Sino-Indian relations accurately, objectively and rationally.” It blamed the “arrogance of the Indian elite and the inferiority of its ordinary people” for it.
Yesterday, the world had an inkling of how right the Chinese were with the BJP government (Finance Minister Arun Jaitley) trumpeting how the Indian economy was surging ahead and the country’s Chief Economic Adviser, Mr Arvind Subramanian, proclaiming that “we have already surpassed China’s growth rate.”
What was the need for the Indian leaders to compare the country’s economic performance with that of China? They should have left the comparative analysis of the data to market watchers by keeping their declarations confined to the real numbers, whatever the calculation!
Lending Credence to Chinese Charge: With the effusive comparison, Mr Subramanian lent credence to the Chinese charge that Indians are an inferior lot. The only difference is that they only thought ordinary Indians suffered from an inferiority complex whereas here it was the elite demonstrating that!
This is particularly irksome when the world has doubts about the 7.5% growth data for Jan-March 2015 put forth by India. Experts are not convinced that it is an accurate projection of ground realities marked by “dismal corporate earnings, weak industrial activity and an elusive recovery in bank credit.”
New GDP Method: The new method for calculating GDP that India announced earlier this year is adding to the confusion, with economists pointing out that if the old method was applied that growth would be much lower. This infographic from Reuters clearly captures the difference.
According to Mr D K Joshi, chief economist, CRISIL (Mumbai), “There is some disconnect between the GDP numbers and the situation on the ground. There are methodological issues. That is why there is a variance between the volume indicators available at the ground level and value indicators which are being increasingly used in the computation of the GDP.”
Even the RBI is cautious about the new GDP series, with its Governor, Dr Raghuram Rajan, saying that the economy was still slow in picking up.
The former Prime Minister, Dr Manmohan Singh, had also on Wednesday accused the government of fudging figures to hide a fragile recovery. He charged the BJP government with manufacturing data to show that the last one year had not been bad for the Indian economy.
Two idiosyncrasies: But then GDP calculation in India has caused confusion even in the past. As this report in The Economist shows, in 2010 India was said to have outpaced China with a growth of 10.4% as opposed to 10.3% by China.
The report attributed that growth to two idiosyncrasies in the way India reports its GDP figures. “First, it reports growth for the fiscal year, not the calendar year. Second, India typically reports its GDP at factor cost. Other countries, including China, typically report their GDP by expenditure.”
Then there are other factors of measurement based on nominal GDP and GDP based on Purchasing-Power Parity (PPP) — which measures the actual output as opposed to fluctuations in exchange rates.
They are best left to subject matter experts as to the layman (like me) it can be Greek or Latin.
China is a $18-Trillion Economy, More than Double that of India: For the record, though, China is the world’s largest economy by PPP, valued at $18 trillion and India comes in third at around $8 trillion. The gap is too wide to be bridged in the near future.
The IMF predicts that by the end of this decade the Chinese economy will be worth $26.98 trillion – 20% bigger than the US at $22.3 trillion.
Forecasts from the IMF, nonetheless, indicate that by 2100, India could overtake both China and the U.S. and emerge as the world’s largest economy.
For more on what experts think about the current state of the Indian economy, you can check out this Reuters compilation.
It is time Mr Modi and his government get real on the Indian economy and stop misleading the market with data that is removed from reality.
G Joslin Vethakumar