India, the next Global profit story 0 848

China and India are two large countries with India occupying a greater part of South Asia. China has its territory spanning across East Asia. The two countries together, account for 36pct of global population. China has sustained double digit GDP growth for 30 years up to 2010. India on the other hand, has grown at half the Chinese growth-rate over the same period. China has consolidated its global position becoming the second largest economy in the global landscape. In contrast, India is counted the seventh largest economy as of now, having bypassed many established economies in the traditional developed world. The economic production values and population size of these two countries make them a significant catalyst for driving global growth trends.

Many have spoken about China and its phenomenal ascent on to the global economic stage. It is common knowledge now that China would dislodge the USA from the number one position in the global ranking of economies and would come to dominate the world GDP by 2030. There is no doubt that China has been the most extraordinary growth story in the history of mankind. It has become a classic model of development economics too. For liberating 600 million people from poverty in a span of 40 years, building of course on the socialist foundations laid down since 1949, is an achievement no other democracy can boast of.

The China growth story i.e. profit story, shows that state enterprises need not necessarily be a hindrance to growth, rather they can make the difference; that public investments on infrastructure provides the big push; that import substitution is as important as exports to exploit to full advantage the advances in technology, investment and trade for economic progress; and that state-guided market forces are development friendly. This success story and underlying business cycle fundamentals continue to unfold at a rapid pace across all asset markets. Many economic commentators and businesses alike share the sentiment that China’s dominance would continue in the next 50 years.

A careful analysis of past trends seems to highlight another view. I tend to argue that India would be the next Asian miracle in terms of its Global growth story i.e. profit story, and would match China in 30 years i.e. by 2050. Imagine the emerging Asian economic landscape with China and India free of poverty, with full employment and giving leadership to a new economic order, replacing the hegemony of the West.

Population projections indicate that by 2050, India would have a population of 1,730 million whereas China would reach a population saturation point of 1,400 million (East Asian Forum.Org). These two countries combined would account for 36pct of the world population by this time. This would be a rich population, with new aspirations and changing lifestyles.

Demographic data show that India would be endowed with a relatively younger population compared to that of China (Table-1). India’s young workforce with knowledge and skills would be India’s strength. Those between 15 and 64, are expected to rise from around 64pct of its population in 2009 to 70pct in 2020. Meanwhile, China’s relatively cheap and semi-skilled cohorts of population are expected to start declining from 2014, resulting in labor shortfalls by 2050. This would mean that a more intellectually hungry, urban based middle class would take over the driving of India’s profit story and would unleash a wave of innovation in the sphere of manufacturing, technology and music and film industry. One expects an Indian resurgence in the horizon waiting to explode on the world stage.

By 2050 the Indian economy would be in a much stronger position with leading brands such as Tata, Maruti, Godrej, Infosys, Amul, Bajaj, Ashok Leyland, Asian Paints, Dabur, Apollo Tyres, Britannia, and the zestful Bollywood influencing the world on a much larger scale than what we have seen so far. In this expected scenario India would outpace China by growing at a compound rate of 8.50pct (Table-2) and would reach USD 57.2 trillion with a per capita income of USD 33,700. China in the meantime would struggle to consolidate its current growth momentum over the next 20 to 30 years. It would grow at a compounded growth rate of that of an advanced economy, growing at 3.3pct reaching 47.6 trillion USD dollars with a per capita income of USD 33,900. When compared, the numbers added together are staggering. Additionally, when we look at the merchandise trade turnover between China and India the data indicates these two countries would account for circa 30pct (USD 100 Trillion) of world merchandise exports by 2055 from its current 14.5pct.

In fact data indicates that China’s economy is already showing signs of losing steam. Slowing down has commenced, with 2018 data indicating that it grew at the weakest pace since the first quarter of 2009. This slowing down has been caused by the higher base effect, growing costs of production and labor costs are now seeping into the real economy. Chinese companies have begun to search for other Asian and South Asian economies to house their industries affected by high domestic production costs. This is an indication of how China would now be challenged in the competitive capitalist environment. A declining profit story would only compound the longer term growth trajectory (Figure-1). Added to the Chinese woes is their new breed of westernized economists who are now showing signs of losing sight of its competitive advantage obtained over the golden years of development.

Undeniable Asian Dominance in 2055

The rise of Asia spurred by India and China is inevitable, therefore Asian economies/policy makers and businesses should gradually look at their business models, cultural and geopolitical linkages and synergies thereby carving out their growth plans to suit the new world order by 2055 given that the US will be the only western country to make it into the top five economies in the world.

Whatever the superficial debates that are out there, the ground realities are undeniable and must be taken seriously or we will definitely be left behind in the dinosaur era. It is therefore crucial that Sri Lankan policy makers value both India and China as they are in the Asian continent with significant consumer markets and a burgeoning middle class fueled up with an appetite for modernity. These consumers will be pleasantly drumming up the tune of the Asian Century of World Dominance and we must be ready to dance to the beat. This outcome is indeed sweet music to the ears of Asians (Global Sri Lankans). Unfortunately, many of Sri Lankan and Asian business models are ill-prepared for this eventual reality of the Asian Century.

Leave a Reply

Your email address will not be published. Required fields are marked *

SL Enters the global map as best travel destination Comments Off on SL Enters the global map as best travel destination 702

Sri Lanka with its unique blend of diverse culture, bio diversity and friendly people enters the global map as The Best Travel destination and retains its proud identity despite recent setback following 4/21 destruction of life and property. The Lonely Planet – the best-selling magazine featured Sri Lanka in 2019 – 10 years after a sustained upbeat in tourism nearly three decades after ending conflict in 2009.

Sri Lanka - Lonely PlanetThe country that was torn by war has entertained 2.4 million tourists by the end of 2018 benefiting nearly 300,000 direct and indirect employment and livelihoods,. A large number of them being small and medium entrepreneurs engaged in supply chain activities, investments in the development of leisure facilities, transport and logistics, urban and rural property development. This sector also accounted for USD 4.2 billion in foreign exchange earnings marginally lower than the country’s single largest industrial export income of USD 5.3 billion from textile and garment exports. In 2009, this now buoyant industry accounted for a mere USD 349 million.

The Lonely Planet ranked Sri Lanka as a top country to visit in 2019, stating “Already notable to intrepid travellers for its mix of religions and cultures, its timeless temples, its rich and accessible wildlife, its growing surf scene and its people who defy all odds by their welcome and friendliness after decades of civil conflict, this is a country revived.” The Lonely Planet recognises new highways and railroads help connecting critical areas of the country. It has also recognized that Sri Lanka’s tourism industry is developing properties around the island with more international hospitality brands.

Tourist interest in beaches are expanding to places like Tangalle, and going beyond popular places like Unawatuna and Weligama. Another attraction highlighted in the best-selling Lonely Planet Magazine is the train between Nanuoya and Ella passing through the hill country area beautified with the lavishness of tea plantation and natural environment. The ancient ruins of Anuradhapura with a wider attraction to the sacred Ruwanweliseya Stupa built in 140BC during which time Buddhism had flourished to its peak. The country’s history is enriched with leaders so devoted to empowering the island by Buddhist philosophy and culture with massive stupas and temples.

Lonely-Planet--02Economically the culture was supported by agriculture with amazing engineering talents to create its agricultural infrastructure with tanks and canals. The Sacred Temple of the Tooth is the holy place protecting the Tooth Relic of Load Buddha which is another attraction for visiting tourists. Both Anuradhapura and Kandy are two of the most holy places visited by many Sri Lankans as well. Showcasing the cultural extravaganzas every August the Trustees of Tooth of the Temple of the Tooth hold the Kandy Essla Perahera. Peradeniya Botanical Garden – the largest and oldest botanical garden in the country introduces the glamour to make Kandy which has been around for several 100 years as a tourist city.

The Eastern Tourism corridor spanning from Yala to Kuchchaveli through Pasikuda and Arugam bay is well known for the best waves in Sri Lanka. Surfing enthusiasts enjoy this area from April to October.

Subscribe to BiZnomics magazine for full article

Active Trade policy for economic development 0 724

Biznomics-active-trade-policy5

Professor W. D. Lakshman

Biznomics-active-trade-policy2Do countries with lower barriers to international trade experience faster growth? This has been one of the most vigorously debated questions in economics and political economy. Mainstream economics since Adam Smith strongly favours free or freer trade. In contrast, different strands of political economy have been critical of these views. Liberal trade has become a policy position pursued by international trade organizations like the GATT (and after 1995, the WTO), and by international financial institutions like the IMF and the World Bank. For many in this line of thinking free trade has become an ideology. Renato Ruggiero, the first Director-General of the WTO, writing in the last decade of the twentieth century, argued that liberalization had “the potential for eradicating global poverty in the early part of the next [twenty-first] century—a utopian notion even a few decades ago, but a real possibility today”. The free trade ideology has attracted traditional elites and economic bureaucracies in many developing countries as well.

Biznomics-active-trade-policy3

 

The free trade policy prescription is based on the theory of comparative advantages developed by a long series of well-known economists starting from David Ricardo of the nineteenth century. (Ha-Joon Chang in our issue of May-June 2019 presents a lucid explanation of the fundamentals of comparative advantages theory). In reality however, international trading has never been free.  During the period of European colonialism, foreign trade was controlled by the imperial powers and a few large and powerful trading companies. Colonial territories were opened up for foreign trade using imperial power. Countries that could not be brought under direct colonial rule (e.g. Japan and Thailand in Asia) were compelled to open up for foreign trade through unequal treaties which they were forced into signing. Foreign trade in colonies and countries brought under unequal treaties was seriously disadvantageous to the territories concerned.

 

Biznomics-active-trade-policy3

After World War II and in the era of decolonization, there was the US domination of world trade matters. The currently prevailing pattern of international division of labour and the rules of the game governing international trade are being governed and managed by the set of international institutions referred to earlier, working according to dictates of the US-led bloc of Western powers. Various global forces operate in support of these institutions – the ideological commitment to free trade, bribery and corruption unleashed by MNC-led international capital, and numerous political pressures, occasionally backed up by military power of dominant nations.

Foreign trade has been described as an engine of growth (implying causality) or at least as a handmaiden of growth (implying concurrent movement). Countries which have experienced export-led or outward-oriented growth processes are cited in support of growth-engine or growth-handmaiden hypotheses.  Mainstream theory however ignores inward-oriented import substitution activities which often pioneered the economic growth processes of the countries concerned. The export-led characteristic developed later once production capacities were developed through import substitution. Historically, in the initiation, sustenance and guidance of both these growth processes – import substitution and export orientation – active trade policy has played a crucial and critical role. The effective policy stance here has never been free trade, passively leaving trade flows to global market forces. In effective trade policy stances there were always complex and dynamic combinations of openness and restrictiveness.

Biznomics-active-trade-policy4

A point of great significance in trade policy discussion is that every process of development, taking place over time and space, is unavoidably uneven from one region to another at the country level and across different countries at the global level. As development processes take place at different rates in different countries, some regions and countries have achieved development earlier than the others. In this process, the “developing countries” always have got themselves stuck in a “late development” syndrome, subjecting them to more disadvantage than advantage. The “one suit fits all” type of development policies advocated in different versions of neoliberal packages, are hardly likely to meet the development challenges of all developing countries. This point comes out strongly in the extensive trade policy debates in development theory and practice.

Cont..

Subscribe the BiZnomics magazine for full article