INTER- DEPENDENCE AND PATH FORWARD
IMPACT OF GLOBALISATION.
- Impact of globalization commenced in 1980’s and picked up speed with advancements in information technology has made exponential increase in global trade and thus making nations depending on each other for forward and backward supply chain.
- This has resulted in economists coining the catch-phrases ‘inter-dependence’.
- Inter-dependence in its essence is about attaining synergy in economic activity towards minimizing the overall cost by facilitating free movement of people and material by removing barriers.
- Perhaps one of the best examples of inter-dependence is countries in the Euro region with a common market and common currency.
CHINA AND INDIA –A SWOT ANALYSIS.
- As mentioned in the beginning of this treatise, though India and China were in the lower rung of the economic strata during the last decades of the past century, China has leapfrogged to become the second largest economy in the world within just 3 decades.
- GDP Proportion of global Pie: the following chart reflects the distribution of the global GDP( on $US as reference)
- It can be seen that China accounts for about 15%, (next only to US which accounts for ~24%) of the total global pie whereas India’s share is just about 3%.
- The comparison of the stock market has already been presented earlier. In stock market also China’s MCap is about 3 ½ times that of Indian market.
- The combined impact of both stock market MCap and GDP makes China a formidable player in global economy with potential influence on across-the globe movement of financial assets.
- On a global scale, many Cos in western countries generate significant revenues from China whereas they depend far less on India. This was precisely the reason why whenever any major upheaval happened in Chinese markets, its tremors were felt across the globe. It is significant to note that Indian stock markets are yet to reach the level to create even ripples in global markets.
- Likewise, while in respect of China, its dependence on India for either export or imports is minuscule, the same is not the case from the perspective of Indian business (which drives Indian stock market). Companies like Tata Motors ( a Large Cap stock) earn significant revenue from China.
- From an Opportunity perspective, let us look at the products we are exporting to China.
- So while China has been exporting to India value added products, Indian export basket to China has been mainly raw materials and primary products where scope for value addition is bare minimum.
- This dichotomy obviously has resulted in escalating trade balance in China’s favors as shown in the following chart.
- So it is clear that while China’s dependence on India has been slowing down over the years, India’s dependence has been on ascendance.
- While this burgeoning gap in trade has obviously caught the attention of policy makers in India, in the immediate term, no easy solutions appear to be there.
- One of the major reasons for this widening gap appears to be the divergence on the extent of checks and balances between the countries. While China has far and few hurdles on this front in view of monolith state power, India being a democracy policy making is a long drawn process involving many stake-holders.
- While a concerted measure towards improved Govt.–Industry co-ordination can help bridge the gap, it may take a while to see the result.
- However, at a macro–level, improving trade balance with China is only one factor in the larger scheme of things of attaining critical mass in economic domain by ramping up the GDP.
- Catchy themes like MAKE IN INDIA will need massive uplift of infra – Powergen, ports, highways etc. in which at present India lags China by order of magnitude, as reflected in the chart presented earlier.
- One of the sectors where India has significant advantage over China is reportedly Financial sector in view of far better transparency created by the slew of regulatory institutions- RBI, SEBI, IRDA etc. – most of which has adequate independence in enforcing rule of law.
- Still another area where significant stride have been made by India cos is bio-similars in pharma which appears to be growing at a much faster pace.
- However, these areas are not going to make any impact on the economy in the immediate run given the low base at which currently they are in.
- Here, it is also pertinent to mention that the wave of globalization swept thru 1980’s and continued till recent past – which helped China to become an export economy and thus steadily migrate to an ‘upper – middle income country’ status – is perhaps waning with call for protectionism rising like crescendo across both sides of Atlantic (themes like America First and trigger for Brexit etc.).
- At a global level, the current buzzword has been Artificial Intelligence(AI) where countries like China ( along with US and Russia amongst others) has been investing heavily since AI is already transforming not only the business but even the lives of people. AI is reportedly potent enough to displace many prevailing modes of doing business with its consequent implications on employment prospects and eventually the competiveness of nations. India is again far behind in this ‘game’ with minuscule investment reported so far.
- To summarize, if India needs to transform the current (almost) one sided relationship with China, it will need to take several radical ( or perhaps ‘disruptive’ !) measures across different timelines – short, medium and long term.
CEO, ERGONOMIX INTELLECTUAL CAPITAL ASSETS