India’s challenge to China in the growth stakes – Weekly editorial
January 18th, 2010Author: Peter Drysdale
The global financial crisis has seen China’s star shining ever more brightly in the international economic firmament. But with heightened concerns about inflation and moves to rein in the loose monetary policy which, together with a massive fiscal stimulus, had seen growth in China surge through 2009, will all that change?
As Yiping Huang cautioned last week, worries about the housing market and signs of an asset bubble were likely to encourage the Chinese monetary authorities to go into reverse, having recently removed preferential treatment for housing investment. India is the other emerging economy that has sailed fairly smoothly through the global financial crisis, with a 7.9 per cent growth rate in the third quarter of 2009.
The latest Asian Development Bank Report notes that India has emerged from the crisis relatively unscathed and quickly re-gained growth momentum, thanks to its own fiscal stimulus package, past reforms, the banking system’s limited exposure to the troubled part of the international financial system and strong domestic consumption.
India is doing extremely well but so far China has done better. There is a healthy obsession with why this is so among Indian analysts. In two essays on India this week, Raghbendra Jha reckons India’s monetary policy has been too restrictive. Nervousness about inflation, he argues, is misplaced — a product of the ill-conceived mismanagement of food prices, not general supply side bottlenecks across the economy. Rajiv Kumar sees other problems in manufacturing, with failure to implement investment reforms and capture the benefits from a wider range of foreign investor interest. The comparisons between Asia’s two well-performing giants can only intensify over the coming years.
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