Agriculture in India remains unreformed and unintegrated with the market; it also remains captive to the caprices of vested interests and monsoon rains, and contributes only 20 per cent to our GDP while employing 40% of our workforce, leading to low, subsistence-level wages. From 1978, i.e., the beginning of economic reforms under Deng Xiaoping till 2017, China had created 375 million jobs, and agriculture was the pivot for job creation. A paper by Xiaolu Wang of Australian National University points out that during this period, the Chinese rural economy was completely transformed.
Community production under the earlier People’s Communes had very low productivity. In 1977, the average foodgrains yield of only 2,600 kg/hectare was grossly inadequate to feed farmers after fulfilling state requisitions, and farmers remained poor and hungry.
Once mass production was replaced by household production and ownership through the Household Contract System and farmers were allowed to sell their produce directly in the market, something that the stalled Farm Laws in our country had sought to do, it significantly increased the output and eliminated food shortages in China. People’s Communes, whose functioning reminds us of our own agricultural mandis in essence, were abolished and reforms for modernisation of agriculture led to 16% real annual increase in farmers’ incomes between 1978 and 1984, during which period the agricultural value added grew at 6.8% annually, against the earlier rate of only 2 per cent (1952–77), which boosted the real GDP growth by 1.5 per cent.
As agricultural reforms raised labour productivity, with limited arable land, about half of China’s rural labourers became redundant; they were then engaged in non-agricultural production through the newly established Township and Village Enterprises (TVEs) that developed rapidly in rural areas. Urban reforms had not yet started and so TVEs became the drivers of growth and the “frontline force in market-oriented reform”. By 1992, TVE employment alone increased by 83 million. Basically the excess underpaid labour released from agriculture were the agents of China’s rapid growth, and this is an important lesson to learn.
With arable land of 160 million hectares, 25 per cent more than China’s 120 million hectares, India’s total agricultural output in 2019 was only $407 billion, as against China’s $1,367 billion, and China has done this by employing only 25 per cent of its labour force in agriculture as against India’s 41 per cent.
A paper by Ashok Gulati and Prerna Terway points that in 2019, every worker added $4200 of value in agriculture, calculated at 2010 prices, as against India’s $2000. China made agriculture the core of its market-oriented reforms, and ensured widespread distribution of gains to garner political support, something we did not even attempt to do before enacting the Farm Laws which, despite being potential game-changers, are hanging in political limbo.
Chinese growth has also been driven by one of the world’s highest investment rates, enabling an infrastructure revolution springing new cities, high-speed railway lines, massive airports and seaports, and creating probably the best physical infrastructure in the world in the quickest possible time. It has made the country the world’s factory for two decades, with an astounding capacity to ship its products quickly and efficiently across global supply-chains to trigger its growth miracle. The capital investment ratio in China increased from 35 per cent of GDP in 1980 to 44 per cent in 2021, while India’s capital investment ratio increased from 21 per cent to 28 per cent during this period, sliding from a peak of 42 per cent in 2007 to 30 per cent before the pandemic.
To increase the ratio to the level of China’s, India’s fiscal architecture needs to be redesigned so as to encourage both domestic savings and investment, by optimally balancing the interest rates for both. This requires reduction of individual and corporate tax rates as well as simplification of our five-slab GST structure, greater fiscal federalism, easy availability of capital and radical reformation in the factor market. Today India is amongst the most highly taxed countries, and its high factor costs and complex labour and land laws positively discourage investment.
Labour force participation rate is the proportion of working population people (15+) in an economy. In 2020, China’s labour force participation was 67 per cent as against India’s 46 per cent. But the catch is in female employment ratio which for China was 61 per cent against India’s 21 per cent; this gap entirely accounts for the difference in labour force participation rates between the two.
Here is another key, we must increase our female workforce participation if we want to increase our output and productivity in order to catch up with China, by designing suitable policies. In this context, I am reminded of what the Chief Justice of India has recently said, urging women to shout for a 50 per cent quota in everything.
One sector that has been crying for reforms is education, especially higher education, and here we have a lot to learn from China. We have nearly 1,000 universities, 40,000 colleges and 10,000 standalone institutions to train our 4 crore students, but our higher education landscape is littered with only a few islands of excellence amidst a vast ocean of dysfunctional institutions that only produce millions of unemployable graduates and postgraduates with little knowledge and skill. Going by the international Scopus database of published articles,
China scores way above India in almost every subject. It has three universities among the top 100 of the World, four in the next hundred and altogether 72 among the top 1,000. India has none among the first 200 and 36 among the top 1,000, half of China’s 72. This was because China realised early that to become a great power and a great nation, the most essential prerequisite is to have a good system of education. It started reforming the education system since 1995, giving its institutions complete curricular, operational and financial autonomy, partly through increasing fees, with practically no State interference or control in deciding curriculum, faculty recruitment and student admission. We have only now framed our New Education Policy which has transformational potential but has so far remained a non-starter.
Trade is another area. As per World Bank data, in 2019, China claimed 12 per cent share of global exports as against India’s 3 per cent. We need to claim a larger share of the global trade, but unless all the above determinants are fixed, our export performance will continue to stagger. WTO estimates China’s share of world trade to rise to 15 per cent in 2021 after its swift recovery from the pandemic. We presently run a huge trade deficit against China but more than that, the real concern is the relative volumes of our trades. In 2018-19, China accounted for 14 per cent of Indian imports and 5 per cent of Indian exports, while India accounted only for 3 per cent of Chinese exports and 0.9 per cent of Chinese imports.
Unlike the Chinese RMB, the Indian Rupee is nowhere visible as a global currency of exchange. China’s growth was primarily export-driven, fuelled by high investment flowing from high domestic savings and consequently high exports. Our arbitrary taxation policies, high factor costs and capital controls make our industry internationally uncompetitive. We also need to engage in more partnerships with countries and trade blocs to increase the visibility of our products. India has partnerships and FTAs with many countries and a few trade blocs like Asean and Safta, besides, preferential Trade Agreements like APTA, GSTP or MERCOSUR, etc., but none of these could become the driver of growth. The most important regional trade agreement it withdrew from, RCEP, was for fear of Chinese products swamping Indian markets and replacing Indian products.
It is one thing to talk about import-substitution, self-reliance, Atmanirbhar Bharat etc. and quite another to be able to manufacture products using the skills and expertise we are best at that can compete in the international market. For that, we must source the raw materials and capital from wherever we can get them the cheapest, because that is what basically drives international trade. Slapping higher tariffs or creating stiff non-tariff barriers are harmful.
A country produces what it is best at ~ with the highest quality at the cheapest price, and imports what it cannot produce so efficiently. This is what globalisation is all about. It leaves consumers everywhere better off. Protectionism hurts the very root of this logic and puts a premium on inefficiency and stagnation.
We also need to learn from China that rapid growth has its own pitfalls ~ degradation of environment, corruption, inequality and cronyism being only a few of its ill-effects. At the moment, China is focussing on its digital titans. Digital economy constituted 38 per cent of China’s GDP in 2020, which share is projected to grow further to 55 per cent by 2025. With the rise of digital economy, the power and influence of its tech giants have also increased immensely. Since digital economy is based on data,
China is weary of letting them grow further to become so powerful as to pose a threat to the State itself. Calling their growth “disorderly expansion of capital”, interpreted as “growth at the expense of the public interest”,
China has now cracked down hard on these companies. Beginning with the suspension of the Ant group’s IPO last November, the latest manifestation of this unprecedented clampdown is showing in its increasing regulatory control over them and curbing their activities which has already wiped out nearly two trillion dollars of the market values of Alibaba, Tencent, Didi, Meituan, Kanzhun, Pinduoduo, etc. It has curbed their powers in the name of creating “common prosperity” for all as against the prosperity of few.
(To Be Concluded)