CAIXINMEDIA

From China, Big Doubts About India's Economic Prospects

A steel factory in Mandawa, western India
A steel factory in Mandawa, western India
Zheng Yu

BEIJING Since being sworn in as India's prime minister last year, Narendra Modi's ambitious reform agenda has made him one of Asia's most-talked about leaders. The economic program that Modi has put forward is changing the world's impression of India, confirmed by his just-completed three-day visit to China.

At last month's Hanover Fair, Modi inaugurated the Indian Pavilion accompanied by Chancellor Angela Merkel. Pointing at the "Make in India" logo on a symbolic majestic lion — instead of the traditional tame elephant — the prime minister declared that the time for international businesses to invest in his country is now.

The Indian economy is indeed coming back into force. After two gloomy years of growth below 5%, its recovery looks strong with all the main economic indicators beating expectations. Modi’s business-friendly measures are building investor confidence and foreign direct investment has begun to rise.

According to the Asian Development Bank's latest forecast, India's economic growth will be 7.8% for the fiscal year 2015, compared with 7.4% last year, with the economy expected to grow by 8.2% in 2016.

Meanwhile, across the border, China's main economic indicators, long considered a target for India to aim for, are showing worrying signs: sluggish export growth, industrial overcapacity, weak investment and rising debt level. In the short term, China's economic growth rate is bound to be overtaken by India.

The shifting of the economic pendulum between the two countries intrigues many. The visit this week to China by Modi provides much greater room for a Sino-Indian trade partnership.

Optimistic investors believe that India's rising growth rate can be sustained thanks to two long-term trends: its manufacturing potential and demographic dividend. But are these forecasts realistic?

The "Make in India" philosophy

Like all developing countries, industrialization has been India's central development goal. However, manufacturing has always been the Indian economy"s soft underbelly, contributing only in a limited way to growth and job creation — much less than the service sector. In his Independence Day speech last year, Modi called for the “Come, Make in India ” initiative. His aim is to raise manufacturing's share of the economy from the current 15% to 25% by 2022, creating 100 million new jobs in the process.

In appearance, "Make in India" is just a project for promoting manufacturing, but in fact it is a macro reform plan that includes vast infrastructure improvements, promoting investments, encouraging innovation, reducing governmental control, and building inter-city economic corridors. Although this plan sounds promising, whether or not it can be smoothly implemented is another question.

First in order to reach the Indian government's goal of raising manufacturing's share of the economy, the sector must maintain a booming annual growth rate of 14%. Over the past year, India's manufacturing grew at just 6.8% — well below forecasts.

Modi's ambitious plans indeed require more time. However, as early as 2004, India had already set up a National Manufacturing Competitiveness Council (NMCC) to map out the country's manufacturing strategy and set a goal of raising its share of GDP from 17% at that time to 30-35% in 2015. Alas, as of 2014, India's manufacturing share of GDP in effect has fallen two points to 15%.

India's greatest manufacturing potential is its abundant and cheap labor resources and technical capability. However this presumption is constrained by many conditions. Even though Modi has very solid public support and has a true vision for reform involving existing labor, land, and tax systems, he is nonetheless gambling in political terms. The bigger the reform plan, the deeper and more varied the opposition. If Modi fails to fulfill his reforms quickly, his aura will soon fade, and the drive of reform will fall short of being coherent.

In addition the plan's success relies on using foreign investment to improve India's infrastructure. But the reasons why many investors avoid India are precisely because of the country has failed to modernize. Without attracting enough investors from abroad, India's domestic capital and weak state financing structures can't possibly support such huge ambitions.

Demographic dividend

Still, India's optimists are right to point out the country's demographic advantage. Though China and India have by far the world's two biggest populations, their demographic structures are very different. China is aging, and its working-age population (15-64 year-old) is decreasing. Meanwhile India remains a young nation, with 65% of its population under the age of 35, and the prospect of the working-age population continuing to rise in the two decades to come.

But India's demographic advantage remains theoretical vis-à-vis the economy. Creating massive job opportunities are indispensable in transforming this advantage into realistic economic wealth. And if over the past two decades India's economic growth is only slightly lower than that of China, its performance in creating employment is disappointing. From 2004 to 2011, India had an average annual growth of 8.5%, yet its creation of bonafide new jobs was virtually non-existent.

Only 8% of its existing 500 million working-age population are formally employed. In other words, over four hundred million people are self-employed and typically engaged in low-technology activities. Of course, appropriate training could change this dynamic, but such a large majority of the labor force has very low educational levels, not to mention the lack of vocational training access and labor law protections. All of this creates a huge barrier for them to be engaged in proper employment.

India has some of the world's most complex and strict labor regulations. While they make dismissing regular workers very hard, they also set up numerous obstacles for hiring part-time or seasonal workers.

Second is India's economic structure. The country's economy is mainly composed of the service sector — around 60% of its GDP, while it contributes merely 25% to India's job market.

The textile industry makes up India's largest non-agricultural employment contribution. But among this labor intensive sector, 80% of them are made up of small family workshops of fewer than eight people. Meanwhile in China, most textile firms count at least 200 workers. India's small production scale is bound to restrain manufacturing development and job creation.

Finally, well-entrenched political factors are also a barrier to creating jobs in India. Although the government declares that job creation is a primary task, lawmakers have little personal interest in pursuing such policies, because 90% of India's parliament members come from areas with constituencies that have a majority of rural voters.

Meanwhile in China, after 30 years of rapid growth, the nation is facing industrial overcapacity and a disappearing demographic dividend. Its position as the "world's factory" has been weakened. India's difficulty in attracting investments for manufacturing risks limiting it to its role as the "world's office."

Interestingly the two Asian giants both chose Hanover in Germany to showcase their economic transformation plans and different development strategies. While India put forward its "Make in India" initiative, China demonstrated its ambitions to be a new world leader in the information-technology service industry.

In neither case, however, should short-term economic growth be the two countries' first concern. Modi stated that India's aim is to establish a "minimum government, maximum governance" approach. That is a goal that should also be central to China's economic reforms.

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Society

What It Means When The Jews Of Germany No Longer Feel Safe

A neo-Nazi has been buried in the former grave of a Jewish musicologist Max Friedlaender – not an oversight, but a deliberate provocation. This is just one more example of antisemitism on the rise in Germany, and society's inability to respond.

At a protest against antisemitism in Berlin

Eva Marie Kogel

-Essay-

BERLIN — If you want to check the state of your society, there's a simple test: as the U.S. High Commissioner for Germany, John Jay McCloy, said in 1949, the touchstone for a democracy is the well-being of Jews. This litmus test is still relevant today. And it seems Germany would not pass.


Incidents are piling up. Most recently, groups of neo-Nazis from across the country traveled to a church near Berlin for the funeral of a well-known far-right figure. He was buried in the former grave of Jewish musicologist Max Friedlaender, a gravesite chosen deliberately by the right-wing extremists.

The incident at the cemetery

They intentionally chose a Jewish grave as an act of provocation, trying to gain maximum publicity for this act of desecration. And the cemetery authorities at the graveyard in Stahnsdorf fell for it. The church issued an immediate apology, calling it a "terrible mistake" and saying they "must immediately see whether and what we can undo."

There are so many incidents that get little to no media attention.

It's unfathomable that this burial was allowed to take place at all, but now the cemetery authorities need to make a decision quickly about how to put things right. Otherwise, the grave may well become a pilgrimage site for Holocaust deniers and antisemites.

The incident has garnered attention in the international press and it will live long in the memory. Like the case of singer-songwriter Gil Ofarim, who recently claimed he was subjected to antisemitic abuse at a hotel in Leipzig. Details of the crime are still being investigated. But there are so many other incidents that get little to no media attention.

Photo of the grave of Jewish musicologist Max Friedlaender

The grave of Jewish musicologist Max Friedlaender

Jens Kalaene/dpa/ZUMA

Crimes against Jews are rising

Across all parts of society, antisemitism is on the rise. Until a few years ago, Jewish life was seen as an accepted part of German society. Since the attack on the synagogue in Halle in 2019, the picture has changed: it was a bitter reminder that right-wing terror against Jewish people has a long, unbroken history in Germany.

Stories have abounded about the coronavirus crisis being a Jewish conspiracy; meanwhile, Muslim antisemitism is becoming louder and more forceful. The anti-Israel boycott movement BDS rears its head in every debate on antisemitism, just as left-wing or post-colonial thinking are part of every discussion.

Jewish life needs to be allowed to step out of the shadows.

Since 2015, the number of antisemitic crimes recorded has risen by about a third, to 2,350. But victims only report around 20% of cases. Some choose not to because they've had bad experiences with the police, others because they're afraid of the perpetrators, and still others because they just want to put it behind them. Victims clearly hold out little hope of useful reaction from the state – so crimes go unreported.

And the reality of Jewish life in Germany is a dark one. Sociologists say that Jewish children are living out their "identity under siege." What impact does it have on them when they can only go to nursery under police protection? Or when they hear Holocaust jokes at school?

Germany needs to take its antisemitism seriously

This shows that the country of commemorative services and "stumbling blocks" placed in sidewalks as a memorial to victims of the Nazis has lost its moral compass. To make it point true north again, antisemitism needs to be documented from the perspective of those affected, making it visible to the non-Jewish population. And Jewish life needs to be allowed to step out of the shadows.

That is the first thing. The second is that we need to talk about specifically German forms of antisemitism. For example, the fact that in no other EU country are Jewish people so often confronted about the Israeli government's policies (according to a survey, 41% of German Jews have experienced this, while the EU average is 28%). Projecting the old antisemitism onto the state of Israel offers people a more comfortable target for their arguments.

Our society needs to have more conversations about antisemitism. The test of German democracy, as McCloy called it, starts with taking these concerns seriously and talking about them. We need to have these conversations because it affects all of us. It's about saving our democracy. Before it's too late.

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