By Subrata Majumder 

 

ENTHRALLED by the Presidency of G20, India heralds the new global leadership in geo-political and economic dynamism. A decade and half ago, it was the opposite. In 2014-15, India was the 10th largest economy. Now, it is 5th largest. Average annual growth in GDP was 6.5 per cent during 2014-15 to 2022-23. The growth trajectory ascertains India vying for 3rd largest economy by 2027, proclaimed by Prime Minister Narendra Modi. India will be the biggest pool of working population, after China sinks in ageing. Given the sustainable growth in the economy, a larger section of people in India crossed the poverty line. During 2011 to 2019, share of India’s extreme poverty halved, according to World Bank. Agriculture, the base for Indian economy, sparked to nearly 4 per cent annual average growth. Inflation (CPI) was contained between 5-6 per cent since 2014. Rural consumption spurred with the expansion of banking facilities to financially weaker and low income people. Currently 78 per cent of the population have gotten banking facilities. Before 2011, it was less than half of (above 15 years of age). Banking facilities enabled them for prudent saving. Export, which has never been the base for growth for India, spurred during COVID-19 pandemic. It peaked growth by 45.13 per cent in 2021-22 and continued to surge in 2022-23. This impart a new vitality to India in the global market and a challenge to ASEAN small nations. In contrast, Chinese economy was dragged into progressive decline in growth. It is feared to perch on deflation and enter ‘Lost World’ akin to Japan. Its GDP growth fell to 3 per cent in 2022 and is projected to fall further in 2023. It faces serious domestic challenges, including ageing population, a rural-urban divide and underdeveloped financial system, according to IMF. The deterioration in political relations with USA and West dashed China’s export. Till now, “hot politics, cool economics” worked as resilient to economic ties and accelerated as major trading partner. Low cost production led China the biggest workshop for USA, West and Japan.

 

But, the US-China face-off, Ukraine war and cohesion of China- Russia, resulted more barriers to Chinese exports with sanctions and security concerns. Added to these, wrong COVID-19 policy hamstrung Chinese growth and traumatised export based industries, by restricting investment. Ageing population emerges a grave concern for shortage of working population in China, letting cost of production rising and vulnerable for supply chain. Chinese working age population was 880 million in 2020 and is projected to shrink to 820 million in 2035. Economists are irked by the projection that its elderly people will surpass working population by 2080. Its fertility rate (birth per woman) declined from 2.6 in 1980’s to 1.15 in 2021. As of now, China faces multiple challenges and structural imbalances. Besides shortage in working population, slump in productivity, restrictions in transfer of technology due to sanctions, real estate bubble burst and elevated unemployment among young workers muted the Chinese growth. Even the leadership slips into sloth, shaking the aspiration for strong Chinese Government. Eventually, the households in China slip in uncertainty.

 

This let them spend less and stack more deposits in banks, which slumped the domestic demand, akin to Japan’s recession. Does Japan feel the pinch and dither on China dependency? Japan-China political relation has been on historic roller coaster ties. Notwithstanding, two nations have been thriving for economic growth depending on each other, following “hot politics, cool economics”. In 2022, China accounted for around 20 per cent of Japan’s total trade. Nearly one fifth of Japan’s imports comes from China, reflecting over-dependence for its manufacturing growth. The biggest product group imported from China is machinery. Nearly, 41 per cent imports from China was capital goods in 2019, according to WTIS. Most of these imports include components and parts, according to a report by Mr Kazunobu Hayakawa of JTERO-IDE. In other words, China was indispensable for supply chain to sustain strong manufacturing base in Japan. Following Abenomics legacy to dwarf “China risk”, Japan rewarded manufacturers for de-coupling from China and diversify to ASEAN and hometown in Japan. Eventually, there was a gradual shift to ASEAN, according to the study by Mr Kazunobu Hayakawa. In 2022, Japan’s total imports from ASEAN increased by 18.6 per cent (14.2 per cent in 2021), as compared to merely 2 per cent increase from China (13.6 per cent in 2021). De-coupling reflected reverse gear for Japanese investment in China. In 2022, it fell by 25.2 per cent, against increase by 10.9 per cent in 2021.

 

Even though ASEAN was pronounced better alternative to China, Japanese investors were averse to shift wholeheartedly. In 2022, Japanese investment fell in most of the major nations of ASEAN. It plunged in Singapore, Vietnam, Indonesia and Malaysia. No doubt, ASEAN has bounced back in the growth. But, it is yet to be resilient. According to OECD, its GDP grew by 5.6 per cent in 2022. But it is likely to decelerate to 4.6 per cent in 2023. Against these paradoxes, even though India witnessed fall in Japanese investment in 2022, but it was moderate (13.4 per cent). Given the strong economic parameters, India is ensured for a sustainable growth, unlike ASEAN. The annual average growth in India is expected to be 6.5 per cent. JBIC applauded India’s shining growth. It reiterated India the most promising destination for Japanese business consecutively for 2 years, viz 2021 and 2022, outsmarting China and USA in its annual survey. Against these backdrops, should Japan give a new look to India in G-20 summit? (IPA)