Just how connected the world is became clear last September with the financial collapse and the economic downturn in the former G-7 countries triggering a similar winding down in the developing economies. Governments around the world also fashioned similar stimulus plans to help their respective economies. One sure sign that those efforts have started paying off is the gradual reversal of the fall in exports from emerging market economies. The latest data for merchandise g oods from China and India, the fastest growing centres in the current period, show an uncanny resemblance at the pace with which exports in both countries are covering lost ground; in India exports fell 11.4 per cent in October, while Chinese exports fell 13 per cent; in both countries that fall was significantly less than the dip a month before. In both countries that trend presages a stronger general economic revival. Current estimates pitch China in the lead with GDP growth estimated at 8-9 per cent to India’s 6-7 per cent by next year; but India has one critical advantage that can turn the odds in its favour.
As in almost all south-east Asian economies, China’s leaping GDP growth has depended substantially on exports. So far, demand in the developed countries, most notably the US and some EU member-countries, has picked up just enough to allow emerging economy exports to halt their six-month slide. But that rise in demand was made possible only by government stimulus spending that has left more money with consumers through tax reductions. It is not that more people have jobs or that output has increased in the EU or, most critically, in the US. If employment is an indicator of effective demand, then America is still in a bit of a spot with its unemployment rate rising to 10 per cent in October— the highest in 26 years. In effect, the recovery process at this point is a ‘jobless,’ stimulus-driven revival that leaves some extra purchasing power with consumers; it has not yet generated investments and employment that alone can sustain, among other things, China’s export-led growth or India’s own exports.
India’s unique advantage lies in its domestic demand; most parts of the economy do not depend on US job-led growth to push up the country’s GDP; exports account for just 15 per cent of the GDP with the bulk coming from private consumption and domestic investments, that happily can influence our export competitiveness more effectively and permanently than tax concessions. Both components lie at the heart of India’s recovery; both are dispirited and in need of adrenalin.
Source : Business Line