Though India can’t have dictatorial decision-making of China due to its democratic political system, it can improve its performance through transformational change in its educational system, channelising small savings, and incentivising labour forces to transfer to emerging sectors
Both India and China are highly populous countries. They started their development process almost at the same time and both the states had very high initial poverty levels. But today, if we look at the development indicators of these two nations, we find a lot of difference between them. The development initiatives of China could be more relevant for India rather than policies undertaken by developed European and North American countries, as China is a latest success example of a large, over-populated, largely illiterate and economically backward Asian country, which achieved success in a very well-planned manner within a very short period of time. We must not forget that the European and North American countries achieved the same feat of development over a longer period, spanning centuries, involving colonisation and exploitation of other parts of the world. Their growth model cannot be emulated by us.
Comparative performance
China has shown better performance in almost all development indicators during the last 40 years. Chinese economy is growing at a rate of almost twice that of Indian GDP. Even the real income growth has grown around 6 per cent per annum in India, while the same for China was 11 per cent per annum during the last 30 years. In a similar way, capital stock in India has grown just five times during the last 30 years, while the same for China has grown 125 times in the same period.
The World Bank $2 per day criterion of head count ratio indicates the poverty level to have been 97.8 per cent in 1981 in China and it has gone down to the level of 36.3 per cent in 2005. The same poverty head count ratio in India had been 87.8 per cent in 1983, lower than China, and it has gone down to a level of mere 75.6 per cent of the population in 2005. The minimum $1 dollar PPP criterion shows that the population under severe poverty in 2013 was approximately 6 per cent in China, while the same figure for India was approximately 30 per cent, according to the Rangarajan Panel. During this period, Indian planners were busy in manipulating definition of poverty in order to reduce poverty statistics, while the Chinese were really focusing on employment and poverty reduction.
Political will
China’s economic progress can be attributed mainly to its political system as well as planned and foresighted economic policies. The political system in China is characterised by quick decision making. China’s ability to implement dictatorial decisions on certain issues, which can never have a democratic consensus, has been instrumental in forcing its people to work in the direction according to the need of the State rather than respecting the vox populi. Militarily China doesn’t have any threat from its neighbours and has political will to handle terrorism.
India, precisely because it is a democracy, and world’s largest democracy, fails in all these aspects. Due to its democratic system, which has its own virtues, India cannot take decisions as quick as the Chinese government can; India cannot force its labour to work in a particular sector the way China can; in a similar way terrorism cannot be handled in a swift manner due to appeasement and votebank policies and even the strict population control policies cannot be initiated. Democracy comes with a price tag, and we must be ready to pay that price without complaining, because Hinduism, the dominant cultural matrix of India, is inherently democratic, and India boasts of some of the most ancient republican heritage going back to the days of Mahajanapadas of antiquity. We do not need to learn from China’s brutally dictatorial ways. But, that does not mean that we can learn nothing from China. One core area is vocational training, where China can be our teacher, and this can be our first lesson from China.
Vocational training
China is reaping the benefits of vocational training in school that was introduced in the late 1980s. China provides vocational training after nine years of schooling and approximately 50 per cent of the eligible students are enrolled in such courses. While at the same time India starts its vocational training after the completion of 10th standard, and less than 0.1 per cent of eligible students are enrolled in such courses in separately established ITI schools.
Out of remaining 99.9 per cent of the population, less than 20 per cent study science, without any practical skill development and rest study humanities and commerce without any vocational training. The separation of vocational training from the general schools has resulted in making ITI institutions inferior, less sought after, and completely out of mainstream education, and ultimately out of sync with the aspirations of emerging job markets. lack of respect for such institutions in the society further aggravated the overall condition of these institutions.
labour force transfer
The forced labour power transfer in the warranted and crucial sector and areas of strategic importance is another advantage that the Chinese system possesses. Again, this forceful transfer is neither possible nor desirable in India. India surely cannot forcibly shift its labour forces from agriculture to industry or compel the workforce to attend certain training programmes, due to prevailing democratic rights which we consider to be an integral part of Indian ethos. But surely we can provide incentives in order to facilitate such labour transfers. This is the second lesson that we should learn from China.
Control over economic variables
China has strong control over its price mechanism. It has allowed the prices to increase faster/slower in the strategic sectors according to the need of the country. If we compare the figures of the last 40 years, we find that the growth in China has been more focused than India; for instance, the price of exports in China has increased 25-fold and the terms of trade of China has improved 2.7-fold during the last 40 years, whereas in these two price indicators the prices of exports in India have grown only 8.8-fold and terms of trade has improved by just 1.4-fold.
At the same time there are indicators of price indices which are good not to increase much, and China had been successful in controlling them. For instance, the price of consumption, price of Government expenditure, price of investment and price of imports should not increase at a very high rate as they adversely affect the consumption capacity of the poor, increase the cost of Government expenditure meant for developmental activities, slow down economic activities and growth contribution by private players and discourage import of technology, increase burden of foreign debt respectively.
In China, the price of consumption, price of Government expenditure, price of investment and price of imports have increased only by 4.7-fold, 2.8-fold, 4.4-fold and 4.7-fold respectively, while the same for India stand at 8-fold, 8.9-fold, 10- fold and 6.3-fold. The price indices have grown faster in India for all those sectors where they were not beneficial for the country and the price indices have grown slower in the sectors which precisely were supposed to have grown faster for the benefit of the country. This is the third lesson that we should imbibe from China.
High saving rate
China had been successful in raising its saving rate and utilising it for capital formation. Even the corporate and government saving rates have been very high in China. India can also increase its saving as well as capital formation rate through channelising small savings of the rural poor people. This will not only give security to the poor but also generate fund for the capital formation. This should be, we suggest, our fourth lesson from China.
The least that India can do: Focusing on the four lessons
Though India cannot have the strong political will or dictatorial decision making of China due to its democratic political system, it can improve its performance through some transformational change in its educational system, channelising small savings, incentivising labour forces to transfer from the existing sector to importantly emerging sectors, and by having larger control over the prices for the benefit of the country.
The structure of Indian economy is such that the biggest setback for the India’s economic growth comes from the fact that for most kinds of manufacturing work, workers do not have formal skill training and the labour generally learn it by carrying out work on the spot, in a trial and error method. This adversely affects manufacturing and repairing works. For instance, our masons, barbers, electricians, cleaners, sweepers, health workers, auto mechanics, etc, do not get any vocational training. They learn it while associating with others who are already in the field. This has endangered the lives of not only the labourers, but also that of the customers. The number of instances of building collapses, vehicle repairs, health hazards, etc, are very high in India due to lack of vocational training. And this is also one of the reasons for poor quality of Indian products and services.
India could at least introduce one or two papers of vocational education beginning from 8th standard. At each subsequent standard, an advance subject of vocational study can also be introduced. This will help a lot of students who drop out after 8th standard. This will help them to have some theoretical as well practical vocational knowledge. It will be beneficial to have one compulsory/optional subject for all students right from 8th standard, as a lot of students drop out in India after completion of upper primary education. And vocational education should not be taught in isolation as is being currently done in the ITIs of India.
An increase in the savings rate is essential to finance the domestic projects. Further, domestic savings provide stability to the economy in comparison to FDI and FII. This can be done through channelising small savings of the rural poor and of the urban poor, which otherwise are not kept in the banking system. Modi Government has tried to make some efforts to channelise small savings via Jan Dhan Yojana. But the scheme should reach the remotest villages and all sections of society.
Foreign investment of savings could also play an important role in generating employment in the economy by boosting growth. Modi Government is digging pitch for “Make in India”, but this can be possible only when we remove bureaucratic hurdles from the economy. Most economic decisions are taken by the IAS lobby in India, instead of experts or officers of IES. Foreign and domestic investors are more afraid of Indian bureaucracy and police rather than being afraid of India’s outlaws. This would be a big challenge for the Government to tackle the deep-rooted inertia of bureaucracy.
One even bigger challenge would be to transfer the labour force from existing sectors to the desired sectors for efficient utilisation of our labour power. This can be done by incentivising the labour force to shift. The incentives could be in the form of free training, better living conditions and job security.
India’s economy will get a tremendous boost if we can learn these four lessons from China.
(The writer teaches Economics at University of Delhi)