While most of the articles in the news from the last week are on global slow down of economies including India, many say there is a sliver lining, as far as Indian economy is considered.
Some facts before we proceed: India has lost only 3.7% of total loss of $12 Trillion as compared to 41% China’s 21% US’s and 14% Hong Kong’s. While most of us know the root of this crisis is China, looking this from another angle many say it is an opportunity for India to benefit from the China crisis.
How is India better than China?
- Cost of doing business in China is going up as compared to in India
- GDP growth trends for India shows an increment and a decrement for China.
- There is little room for China to absorb money from public investments, where as India can absorb trillions just through infra
- China’s working population is aging, where as India youth population is increasing
- Domestic products and services consumption % in India is much higher than compared to China. This acts as a cushion for India’s economy during global crisis.
- China’s debt has gone to alarming levels of 101% (from 2007-14) as compared to 5% of India’s. This gives India a better chance to take more debt for growth and development
Silver lining:
With the above scenarios foreign investors are looking up for India. They want to invest and produce in India. For years, India is fuelled by its domestic demand (except the IT sector), unlike where China sells its products abroad. India has good scope for attracting global investors during this time.
Factors favoring India:
Another key point to note here as compared to our counter parts – Brazil, Russia and South Africa, India has ample international reserves and is not highly dependent on foreign capital to fund imports.
India is also currently benefiting from lower oil prices, as 75% of its consumption is imported. Foreign exchange reserves are increased by 13% and inflation is halved from last year and commodity prices are declining. Current account deficit is narrowed to very large extent.
While there are negative areas like rupee depreciation that impacts FII inflow, Falling exports, high bank NPA’s (Non performing Asset: Once the borrower has failed to make interest 90 days the loan he took, it is considered to be a non-performing asset. This impacts banks because their major income is loan)
So what should India do?
Undertake the important structural reforms and ease the domestic bottlenecks.
Simultaneously US investors are looking at reforms in Patent laws, retro taxes etc. and India in total taxation etc.
- Patent laws:
- India has right to revoke a patent of any multinational company if it proves it’s only a minor modification of existing drug. Many multinational organizations claim that the new version though minor should be patented.
- India currently has law that can grant a ‘compulsory license’ to any drug organization to produce a third party patented drug in order to make it affordable to 1.2 billion populations. Many multi nationals are not encouraging this as they loose profits.
- Retro taxes: Amendment in the Income tax and made effective from a back date, especially for foreign transitions. This might be fatal for some multinational organizations that did not pay tax earlier as per the law that time, but will have to pay the tax now.
- Totalization agreement: Indian professional working in US, pay their Social security taxes but they will not be able to reap that benefit as many of them don’t work for 10 years or retire in US. India is working with US in getting these taxes directly paid to PF fund in India so that Indians get the benefit once they return India.
In conclusion:
In summary it is right time for India to make right reforms and get the benefit out of global slow that that helps India economically dominate the next two decades in the way China dominated the last two.
-Data analysed from ET, NDTV, The Wall Street Journal, the guardian, ictsd.org and change.org
THE CURIOUS CITIZEN 