Analysts often liken China and India in terms of growth. But the two are growing differently. Are there lessons here?
There may be lessons for India from China’s strong economic performance. China has adopted fairly conservative fiscal policies. Although the growth is slowing, China has a lot of fire power to restimulate the economy. They’ve dealt with inflation substantially. Fiscal balances are healthy and of course there are massive foreign exchange reserves of over US$3 trillion. So China has a lot of policy flexibility whereas India is much more constrained in what government can do.
I think the big lesson for India in China really is the extent to which investment in infrastructure, to the extent that it will raise productivity, can substantially underpin long run rates of growth and give governments scope and capacity to run macro economic policies without seeing growth fall too low. China is well on course to double its GDP again this decade, however I’m not sure that India will be able to keep up that pace.
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