From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Policy changes and reforms needed for growth of India
There is no doubt that an economically prosperous India will be well placed to deal with China effectively. So, to achieve this prosperity India urgently needs to embark upon the path of reforms.
How much China has moved ahead
- In 1987, both countries’ nominal GDPs were almost equal.
- China’s economic opening-up has left India behind, contributing to a military imbalance.
- China’s economy was nearly five times larger than India’s in 2019.
- Not coincidentally, from rough parity in 1989, China’s military spending last year more than tripled India’s.
- Heightened vigilance along the LAC demands summoning scarce resources.
- If India cannot close the economic gap and build military muscle, Beijing may feel emboldened to probe the subcontinent’s land and maritime periphery.
Reforms: Key to progress
- In 1991, India enacted changes allowing markets to set commodity prices.
- But it did not similarly liberalise land, labour and capital.
- Now, the government has delivered mixed messages about a revitalised reform agenda.
- Some States have temporarily lifted labour restrictions.
- Some others intend to make land acquisition easier.
But a call for self-sufficiency could do harm
- India emphasis on self-reliance could inhibit growth and constrain investment in a more vigorous foreign and defence policy.
- Greater self-sufficiency is desired.
- Home-grown manufacturing of critical medicinal ingredients or digital safeguards on citizens’ personal data would reduce vulnerabilities.
- Imposing restriction to help the local defence industry would hamper acquisitions helping balance China.
Competition from other countries
- China is facing intense scrutiny for its role in the pandemic, geopolitical competition, trade wars, and economic coercion.
- Businesses are revisiting whether or not to diversify suddenly exposed international value chains.
- India’s competitors [like Bangladesh, Vietnam] are trying to attract the businesses shifting out form China.
- These countries are highlighting their regulatory predictability, stable tax policies, and fewer trade obstacles.
- While India remains outside the Regional Comprehensive Economic Partnership, competitors are wooing companies seeking lower trade barriers.
- Asian countries are pushing ahead: Vietnam just inked a trade deal with the European Union that threatens to eat into India’s exports.
- India needs increased exports and investments to provide more well-paying jobs, technology.
- Before committing to long-term, multi-billion investments, companies often want to test India’s market through international sales.
- Liberalisation remains the tried-and-true path to competitiveness.
- If India can unite its people and rapidly strengthen capabilities, it will likely discover that it can deal with China effectively.
Consider the question “Do you agree with the view that slowdown in the reforms in land, labour and capital after the reforms of 1991 restricted Indias economic progress? Give reasons in support of your argument.
The choices that India makes to recapture consistent, high growth will determine its future. Bold reforms offer the best option to manage Beijing and achieve greater independence on the world stage.