Yesterday, former Singapore’s Ambassador to the UN, Kishore Mahbubani, contributed an opinion piece to the Straits Times, offering solutions on how India can become stronger than China (‘Can India become stronger than China? Yes, it can‘, 18 Aug).
Indeed, he believes India can have an economy bigger than China’s, and even the biggest in the world.
Mahbubani opined that the average Indian can outperform the average citizen of other communities. He said, “It’s so easy to grasp the gap between India’s potential and its performance because you can see the potential of what an ethnic Indian can do in the most competitive human laboratory in the world, which is the United States of America. And when the Indians arrived in America, they thought they might be No. 5 or No. 6 in terms of per capita income. They ended up being No. 1.”
“Today, the average per capita income of the Indian residing in the US is US$55,298. If Indians in India can achieve the same per capita income, the total GNP of India would be around US$71 trillion, making it the largest economy in the world, larger than the US at US$21 trillion, or China at US$15 trillion,” he explained.
“If this figure is unimaginable, let’s imagine that the average Indian in India is half as smart as the average Indian in the US. Then India would still have a GNP of US$35 trillion, still larger than that of the US at US$21 trillion and China at US$15 trillion.”
That is, Mahbubani took the average per capita income (US$55,298) of Indians residing in the US and multiply that by the population of India to arrive at the potential total GNP of India of about US$71 trillion. But India’s GNP today is only US$2.6 trillion.
Mahbubani, of course, is also assuming that while India’s GNP improves, US and China’s economies are standing still.
To move forward, Mahbubani believes that India must open up its economy like what China did in 1980.
“Deng started to open up the Chinese economy in 1980. In 1980, the size of the Chinese economy was US$191 billion and that of the Indian economy was US$186 billion. Today, the size of the Chinese economy is US$15 trillion, over five times the size of the Indian economy at US$2.6 trillion,” Mahbubani noted.
“China opened its economy to global economic competition and allowed 1.4 billion Chinese to compete. Since the Chinese thrive in economic competition, the Chinese economy thrived and surged ahead.”
“By contrast, the 1.3 billion Indians have been deprived of economic competition. Since they have been deprived of economic competition, they cannot thrive. Hence, India’s economy has fallen behind,” he said.
Taking concrete steps
Mahbubani then advised India to take 3 concrete steps towards opening up its economy. For the first step, Mahbubani asked India to join back the Regional Comprehensive Economic Partnership (RCEP) immediately.
The RECP was actually signed by 15 Asia Pacific countries, including Singapore, in Nov last year. It provides progressively lower tariffs across many areas in the coming years. India was originally involved in the negotiations of the agreement but decided to pull out in Nov 2019.
Some of the industry people in India were concerned about Chinese products flooding the Indian market, thereby crippling India’s manufacturing base. Also, the other countries were not too keen to facilitate developments in the area of trade in services, which would include easier mobility for Indian professionals and service-providers to the rest of the countries.
Indeed, the “movement of workers” clause was a major contention between India and other member countries during the RECP talks. India wanted to get concessions in “exporting” its workers out of India to the other countries but could not. In return for eliminating or reducing tariffs on goods, India wanted the other RCEP member countries to work toward liberalization across all modes of services, including movement of professionals.
India is, of course, always keen that any free trade agreements should ensure easier “movement of professionals”, since it is a “leading services supplier” in the world with a large pool of “skilled workers”. In any case, with the “movement of professionals” stalled during negotiations plus concerns from its industry people, India pulled out of RECP altogether.
The second concrete step which Mahbubani proposed is for India to open up the South Asian region. “There is no reason why South Asia cannot be as open as South-east Asia,” Mahbubani said.
“In deciding how to open up the region, India doesn’t have to reinvent the wheel. All it does have to do is to pick up a copy of the Asean Free Trade Area agreement and share it with all its neighbours. After doing so, India should make a commitment to work with its neighbors.”
India’s neighbors would, of course, include Pakistan, a country which India has fought with. But Mahbubani thought that if Vietnam and China, both fought with one another in 1979, can now trade with one another normally, the same can happen to India and Pakistan.
The third concrete step India can take is to open the doors to foreign direct investment (FDI), Mahbubani said. “Given the growing tensions between the US and China, many American manufacturers are looking for a China-plus-one investment destination. Many want to invest in India for geopolitical reasons. However, as soon as they arrive in India and encounter Indian bureaucracy, they get discouraged,” he added.
“The best and easiest way to boost economic growth is to attract FDI,” Mahbubani contended. “In short, it will not take rocket science to make India’s economy the largest in the world. It will take only simple common sense.”