Wednesday, September 9, 2009

How has China achieved this miracle? India’s dangerous economic paths!

Asks a veteran political affairs journalist and economist Prem Shankar Jha I had an opportunity to travel with him in air. He was very calm in using words to make sense. We had a good chat! In fact certain things I still remember not because it is memorable but the way he puts is an interesting that helps to ponder and think different.

He has a good piece in today’s ET where he writes quite convincingly. Some excerpts:

  • “The answer reveals both the short-term strengths and long-term weaknesses of its peculiar economic structure. China has been able to do this because the central government has only limited control over investment in the economy.
  • Much, if not the major part, of the investment is done by four tiers of local government: the provincial governments, prefectures, counties and urban municipalities/ townships. Not for the first time in the past thirty years, these have run away with the investment agenda.
  • What has made this possible is the central government’s directive to the banking system to provide funds liberally for the projects submitted to them by the local governments. According to the blueprint that the National Reform and Development Commission (NRDC) had prepared, two thirds of the investment had to be made by the local governments.
  • To maintain a degree of co-ordination they were asked to submit their projects to the NRDC, and to do it as soon as possible.
  • The provinces treated Beijing’s sense of urgency and their renewed freedom to borrow almost at will (that had been taken away, in theory at least, by banking reforms in 1997) to indulge in an orgy of wish fulfilment.
  • By the end of December, 18 provinces (out of 31) had already submitted projects worth 25 trillion yuan. The NRDC has winnowed the wish list but there is only so much it can do. As a result, the actual investment till March has been three times the 1.2 trillion yuan budgeted for till the end of 2009!

So we all know how the investment happens in India.

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