The Indian version of Chinese food is slowly gaining popularity in America. Sidney Chang, an Indian of Chinese origin who was born in Kolkata, has a restaurant called Hot Wok in Atlanta that serves the sort of spicy fried rice that Indians have grown up with. He plans to open branches in other cities in the US, according to a Rediff.com report. We have had a hundred years to add our spice to Chinese food. It’s a matter of time before the Chinese start doing their thing to Indian food, as more Mughlai joints open their doors in Shanghai and Beijing. A noodle biryani, perhaps?
This culinary convergence is surely some years away. But the twain — Indian and Chinese — may meet earlier in more humdrum areas such as economic strategy. India has depended heavily on consumption to drive its economy in recent years. The contribution of consumer spending to economic growth was as high as 90 per cent in 1998, the year investment collapsed as a result of the global slowdown, and the government pumped cash into the economy by hiking the salaries of its employees. On an average, consumption has accounted for 54.5 per cent of economic growth in India in the first four years of this decade.
China, on the other hand, has been an investment story. Money has been relentlessly poured into huge industrial and infrastructure projects. Investment has accounted for about 60 per cent of Chinese growth in recent years. It’s no surprise, given that the investment rate there often tops 45 per cent of GDP. Consumption has been a relatively weak contributor to economic growth in China. The world’s two most important emerging economies have followed dramatically different paths.
Will these paths eventually take a few twists and turns, and then meet? It seems likely.
India’s investment rate has started climbing, in line with the rise in the savings rate and the end of overcapacity in many industries. In 2004-05, the economy became more investment-oriented than consumption-oriented. Consumption accounted for 46 per cent of economic growth in that year; investment accounted for 51.9 per cent. In other words, spending on new roads and factories added more to India’s GDP than spending on food and new cars did. This is only the second time that the balance has thus tilted in the past decade, the other instance being 2002-03.
And what about the Chinese? There are few signs that dependence on investment has reduced significantly. But, there are clear signals that a change of course is being contemplated, with domestic consumption being given more importance than before. There are two reasons for this. First, too great a dependence on exports exposes an economy severely to the health of consumer spending in the rich countries. Many economists have been arguing that China and the rest of East Asia need to rebalance their economy by boosting domestic consumption.
Second, China’s huge current account surpluses and the seemingly unstoppable rise in its foreign exchange reserves are not merely a result of an artificially undervalued currency. A more fundamental factor is that the average Chinese saves too much. The savings rate in China is 46 per cent of GDP. Despite the investment boom there, the economy cannot absorb all the savings generated. So, China ends up exporting capital to the US, thus feeding its gaping current account deficit.
Economists and policy makers have been fretting about the huge US current account deficit. It is widely assumed that the way to sort out the problem of “global imbalances” involves American consumers spending less and saving more, and Chinese consumers spending more and saving less. Fewer savings in China will help bring down investments as well.
So, that’s how it looks: investments are climbing in India and there are preliminary attempts to increase consumption in China. It is to be seen whether the two Asian giants eventually see their economic strategies converging.
article in Bussinessworld by Niranjan Rajadhyaksha
