India Won't Be China in Commodities
By Shailendra Kakani
19 Dec 2006 at 10:54 AM EST
resourceinvestor.com
BOMBAY (ResourceInvestor.com) -- The recent article “India vs. China” by Jackie Steinitz makes great reading, but sadly, it is based on many wrong assumptions.
Coming straight to the subject matter about whether India will consume as much resources as China, let me make bold to say that there is no chance of that happening for the foreseeable future. India and China may be frequently mentioned in the same breath; both may have populations of more than a billion; both might have enjoyed fast growth in recent years; but their impact on the commodity markets will be remarkably different during the years and decades to come. Indian consumption won't be a patch on that of China.
India may become major consumer but only of the agricultural commodities. As of now India imports about 3 million tonnes of pulses and 5 million tonnes of edible oils from abroad, as well as some spices. India may also continue to be a regular importer of wheat, as its farm fields are unable to meet the growing requirements. These consumptions may continue to be there since the population needs them for sustenance, but so far as the consumption of copper, aluminium, zinc, nickel, steel and crude oil is concerned, there is little chance of India ever going on up on China.
This is not without reasons. China is consuming base metals and energy because it is producing DVD players, digital cameras, transistors, computers, furniture and a whole lot of white goods and consumables for the entire world. India is not doing that. In fact India is increasingly importing all these items from China. As of today a whole lot of locks, clocks, batteries, torches, watches, sunglasses, wallets, table ware and million other small items of daily use in India are imported from China. Street vendors in India often sell nothing apart from the cheap knick-knacks so lovingly imported from across the Himalayas. Since India is not the factory of the world, there is little chance of it upping its consumption dramatically.
Yet another reason why India can't become China in resource consumption is the fact that there are vast differences between the two economies, and both cannot be equated. While China boasts of a $2.2 trillion economy, India is struggling with its $775 billion GDP. Even if the growth rates seem to be similar in two countries, in absolute numbers China is adding many more billion dollars to its GDP every year compared to what India manages. More than anything, the grass-root economic condition of the two countries is vastly different.
To begin with the rural Indian economy is in a shambles. Of the 89.35 million farm households, according to a World Bank report, 43.42 million are in debt, with Andhra Pradesh farmers topping the indebtedness percentage at 82% to be followed by Tamil Nadu at 74.5%.
The rural indebtedness is so grotesque that there are villages where each and every inhabitant is having debts which he can't pay off; there are villages where the people have sought permission from the President of India to commit mass-scale suicide due to debts; and there are villages where marriages are being postponed and children are being pulled out of schools simply because the parents have no net worth left. As can be understood, these Indians are not going to be able to propel commodity consumption.
Forget the villagers, farmers, and down-and-outs, even the rich or so called middle class Indians are not really as consumerist as the world would believe them to be. Jackie Steinitz has rightly pointed out that only 35 million Indians pay the taxes, and here it must be mentioned that even these 35 million are not exactly rich in the sense of the Western definition. So many of them never take any holidays; so many of them never travel or own a car or replace their sofa sets once every year. Many live in simple houses; many eat frugal food; many wear simpler clothes. Millions upon millions of these middle classers have never set foot inside a deluxe restaurant, or taken a decent holiday or bought a T-shirt at Benetton.
The consumption of material goods is high only in the nouveau rich, those who have grown rich during last 10-15 years. These highly paid professionals have so far not known financial difficulties, and they don't know how to exercise restraint, thus making them consumerists in true sense, as the Western world knows. But this segment amounts to no more than a couple of million people, and they can't consume resources to match that of China.
It is true that India has made good progress in certain sectors, but that progress doesn't mean entire Indian story is as shining as it is made out to be. Simultaneously, the example of mobile phones is a wrong example of exploding demand, simply because mobile phone has been a cutting edge technology, and wherever it has been launched, it's demand has exploded. And yet the penetration of mobile phones in India is far, far lesser than in other countries. In the U.S. for example virtually everybody owns a phone, ditto in Europe; in China one out of two people own a mobile while in India only one out of 10 do.
Coming to the subject of the opportunities and colossal advantages that India enjoys, let it be said that while on the face India's demographic profile may look more favourable, but if you dig the surface, it doesn't look all that encouraging. Why? Because tens of millions of young children and adolescent boys/girls are malnourished. According to the latest report of Washington-based International Food Policy Institute (IFPRI) India ranks 3rd from bottom of the world on malnourished kids.
The report claims that on the Global Hunger Index, India ranks 117th for the prevalence of underweight children. Although India has an image of an emerging superpower, only Bangladesh and Nepal are worse-off. The proportion of children found underweight in India, according to the study, is 47.5%, which makes it worse than conflict-plagued, drought-stricken Sub-Saharan Africa, where the figure is some 30% on average. India's figure is also worse than that of individual Sub-Saharan countries.
With one-third of the babies born in India having low birth weight, compared to one-sixth in sub-Saharan Africa, it doesn't need an emphasis, their future is already doomed at the time of birth, leave alone them building the nation's future. It goes without saying, the proportion of China's working-age population to the rest may begin to deteriorate, but India certainly is not going to have any advantage on that front.
Having said that, I must add here that even the fit and fine youngsters are not necessarily going to add up to the Indian GDP. Why? Because of the lack of education. It is a well-known fact that more than 70 million children in India right now are serving as child labour. As can be understood, these unfortunate youngsters are not going to have any real chance coming their way to hone their skills or improve their education or raise their productivity/efficiency. Thus they can't provide there any real contribution to the GDP apart from doing menial jobs.
And last but not the least, those youngsters who are lucky enough to have the good health as well as the benefit of schooling, are also not just the champions of efficiency. The quality of education is so horrible that a whole lot of them are unemployable. Kiran Karnik, President of National Association of Software and Services Companies often talks of how out “of the total available pool of engineering professionals, barely 20% is employable.”
Echoing the sentiment, Jaggi Vasudev, a spiritual guru, recently said in an interview, “those who boast of India 's 25 million graduates are living in a fool's paradise. Look at their quality. You can't employ most of them, even for domestic help.”
Of course, India has to overcome other monumental challenges like AIDS (Acquired Immuno-Deficiency Syndrome). While protecting India's democracy is not at all a problem, overcoming AIDS problem seems an uphill task, for sure. As of right now, India has the largest number of AIDS patients in the world (India has that uncanny ability to be at the top in most avoidable lists). According to the latest surveys, India is home to about 5.7 million cases, and here I must add that these are government figures, certainly not the most reliable source. India has recently overtaken South Africa to claim the number one slot.
How AIDS can wreck havoc on Indian society and economy? In more ways than one. To begin with, the personal tragedy that AIDS wreaks could translate into lost output and slower growth at the level of the nation. A joint study by the National AIDS Control Organisation (Naco), United Nations Development Programme and the National Council for Applied Economic Research estimates that AIDS could lower India's real GDP growth rate by as much as 0.9 percentage point. The growth of per capita income would, in turn be depressed by 0.56%.
The prevalence of HIV infection, which can lead to AIDS, is estimated at 0.9% of the adult population (5.2 million at the end of 2005). The study estimates that the number could increase rapidly over the next one and a half decades, reaching 20-25 million as early as in 2010.
This would hurt growth in a variety of ways; not only it would reduce the supply of labour but also make the productivity suffer. Additionally, the “Savings of households and of the government would come down, as expenditure on treating HIV-AIDS mounts, both at individual and governmental levels.”
According to the report, “Household incomes are likely to come down most sharply for rural non-agricultural self employed, followed by rural agricultural labour, rural non-agricultural labour, rural agricultural self-employed and urban casual labour.”
All these sections are some of the poorest blocks of the Indian society, and are known as unskilled labour providers. One can only imagine the frightening scenario about what will happen to the rural Indian GDP growth if this ground force is down with AIDS epidemic.
The idea of India overtaking China has in fact even been rubbished by the comrades of the Red country. China has dismissed global forecasts that a democratic India will overtake the Communist giant on the economic front by 2020, saying those predictions lacked 'statistical evidence.'
According to a recent report in Press Trust of India, “There is a prevailing belief in the international community that India will overtake China by 2020. This statement lacks statistical evidence,” said Secretary-General of the China Council for the Promotion of International Trade (CCPIT), Wang Jinzhen.
Reacting to some global experts who likened China and India to the tortoise and the hare in Aesop's famous fable, Jinzhen said, “To use the analogy of the race between the tortoise and the hare for the competition between China and India is fantastic.”
“Only when the hare (China) naps does the tortoise (India) overtake the hare. China will never 'nap' in the process of its economic development,” he told People's Daily.
The conclusion: while India is certainly not on autopilot to greatness, sadly, it is flying only with incompetent pilots, thus the chances of a crash are extremely high. Translated in simple English: India won't consume commodities as voraciously as the Chinese.
See response by Jackie Steinitz.
©2006 Shailendra Kakani. All rights reserved.
Shailendra Kakani is the Research Head of Commodity Research Group, Bombay, India, and the Managing Editor of www.commodityresearch.in. He can be reached at editor@commodityresearch.in or at +91 98678 33034. |
