Raghav Bahl: 2050, An Economic Odyssey
Image: Amit Verma; Illustration: Malay Karmakar; Imaging: Sushil Mhatre
Raghav Bahl is the founder of Network18, a media conglomerate that owns CNBC-TV18, CNBC Awaaz, CNN-IBN, In.com, Moneycontrol and Forbes India. Bahl is one of the pioneers of television journalism in India and under his leadership CNBC-TV18 has become and remained the business channel of choice in India.
Bahl is an Economics graduate from St Stephens and did an MBA from University of Delhi. He worked first as a management consultant with AF Ferguson and later with American Express Bank before getting into media. Bahl also won the Sanskriti award for journalism in 1994.
Raghav Bahl’s book ‘Superpower?: The Amazing Race Between China’s Hare and India’s Tortoise’ is forthcoming from Penguin Allen Lane.
Napolean once said, “Let China sleep, for when China wakes up, she will shake the world.”
China has woken up. It is investing nearly half its GDP — that’s simply unprecedented. No other economy, at no other time in history, has invested capital on that scale. To call this “hyper”-investment is like comparing the Sun’s luminosity to a street-lamp. At the peak of its economic miracle, Japan was investing only 30 percent plus of its GDP — but China is doing 50 percent!
Over 200 years of economic experience tells us that hyper-debt-fuelled-investment creates a bubble and ends in a dreadful collapse. But China has consistently defied all such prophesies of doom. Frankly, it may not be too bizarre to believe that China could be scripting a new economic logic. Traditional theory says that investment should be “sustainable”, that is, it should be “matched” by rising consumption. But what if you pump so much capital into your economy — similar to putting extra fuel into a rocket — that you “escape” the gravitational pull of low thresholds? Especially if the bulk of your capital is spent on infrastructure (roads, railways, schools, irrigation canals, dams, hospitals, ports), as against factories which produce toys and televisions? This could be the Chinese masterstroke, the single discontinuity which could defeat 200 years of economic wisdom. Ultra-big manufacturing factories may create waste and over-capacity, but mammoth infrastructure could trigger higher productivity and the ability to create wealth. So it may be a fatal mistake to look at China’s investment spree in a single lump of factories-plus-infrastructure. Huge capital spending on life-enhancing social assets, like schools, research labs and hospitals, may actually empower people. By rapidly educating its workforce, by brilliantly executing immensely large projects, by importing expertise and dollars in a shrinking world, China could be creating a “shower of wealth and productivity” such that consumption eventually “trickles through” into the bubble.
But 200 years of political economy have also taught us that genuine enterprise and innovation takes place only when people are free, when individual genius soars unfettered. But China is challenging that axiom too — once again, it is using ambition and infallible execution to trump democracy. It believes that people will trade wealth for freedom — for nearly three decades, this belief has held good and gathered in strength. So will China drive the final nail into the coffin of history? The jury is out on this one.
Now look at India — that’s a classic textbook case. India’s structure is an uncanny prototype of a “promising” economy. Well above half its GDP — nearly 55 percent — is consumed by over a billion people, giving it the kind of organic strength that transformed the economies of the US, UK, Germany and Japan. Just its rural economy is made up of 800 million people spending over $425 billion. This, when agriculture’s share is declining, manufacturing is rising, and services are already more than half the GDP — again, a classically attractive mix. Like China, India saves nearly 40 percent of its GDP, but the bulk comes from households (as against China, where state-owned corporations with somewhat contrived accounting contribute more than households). India’s resource consumption has decreased for every incremental dollar of GDP since 1991 (as against China, which was using three times more resources per dollar of GDP than India). India’s economy is healthily private, with state-owned corporations accounting for less than a tenth of the output. At slightly over a trillion dollars, its stock market capitalisation is about equal to its GDP — another beautifully balanced economic attribute. Its foreign reserves are over a quarter of a trillion dollars — neither uncomfortably high, nor low. Its bank credit is roughly equal to half its GDP (as opposed to over 150 percent for China), while bad loans are at an astonishingly low 2-3 percent in a world devastated by toxic financial assets (recall that China’s bad debts are precariously estimated at between 30-50 percent, the large range itself betraying a huge risk of fuzzy estimates).