Akshay Mathur Photo: Song Shengxia/GT

Editor's Note:

In its latest Asian Development Outlook, the Asian Development Bank forecast that India's GDP would grow by 7.8 percent in the 2015-16 fiscal year, overtaking that of China. What will be the result of the "dragon and elephant rivalry" between China and India? Akshay Mathur (M), director of research at Gateway House, a policy think tank based in Mumbai, India talked to Global Times reporter Song Shengxia (GT) recently in an interview in Beijing to share his views on a broad range of issues regarding the bilateral economic relationship and economic planning.

GT: How do you view what the Western world terms "the dragon and elephant rivalry" between China and India? Some economists believe India will eventually replace China as the engine of the global economy. What's your comment on this?

M: Yes it is true that India's growth has probably already exceeded that of China. It is probably true that India will become the fastest-growing country in the world.

The problem with India and China is that both countries need to reframe their economic development.

There are three reasons for that. First, both countries still have a lot of developing countries' challenges and issues.

So no matter whether the growth rate is 8 percent or 10 percent, or whether the total GDP is $2 trillion, $9 trillion or $8 trillion, we have some social and economic challenges because we have a large population.

Second, the idea that India and China are competitors is justified because there is a history. But the future is different. Both President Xi Jinping and Prime Minister Narendra Modi are eager to give new energy to the bilateral relationship. Modi has the authority to make changes and there is a lot of hope in India.

Third, there are problems in the world that China cannot solve alone. Issues like terrorism, climate change, clean energy and water are problems that China and India have to solve together. We have joint responsibility to work together.

GT: India is an important country along the "One Belt, One Road" route. What impact will the initiative have on India? What challenges will China face in implementing the "One Belt, One Road" initiative abroad?  

M: Right now it only touches part of India. It is a China-initiated plan. But there is an opportunity for India to co-design the "One Belt, One Road" plan. So far it focuses on infrastructure projects.

But India has expertise in services, markets and entrepreneurship. India and China can collaborate to build the markets and services-based industries along the transnational corridor. So partnership is required to make sure the benefits of the "One Belt, One Road" plan can be enjoyed by both countries and all the countries that participate in the plan.

The greatest challenge facing the initiative is that it envisages a transnational corridor that requires a lot of capital investment. China has to make sure it gets returns on its investment.

It there are not sufficient returns, or if its partners along the route are not happy, it will have a negative impact on the initiative.  

   
GT: India is implementing its 12th five-year plan, scheduled to end in 2017. Early this year, Prime Minister Modi scrapped the planning commission. Does that mean India will gradually move away from economic planning?   

M: Abolishing the planning commission does not mean we are abolishing planning. Prime Minister Modi likes planning and wants to make sure there is a roadmap and everything is executed step by step.

The planning commission may be no more, but India has created an institute to try new policy ideas, new forms of governance and new forms of reaching out to the poor. It is still new and we are waiting to see what will happen. The institute is supposed to implement policy ideas, and if that takes shape, it will be very powerful.

The five-year plan used to have details such as how much energy India needs, and how many schools and teachers we need. In terms of budgeting and planning, the plan now will not involve details about how each state should grow. Every state will be allowed to develop its own growth strategies.    

GT: Research shows that India is not using its demographic dividend efficiently. The working age population is rising, but many people are employed in unorganized sectors, which means they have no access to social security. How should India address this challenge?   

M: Estimates indicate that 50 percent of India's economy is informal, so a lot of the labor force is employed in unorganized sectors. That means they don't have access to bank accounts. But there are a few things that are changing. Banks have made a lot of efforts to reach out to people in remote areas. New technologies have allowed us to do things that were not possible in the past and make sure we can reach people in the unorganized sectors.

A lack of skills and training continues to be a challenge for India and new experiments have been made, but it is not easy.

There are tens of millions of people coming to the workplace every month in India and not all of them are engineers. They have to learn to make themselves relevant.

GT: China's economy has slowed down, with GDP growing only 7 percent in the first half of the year. Are you worried about China's economy?

M: Like India, China has to redefine economic wellbeing. We cannot put too emphasis on crude numbers. Moving from 9 percent to 7 percent is slowing down, yes.

But as the Chinese government has recognized, it is not just speed of growth that matters, but also quality and who is benefiting from the growth. China should not focus on numbers so much.

Quality of growth is about whether it is for the long-term wellbeing of the people and whether it will benefit the masses, rather than just a small segment of the population. 

GT: China's stock market has been volatile in the last few months. Will that pose systemic risks to China's economy? Should the Chinese government have intervened?

M: It is a test for the Chinese government. If you want to move toward a market-based economy, you have to trust the market to be a better judge about what is happening in the market. Some control may be required initially. But the market must be allowed to operate freely.

GT: How likely is it that the IMF will include the yuan in the SDR currency basket? 

M: The yuan is definitely growing in usage, but still only a small proportion of international financial transactions use yuan. In my own view, it is not a must for the yuan to be included in the SDR basket. It will add some credibility for the currency but will not necessarily benefit the economy.