China has always been seen to be a safer and more lucrative investment market than India. This was demonstrated by the global economic meltdown of 2007-2008 which impacted India much more than China. Economists argue that trend was logical: China’s economy is five times bigger than India’s and accounts for a thriving middle class, which drives growing consumption, a key indicator for investors assessing market prospects.
India, meanwhile, has a GDP is only about 23% that of China’s ($2.8 trillion compared with $12.2 trillion), with 5% of Indians living in absolute poverty, compared to less than 1% in China.
2018 is believed by some to be India’s breakthrough year. Foreign investment has jumped by 64% with Walmart alone investing $16 billion into Indian e-commerce company Flipkart, and with US-based multinational conglomerate Berkshire Hathaway investing some $300 million more into Paytm.
India’s improving image in the eyes of investors has to do with the success of its economic policy. “The rapid growth of investment in India is the result of the policy of PM Narendra Modi, aimed attracting investment from abroad to fund an economic breakthrough in the New India 2022 strategy.
Modi’s reforms have been aimed at improving the effectiveness of governance. Before 2009, about half of Indians did not have identity documents, with one of the results being a tremendous amount of “Black Money” in the country. The ‘Aadhaar’ identification system was introduced in 2009 to address this problem, with Modi pushing it vigorously. By 2016, 95% of the Indians had an ID card.
Also in 2016, Delhi carried out a program of demonetization and thereby undercutting the massive shadow economy and organized crime and improving transactional transparency. The government’s efforts to provide the majority of the population with access to basic social and financial services have also added to India’s attractiveness for investors.
“India does have great potential and a more organic growth structure and economic fundamentals than China and can prove an attractive long-term destination for FDI, provided it emphasizes its infrastructural investment. Thus, FDI alone cannot be a determinant of their economic ecosystem. India’s growth will depend on cooperation with China, not rivalry.
China is already a significant investor in India, investing some $2 billion in 2017. Chinese online retail giant Alibaba has become one of Paytm’s biggest investors, with IT investment holding Tencent China investing in Indian social and technology company Hike, and Chinese travel services firm Ctrip investing in India’s MakeMyTrip.
Almost a decade ago, Chinese tech-based startups began to make up a major portion of China’s economic growth. Now, a similar situation is brewing in India, with Chinese cash and experience playing a major role.
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