Deflation Stricken China Sinks In ‘Lost Decade’ Of  Japanification: Paves Way For India To Become 3rd  Biggest Economy – Analysis


Consumer demand in China plunged into deflation, reflecting an onslaught on consumer prices. Its consumer price index fell by 0.3 percent in July 2023, year-on-year basis, demonstrating the failure of Xi Jinping’s new policy to fix the economy, which was dented by zero-COVID policy and domestic oriented demand.

Global analysts asserted that the Chinese recession is akin to Japanese style stagnation, which deepened in the “Lost decade” – 1991-2000. A new term churned out for the Chinese recession, renaming it  “Japanification,” equated to a Japanese-style asset price bubble burst, low demand and a downsizing of the population, threatening an aging society similar in the line of Japan. According to latest estimates by the Chinese Government, more than 30 percent of the population in China could be over 60 years by around 2035. Global Times, a Chinese media outlet, acknowledged that there were certain similarities between Japan of 1980 and 1990’s and China today ,

Expectation for growth in the Chinese economy declined significantly. It faltered twice in its target of growth. In 2021, the target was 5.5 percent. But it fell to 3 percent. In 2022, the target was set at around 5 percent. It was lower than 3 percent.  

By contrast, India pitched for a strong macro economic stability in the post COVID. It poses a big challenge to Chinese hegemony in the growth. Trajectory of growth ensures India to be the 3rd biggest economy in the current decade. 

According to a State Bank of India research report, India is forecasted to be the 3rd biggest economy by 2030. It will surpass Germany and Japan. Currently, India is the 5th largest economy, according to Forbes. Global S&P was upbeat to project India’s annual growth by over 6 percent annually till 2030. Morgan Stanley, in its last November report, projected India to be 3rd biggest economy by 2027. 

Demographic and digital dividends are the key factors, attributed to India shining in growth amidst the slower growth in the world. It is supported by a nearly 900 million working age population, with 759 million “active internet users” and 650 million smartphone users in 2022, the second biggest after China. India ranked 3rd in the world for start-ups and Unicorn.   

In 2022-23, India’s GDP soared by 7.2 percent – one of the fastest growing economies – in the world.  Inflation hovered in the comfortable zone at 6.7 percent and robust growth was achieved in capital expenditure by 39 percent, reflecting  a strong platform for investment. Exports boomed by nearly 7 percent in 2022-23. It was over a strong base of 45 percent growth in 2021-22, reflecting a combined impact of nearly 50 percent growth in exports during the past two years. 

India’s reinvigorated Make in India – the flagship of Indian manufacturing policy – had lost steam. Manufacturing made a stupendous growth, after deceleration consecutively for 2 years in post COVID period. It surged by 11.8 percent in 2021-22, in contrast to fall by 9.6 percent and 1.4 percent in 2020-21 and 2019-20, respectively. 

A series of policy measures were introduced to reboot the growth. It introduced “Atmanirbhar Package (self -reliant )“ , which included  a PLI scheme (Productivity Linked Incentive), investment opportunities under National Infrastructure Pipeline (NIP) , Indian Industrial Land Bank ( IILB), National Single Window system and others 

The PLI Scheme has been a big success for attracting FDI in the country.  While the world FDI inflow registered a downtrend, India pinned a marked growth. In 2022, Global FDI inflow declined by 12.5 percent, in contrast to spurring growth in India, by 10.3 percent.

With the outbreak of COVID 19, supply chain disruption jolted global growth and eventually  FDI inflow. Ironically, global supply chain disruption turned into a boon to India instead. It gave a new lease of life to “Make in India”, which was losing stream.

Arguments were made and doubts were raised against India’s potential for the ambitious vision for a new hub for global supply chain. According to Hu Shisheng, Director, South Asia Institute, China – Institute for Contemporary Industrial Relation, expressed concerns  on India emerging as substitute for the China supply chain. There are three major challenges of Modi government policy, according to him. First, introduction of PLI scheme (Production Linked Incentive), second, the global search for China alternatives and third, enhancing free trade agreement routes to topple the burgeoning imports from China “. The decision of Apple of USA, decoupling from China and shifting to India, is a case in point .

Vietnam has  emerged a potential challenge to India in supply chain. As a result, it became a big bet for the foreign investors. But, what goes in favour of India is its big domestic demand, in contrast to Vietnam , engulfed by low domestic demand. FDI flow in India was three times more than Vietnam in 2022.

The recent visit of Indian Prime Minister to USA made a major turnaround in the inter-dependency of the two nations. Global viewers hyped India, saying the “USA needs India more than India needs” the US. The USA has been the biggest foreign investor in India.  

The US tilt to India for the supply chain was reflected, with the USA acknowledging India’s leadership in Indo-Pacific region. In 2nd IPEF (Indo-Pacific Economic Framework) for Prosperity Ministerial Meeting at Detroit in May 2023, an agreement was signed for supply chain resilience. It  provides several benefits to India, including a potential shift of production centres, from the 14 member nations. 

In summing up, there are various factors that accolade India’s potential to be the 3rd biggest economy by 2030.   

Subrata Majumder

Subrata Majumder is a former adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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