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Information, knowledge, technology are the areas that promise the greatest amount of growth, says Lodewijks
John Lodewijks, dean (undergraduate programme) and professor of economics at S.P. Jain School of Global Management, is convinced that this year, for the first time, India’s gross domestic product growth rate is going to be higher than China’s.
However, Lodewijks suggests that India has a lot to learn from China. He believes it is high time India, which has remained an underachieving economy for long, provides the growth locomotive and cautions that the rest of the world is not going to wait for India to catch up. Lodewijks has spent 22 years as an academic economist at the University of South Wales, Australia, including as the head of the department of economics. Economic growth, macroeconomic policy, history and methodology of economics are his areas of interest. Mint caught up with Lodewijks during his first visit to India in this exclusive interview. Edited excerpts:
What are the lessons that India can draw from China since the latter is overhauling its economy?
Obviously, one thing that China did is that it allowed increasing amounts of economy to be directed by the private sector. It reduced a lot of government control, bureaucracy, administration, red tape, and provided the private sector a greater role for individual initiatives and the profit motive. And the Chinese took that up very quickly and working with overseas Chinese groups, they were able to export very aggressively. India, as we know, is quite a bureaucratic place with a strong government role. That’s one thing you can get from China.
The second learning you get from China is the huge surplus of rural labour. An unlimited supply of workers were available for their manufacturing sector at very low wages. So, that is another thing India can draw from China because India still has a significant rural and low-income population. But then you got to find industries, where you can produce products and hopefully export some of those products. The other thing that the Chinese did, of course, was to control their exchange rates. They always kept very competitive exchange rates that encouraged their exports. And whatever the US might say and however much they complain, they (China) ignore the US. The government stepped in to assist Chinese firms. If Chinese firms needed support for marketing, or technology or finding markets overseas, the government was there to support them, but it was performance-based.
Can India emulate China in manufacturing?
It’s not so easy to change the structure of your growth, particularly for such a huge country like India. The government can provide incentives, certain tax concessions to try to move in certain directions, but it’s a huge economy. It is very hard to steer. It’s going to take a long time. There is a lot of IT outsourcing in India, but India has to compete with many other countries as a source for outsourcing. You can get a lot of IT outsourcing done in Eastern Europe. So it’s a competitive game.
Can India be the next locomotive of growth in the context of China’s growth slowing?
The locomotive has to be found somewhere. And it is about time that India provided that locomotive because it has been an underachieving and underperforming economy for a long time through a whole range of reasons. So we hope and pray that India’s growth is high and continuing, but we can’t say anything with certainty. You have to use the advantages the country possesses. India has a huge domestic market, so it doesn’t have to follow the route of being an exporter like Singapore or Hong Kong did. Even China, who is a major exporter, is now trying to restructure its economy away from exports, away from investment toward more domestic spending.
For India, a new government is here with reforms around ease of doing business and increasing private sector participation. Can India compete on the global map?
I see no reason why not. India has such skilled workers, such highly educated workers. The Koreans are doing it; many other Asian countries are doing it. There is no reason why India cannot be doing this. But let me just get on to another issue now, you had the Asian financial crisis, you had the global financial crisis and that affected countries that were open to foreign capital flows. Financial markets were integrated together.
Even the country with the most sophisticated financial markets that used to go around the world lecturing other countries that they should improve their financial market regulation—is America. But that’s where the global financial crisis started. Now the countries that avoided the crisis were the ones that hadn’t deregulated their financial markets extensively and hadn’t opened up their economy to volatile flows of capitals, hedge funds, speculation of exchange rates or real estate.
China had very tight controls on this, and I think India has always had controls on this. China is now being encouraged by the International Monetary Fund to open up its financial market. We have already seen what can happen in China when they started encouraging Chinese families to invest in the share market, to put their money in private sector institutions, you had an explosion in share market prices. It was clearly a bubble because the prices did not reflect the underlying value of the asset.
But the problem with bubbles is even as you know it’s a bubble, you can’t stand on the sidelines, it’s addictive. You think that you are smart enough to get out before it crashes, because if you can get in at a low price and out at a high price, you’ve made a lot of money. And unfortunately, it did crash by 30% drop in value, couple of trillion dollars were wiped off the share market value in China. That just shows what could happen domestically, if there isn’t proper regulation and control of the financial sector.
Do you think Indian companies are internationally competitive?
There are ways to rig the game in your favour. You need a supportive government that backs you, supports you. The Chinese did this. You’ve got to look at strategic ways that the Indian government can help its firms become globally competitive.
What are the leadership qualities India should pick up from the rest of the world?
In today’s market, it’s all about information, knowledge, technology—these are the areas that promise the greatest amount of growth and greatest amount of value-added growth. It’s no use providing growth if it provides lousy, insecure employment and very low wages. You want to find activities that provide productive jobs and high wages. And that’s in technology and it’s in creating the industries, it’s in creating entrepreneurial work. So, it involves a huge investment in education. There’s no reason why the Indians cannot do this.
How should India change or improve its educational practices?
I think that’s a really important issue because Chinese are now graduating more university graduates than Americans are. China is investing a lot of resources in improving the quality of their education and now in a modern world, where you have these global companies, it is a very competitive search for global talents. And increasingly, these Chinese graduates will be out in the market, coming from better quality universities and they will be competing directly with the Indian graduates. It’s going to be a more competitive global labour market. If that’s the case, you’ve (India) got to see where you can get an edge, be different, make your graduates appear and be in a better position. India has a record of a wonderful education system, the Indian Institutes of Technology that you have here in India are outstanding.
You mean we should move away from spoon-feeding in education?
The Japanese sent all their best people overseas to study, absorbing their overseas technology and bring it back to Japan, and then developing that technology. Similarly, Indian students need to go overseas, but also Indian education needs to change certainly away from spoon-feeding and memorization. Education’s got to change because it can’t be testing your memory, because memory is not so important any more with the Internet. Education has to be different now; it has to provide skills of practical application, and knowing where to find the information and not knowing all the information yourself, so you are better equipped to follow different career paths and not be in the same career path for the rest of your career.
The economic studies suggest that the best return on investment in education is at the primary school level, when kids are very young. When children are very young, their brains are developing very fast, that sets the pattern for their latter life. At the high schools, there needs to be changes in the way that education is provided in terms of getting away from memorization. We need to encourage Indian students to study abroad in exchange programmes.