Covid-19 economic effects, China's rise, foreign policy and Indian Economy.

Covid-19 economic effects, China's rise, foreign policy and Indian Economy.

Introduction

I have been writing about my travel experiences all these days. But this one is different and my usual travel stories are not possible now due to covid-19. This post is about economics, diplomacy and covid 19. A different kind of a post. I will be discussing 4 topics in this post. They are economic effects of Covid on the world, China's rise as a global super power and its irresponsible  handling of covid, its aggressive foreign policy and then finally should India choose Capitalization over socialism. 

Covid 19 Economic effects

Fall in the GDP growth.

This pandemic has just taught us how dependent we are on others and how dependent one country is on another country. The shutting down of industries and halting of farming activities have hit the global supply chain resulting in the deficiency of food supplies in many parts of the world. The recent US-China Trade war has resulted in the slowing down of many emerging economies like India. While US companies have decided on reducing their reliance on China, India is trying to convert this crisis an opportunity. Only time will tell if that is going to be successful. But what we know today is that India can surely support Western companies moving out of China. We have all the resources like land, human resources etc. The only thing we need to develop more is the skills set of our vast human resources.

 Most of the countries in the world have gone through lockdowns. Many industries have shut down permanently. Even though we think China is not impacted by Covid-19, it is one misconception that we have about the current situation. They have a lot of economic loss to deal with. 

As of 22 September 2021 China is dealing with a possible economic disaster as one of its biggest real estate Giant The Evergrande is about to fall which might cause a housing crisis like what we saw in 2008 in the United States which is known as the 2008 financial crisis

China despite opening their industries and functioning like they used to in pre covid times, the export demand is low as other countries have low domestic consumption and hence they import less goods. Many people have lost their jobs so they cannot afford to buy things.

Some US companies have said that they are going to move manufacturing out of China to India and other Southeast Asian countries especially Vietnam. We all understood how much the world relies on India's low cost pharma manufacturing industry when they wanted Hydroxychloroquine or even covid vaccines in 2021. India manufactures a lot of medicines and is one of the largest producers of cheap  generic drugs. 

Estimated growth rates of countries for 2020

Indian generic drugs are famous around the world. India imports most of its raw materials to manufacture generic drugs from China. India is heavily reliant on China for its raw materials. These raw materials are known as APIs (Active Pharma Ingredients). India imports almost 80% of its APIs from China. When China was affected by Covid the whole pharma supply chain in India was hit because of the closing down of industries in China.

Covid has really changed the thinking of the world leaders across the world. You guys would have heard about the news that German Finance Minister has committed suicide. He warned about grave economic consequences yet to come. It is possible that this is the worst economic disaster the world will ever face after the great depression of 1929. The world economy is impacted by the virus. 

China's rise

Chinese Flag

 China has recently risen as a global superpower.  It has built remarkable things in the past 20 years. The gap between GDP of India and China in 1980 was just 10 Billion Dollars. Now the gap between China and India's GDP is around 12 Trillion Dollars. This is what China has built in last 30 years. Their actual growth started at around 1990. At first they liberalized their state run regulated economy to attract FDI (Foreign Direct Investment). This apparently worked out. Chinese Government offered companies cheap land, labour and easy laws to set up a factory. This attracted many western companies to come to China and set up factories. China turned its education system into a factory, manufacturing skilled people for equipping them to be employed in the factories. China also had a huge population which ensured cheap labour for these companies who wanted to set up factories. This turned China into a manufacturing giant and a huge exporter of many goods. Now China manufactures everything in the world. If China is hit with a disaster, the whole world is hit as the whole system of global supply of goods get disturbed. China controls almost 20% of the global world trade. It has the world's second largest economy in nominal terms and the largest in terms of GDP (Purchasing Power Parity). It is a 15 Trillion Dollar economy. 

Shanghai during 1996 and now in 2017

China and India's growth rate

China's Foreign Policy

Now lets come to the part in which I will discuss about Diplomacy. China is one of the countries with most international outreach. China is also using its huge financial resources to create friends. They are spending and investing a lot on poor countries with poor infrastructure like countries in Africa. They also try to lure many small medium sized poor South Asian countries like Bangladesh, Pakistan and Sri Lanka. They give large loans to these countries to set up a trade network. China wants to control the world trade by 2050. Their recent programs to soar high are 'One belt one road initiative'. They are building huge infrastructure projects in other countries to form a large network of trade networks connecting continents.  In the future there is no doubt that China will control the world. US is surely insecure because they had been a superpower for many years and nobody likes losing the title to some other country. China has built various ports in many countries like:

Magampura Mahinda Rajapaksa Port in Sri Lanka was funded by China's Export Import Bank. Sri Lanka took billions of dollars in loans from China. In the end they had to lease this port for 99 years to China for debt repayment. The agreement clearly says that no military use but still in the future they may give it for military uses after some debt repayment negotiations. Geopolitical analysts claim that China is trying to create a network of string of pearls in the Indian Ocean. This will surely increase their influence in this region. India on the other hand is very insecure and is trying its best to counter China's influence on its traditional influential region. India is also developing its own string of pearls in Iran, Oman, Madagascar, Djibouti, Seychelles etc. India is building Chabahar port in Iran for getting access for trade to Central Asia and Afghanistan. Geopolitical analysts say that this is India's version of China's Gwador port in Pakistan. 

Sri Lanka leased port for 99 years to China.

Gwador Port in Pakistan

Gwador port Pakistan

In the current scenario India can easily block Chinese ships carrying oil to China in Indian Ocean as India is the strongest country in the Indian Ocean in case of a war. As China imports most of its oil from the Middle East countries they all travel through the Indian Ocean to China. This is a huge danger for China. If oil does not come then China will surely lose the war due to lack of oil supplies. But if they have military bases in the Indian Ocean then they can attack India's mainland region. This will force India to release the oil ships held. All these investments are the part of a long term economic and military plan of China. China is also trying to militarise the islands in the South China Sea. China has disputed maritime regions with Indonesia, Malaysia, Taiwan and Philippines. 

South China sea dispute

China has been claiming a lot of sea which also includes territories of Taiwan and ASEAN countries. This is not at all acceptable for the ASEAN countries. China on one side uses Sugar Daddy Diplomacy and on the other hand they have a very aggressive foreign policy especially with rival neighbors like India, Vietnam, Japan etc. China's rivals are not growing enough to challenge Chinese dominance in Asia. This is why China will surely be the next superpower. For China to be the next super power Covid was surely an opportunity but China has created a huge negative backlash for its reputation of being a superpower by irresponsibly handling covid virus. China hid the covid outbreak from the world for almost a month. This shows how transparent China's media and government are. Nobody knows what is happening in China until it gets too worse that their Government cannot handle or hide it. Chinese government lacks transparency. They hide the poverty of China. We as outsiders, are only able to see the developed parts of China. I hope China enters into agreements with its neighbors over the disputed territories and shows its responsibility as a Global Super power instead of Muscle Flexing and showing military strength on its poor and developing neighbors. I hope their government will be more transparent in the future.  

Should India turn itself into a Capitalist society forgetting its socialist principles. 

One week before we heard our Finance Minister Nirmala Sitaram announcing about opening space and coal sectors for private companies. India's economy needs an open market to grow fast. India's bureaucracy is one of the main hurdles which hinders the growth of industries and businesses. Modi came to power in 2014 after promising India that he would turn India into a highly industrialized country like the states of Gujarat and Maharashtra. Unemployed in Bihar and UP were delighted to hear such news. The news is encouraging but is always better said than done. 

After PM Modi came into power, he has done things to increase the trade by scrapping down laws and regulations which hindered the growth of industries and businesses. He also made big economic mishaps. In the dream of changing the economy, reforms like demonetization and introduction of GST were implemented in a staggered manner. In his tenure the FDI to the country has increased by folds. In the same rate Domestic investments have fallen because of failed decisions like GST, India's Exports have also fallen in the last 5 years. Demonetization was a huge failure because a cash based economy like 

India was hit hard when 85% of its currency became value less. This has surely affected the economy. The only positive outcome of demonetization is that more people started using online payments. As per reports 99% currency of the currency returned back to the cash system after demonitisation. This indicates that its actual objective of capturing black money in India was a failure. 

The recent economic reforms made by the government aims at simplifying regulations for investment, giving more role to the private sector and opening up the economy to competition. The government has opened up the space and coal sectors for private companies. From now onwards, Private Companies can start mining coal. Private companies can manufacture satellites and also launch rockets as in the US Space industry. Many Indian companies want to develop their own rockets and satellite technologies by using the taxpayer paid testing facilities at ISRO and try out their products, for which ISRO will charge a fee. Even though this will open up new facilities for private companies to develop their own technology, ISRO will still be the judge, jury and the regulator of the Indian Space Industry as many companies will have to rely on ISRO for its infrastructure.  India also opened it's defence industry for private sector. Now many indian companies can develope their own weapons and can sell it in the world defence market. This will transform our country from a large defence importer to exporter. This is a key step in transforming our country to an independent super power instead of depending on other countries for weapons. 

My Opinion

I think liberalisation of the economy will surely bring long term benefits for the economy. Many countries have devoloped due to their open market approach like Israel, Singapore, Hong Kong, Japan, South Korea, US, UK, France. Socialist principles have got us nowhere. Till the economic liberalisation in 1991, India's growth was very low. But after liberalisation,  India's  GDP has increased 12 times. Many people got employed.  Large number of people were lifted out of poverty. Liberalizing the economy further will only bring more growth as we have seen in many countries. India still lacks economic freedom due to thousand regulations and bureaucratic laws. The current government has tried scrapping many of these unnecessary laws by forming a commission.  We also have very strict land and labour laws. We should make these laws more flexible to attract foreign investment and make our country the next economic powerhouse. We certainly have the capability. Let this pandemic be an eye opener for our country to realise and strive to be a self sustaining economy instead of depending on opportunist economies like China. 

By Gurunithyan R