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India Should Cash in on Slump in Europe, China

Published: 23rd October 2014 06:00 AM  |   Last Updated: 23rd October 2014 05:25 AM   |  A+A-

The World Economic Outlook of the International Monetary Fund has scaled down its estimate of the global gross domestic product growth from 3.4 to 3.3 per cent. Though the decline is marginal, it has significant implications for the world economy. Two nations that have shown a decelerating trend are Germany and China. In Europe, Germany had been doing the best so much so that it was considered the continent’s engine of growth. Germany is now on the verge of recession. However, it’s China’s worst performance in two decades that would have a greater impact on the world’s economy. Both provide India opportunities that were unimaginable until recently.

Two bright spots of the report are that among developed nations the US has begun showing signs of strength, while among emerging economies, India is on the upswing. The construction boom in China seems to be over with new houses remaining unsold and developers unwilling to start new projects. The trends in consumption of electricity, a good indicator of economic growth, also suggest that China’s best days are over. The negative trends in Europe and China are opportunities for India. It all depends on how India rises to the occasion.

In the short term, India will find difficulties in increasing exports to Europe, as there would be less demand. A plus point for India is that there will be a decline in prices of commodities. For a short period petroleum products and minerals will be less costly. India should utilise this period to make structural changes that are necessary to attract capital and revive the manufacturing sector. The Modi government’s plan to invite global firms to make India a manufacturing hub can fructify only if it is able to make manufacturing competitive. China no longer enjoys its greatest advantage—cheap labour—as cost of production has increased. The window of opportunity the slump in commodity prices provides should be utilised to make India capable of meeting global manufacturing needs.



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