Arvind Subramanian, senior fellow at the Peterson Institute for International Economics and Center for Global Development, published a good commentary in the Business Standard arguing that India can learn from China’s strong public finances – a sound fiscal position is crucial for establishing international influence. “The lesson for superpower-aspiring India from superpower-arriving China is simple: A strong fiscal situation, undergirding the ability to respond to a crisis, is an essential ingredient for any global leadership role.”
“Even before this global crisis, China was building up its superpower credentials courtesy of its size, spectacular growth, and integration, not to mention its military might. The crisis has allowed these credentials to be consolidated further. China has moved beyond being the superpower-to-be. One important reason for this consolidation relates to China’s public-sector balance sheet…
“The one major country that has had the ability to take short-term action to offset the effects of crisis without remotely jeopardizing its long-run economic strength has been China. Its public debt will remain at close to 20 percent of GDP after the crisis while the corresponding number for the United States is estimated to be close to 75 percent of GDP. China seems to be the one fiscal safe haven even as all the other powers wobble under the weight of their fiscal burden. As the mighty fall, China is standing economically and fiscally tall…
“So when India goes through its next growth spurt, it should be mindful of avoiding the mistake of the previous one. Good boom-time fiscal management provides the firepower for times of bust. The reasons for doing so are and must be overwhelmingly domestic. But there may also be strategic, external benefits from doing so. Fixing the fiscal roof when the sun was shining was China’s way out of this crisis and way to solidifying its superpower status. That is a lesson that strategically minded Indian policymakers should take away from China’s experience in the crisis.”
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