China and India have transformed the global economy over the past couple of decades. Never before have two such large economies grown so rapidly for so long. Even though the pattern of economic development in both countries remains different, there are certain common drivers which have contributed to this rapid growth.These include endless labor supply, favorable demographics and willingness to match global consumption standards and per capita income.

The growth of economies is generally measured in GDP, which accounts for the sum of total goods and services produced in the country. Between Jan 2017 and Dec 2019, India's average GDP growth has been around 6.7 percent whereas China has been growing at an average rate of 6.6 percent. Global economy on the other hand, grew at 3.4 percent annually.

As evident from the recent numbers mentioned above, India and China have been growing almost twice the global numbers. The trend is expected to continue in the coming years too, just like it did during the past couple of decades, with China and India leading the bandwagon when it comes to contributing towards global economic growth.

Infrastructure and the Economy

Infrastructure sector lies at the undergird of a country's economic structure. Infrastructure constitutes of physical systems like transportation, communication, electrical systems, drainage, etc. In fact, infrastructure has been driving economic growth of countries for centuries now. The Silk Route (2nd century BCE to 18th century AD) created wealthy trading posts and towns and connected Europe to Asia. Trade blossomed, ideas and culture were exchanged, civilizations evolved and economies grew. India and China were the major players during the historical silk route era and have held their dominance till date.

Recent provisions and spending in Infrastructure

India

ü  In the last quarter of 2019, the Indian government outlined its plan to invest USD1.5 trillion into infrastructure projects such as energy, road, railways, etc. The private companies are expected to contribute about a quarter of the total investment while the states and federal government looping in the rest.

ü  Just after Prime Minister Narendra Modi got elected into his second term, he described his vision of making India a USD5 trillion economy by 2024. This current surge in infrastructure investment is key towards attaining that goal. India is expecting to pull in investments for roadways, rail links and other social and economic infrastructure.

ü  The plan outlined the following investments in key sectors as listed below:

o   Airport and ports projects- INR 2.5 Trillion

o   Digital infrastructure- INR 3.2 Trillion

o   Irrigation, rural, farm and food processing projects- INR 16 Trillion.

ü  In order to make India a global hub of electronics manufacturing, the government put forward a USD115.62 million investment plan in 2017-2018.

ü  Japan has been a major investor in India's infrastructure sector. It provisioned an investment of USD35 billion between the 2014-2019 time frame.  

ü  In the 2019-2029 Union Budget, the Government of India allocated USD3.4 billion to the infrastructure sector. 

ü  Yearly private equity and capital investments in infrastructure and manufacturing projects is projected to reach USD65 billion by 2025.

ü  Infrastructure sector is one of largest beneficiaries of Foreign Direct Investment (FDI) in India. Foreign direct investment (FDI) in housing and construction projects stood at USD40.33 billion between April 2000 and June 2019.

ü  Government has provisioned an investment of USD150 billion to develop 100 smart cities. These cities were selected in June 2018 and projects are underway. 

ü  100 percent FDI is permitted for investment in infrastructure sectors.

China

ü  Infrastructure in China witnessed an acceleration to 4.5 percent during the first nine months of 2019. The government have been approving infrastructure projects at a rapid scale. They hope to stabilize China's economic growth and counter some of the adverse effects of US-China trade war with infrastructure investments. The National Development and Reform Commission (NDRC) has approved 21 projects, worth around 764.3 billion Yuan (USD107.8 Billion). In 2018, the investment was 374.3 billion Yuan (USD52.8 billion).

ü  Three out of these 21 projects are worth over 100 billion Yuan (USD14 billion), where one of them includes a high-speed railway network linking two provinces (Chongqing and Kunming) in Southwest China. This railway project is worth 141.6 billion Yuan (USD19.9 billion).

ü  The NDRC has also approved 17 new coal mines, with a total invest of 91.12 billion Yuan (USD12.8 billion). This is almost triple in comparison to last year's investment of 32.71 billion Yuan (USD4.6 billion) over the same time period.

ü  In terms of steel production, China is planning on mass layoffs as it believes that its steel industry is overstaffed. Nevertheless, steel and coal mining contributed to about 40 percent to Chinese economic GDP in 2018.

ü  In order to finance its infrastructure projects, China needs investments from local governments. However, in recent years, China has cut individual and business taxes, which is giving lower tax revenues. In order to fill this gap, China is encouraging local governments to sell special bonds, whose proceeds can only be used to fund infrastructure projects.

Recent Growth in Infrastructure spending

India

According to the IBEF report introduced earlier, below are the key growth figures related to infrastructure developments in India:

ü  The eight core industries in infrastructure sector, which constitute 40.27 percent of the index of industrial production (IIP) grew around 2.4 percent during the April-August in 2019. These eight core sectors include:

o   Steel

o   Cement

o   Coal

o   Crude oil

o   Fertilizers

o   Electricity

o   Natural gas

o   Refinery products

ü  There was major growth in infrastructure related activities during the 2019-2020 time period. The year-on-year growth for major industries were:

o   National highway construction- 20 percent

o   Indian railways-3.37 percent on earning and 0.79 percent on freight

o   Electricity generated- 6.15 percent

o   Cargo handled by major Indian ports-1.48 percent

ü  The logistics sector overall is growing at around 10.5 percent annually and by 2020, the revenue is expected to reach USD215 billion. 

China

According to National Bureau of Statistics (NBS), China’s infrastructure investment rose 4.2 percent year-on-year during the first eight months in 2019. The breakdown of investment is as follows:

o   Ecological protection and environmental treatment-42.2 percent

o   Road transport-7.7 percent

o   Railway transportation-11.1 percent

Can India actually overtake China in Infrastructure spending and even become bigger than China in terms of economic size?

Analysts such as former RBI governor, Raghuram Rajan think so that India has the potential to surpass China in terms of infrastructure spending. In a session on Strategic Outlook for South East Asia in January 2019, Mr. Rajan concluded that China's economy will slow down while India's economy would continue to grow. This will give India a greater impetus to invest in infrastructure projects, domestically as well as in the South East Asia region. 

Presently, China is investing in infrastructure projects in countries like Nepal and Pakistan. Mr. Rajan believes that with the continuation of India's economic growth and eventual slowdown of Chinese economy, India is going to overtake China in terms of infrastructure investments. 

China's slowdown is mainly contributed to its rapidly ageing population, rising wages and a middle-income trap. India's youth population rose by 20 million between 2000-2015, whereas China's dropped by 80 million during the same time period. Moreover, China's economy is also suffering from the US-China trade war.

Additionally, India can take advantage of these favorable circumstances and infrastructure is going to be the backbone upon which India's investment story is going to be written. Whether it happens in 2020 or not, is what remains to be seen.

Key Industry Organizations

     a.   National Highways Authority of India (NHAI)

Address: G 5 and 6, Sector 10, Dwarka

New Delhi – 110 075

Phone: 91-11-25074100, 25074200

Fax: 91-11-25093507, 25093514

     b.    Airports Authority of India (AAI)

Address: Rajiv Gandhi Bhawan, Safdarjung Airport,

New Delhi - 110003

Tel: 91-11-24632950

     c.    Infrastructure Industry and Logistics Federation of India (ILFI)

Address: P-95, South Extension Part – II

New Delhi - 110049

Phone: 91-11-41007091

Fax: 91-11-41007093