India's economic growth pattern - Reasons for inclination towards Mexico

India's economic growth pattern – inclination towards Mexico

Question:- Though India competes with China to become an economically powerful country still it is unable to follow the Chinese growth model as analyst think it will instead resemble Mexico. Examine reasons for this.

- Last two decades have witnessed great changes in the economic world. After 1992, India adopted the LPG policy which helped India integrate its economy with global markets.

- According to the International Monetary Fund's (IMF), by 2016, India's growth is likely to exceed China, however, according to some, India will become more like Mexico than China.

- India is an agriculture based economy, however is on its way to become a manufacturing hub by providing the necessary skills to the people who will otherwise migrate to lesser productive areas.

- Two decades ago India has displayed trends similar to China and Mexico when they too were in the making of a manufacturing hub in their states. However, due to China's stringent policies and communist ideology managed it whereas Mexico with its democratic structure and weak institutional mechanism failed to achieve the target.

- Huge physical capital in manufacturing has been invested in China whereas India’s low productivity manufacturing sector consists of mostly small size firms. Similarly Mexico has more than two-fifths of the country’s workers employed in small and businesses. Small firms do not have the potential to reap economies of great scale, neither can they employ the best technology nor effectively manage and so are relatively less productive.

- India and Mexico share democratic political culture as compared to China which has an authoritarian communist rule so the labor markets have different rules.

- Investment and productivity are the two pillars of economic growth and the government policies play a major role in providing adequate infrastructure. Public spending on infrastructure in Mexico and India lags way behind that of China.

- Despite all this, India can reach Chinese level by implementing reforms like flexible labor regulations, reform of bankruptcy laws for faster redistribution of assets, development of markets for land and providing improved infrastructure and skills.

- This will be beneficial in the long run since it will not only improve economic growth but also create productive employment options.

Facts and Figures

- In 1947, Mexico became the first Latin American nation to recognize the independence of India

- MINT is an acronym referring to the economies of Mexico, Indonesia, Nigeria, and Turkey like BRICS.