India & China: Who Needs $586 Billion Stimulus, Anyway? (Correct)
Posted by: Bruce Einhorn on January 25, 2010
(Corrects India GDP figure in third paragraph and adds information on Indian stocks.)
No government responded more aggressively to the economic crisis than China. Within weeks of the Lehman Brothers’ bankruptcy, Beijing had a huge stimulus package in the works, with the government pumping $586 billion into the economy and the country’s banks (most of them state-owned) helping out with another $1.3 trillion-plus in new loans.
While China focused all its firepower on combating the crisis, India seemed to take a gentler approach. New Delhi announced some tax cuts as well as several stimulus packages. The combined price tag of the government’s stimulus packages was $80 billion. Throw in $14 billion in other government policies to help people in the countryside and the total amount of spending is still puny compared to Beijing’s, even after you adjust for the fact that India’s economy is about one quarter the size of China’s.
So which country got the most bang for its buck? Surprise – I think it could be India. Third quarter GDP was up 7.9%. That’s less than the 10.7% fourth-quarter growth in China, but India’s government didn’t spend nearly as much to get it. Also, for the first time since 2006, investors seem more upbeat about Indian companies than Chinese ones, with the Sensex trading at 20 times estimated profits, compared to 18 times estimated earnings for the Shanghai index, according to Bloomberg News. Can India keep it up? Indian stocks have been slumping lately, as investors worry the central bank could raise interest rates as early as this Friday. India’s hot streak might not last long, but for now it does seem New Delhi deserves more credit than it has received for its handling of the crisis.
