Monday, March 06, 2006

India vs. China: future edge....

India vs. China: who will lead...!?

Well, this topic of discussion in almost economic forum. Comparing India and China is to embark on an old puzzle that has fascinated smart people for centuries. No doubt India and China are likely to be the dominant economic powers by the middle of this century. Obviously both countries are very different in many respects.

India is way behind in infrastructure compare to China - From realities one might wonder why anyone would ever consider investing in India over China. Ranking the two countries on infrastructure - roads, airports, and new buildings, China looks like a ten and India hovers close to zero. But India is changing rapidly. NSE index of top 50 blue chip had tripled in last 2years. Although China's stupendous economic growth rate still surpasses India's, India has now reached the 6% plus rate of GDP growth that marks the emergence of a developing country.


The fact that the educated classes all know English gives Indians a comparative advantage in the growing informational sciences and services, while the Chinese advantage still resides in manufacturing. Although I in no way condone the British occupation and control of India for several centuries until 1947, three British legacies -- the English language, Democracy, and Freedom of the Press -- benefit many Indians today.

India is built on a meritocracy where performance on exams dictates jobs and admission to the top-ranked schools. At the top, India's education system is as good as any, and the Indian Institute of Technology (IIT) rivals MIT as the world's producer of top scientists. Furthermore the Indian Institute of Management recently had 200,000 applications for only 250 seats at its top Ahmedabad campus, a ratio that puts the Ivy League' selectivity to shame. Although India does have an "affirmative action" program for those in the lowest castes, the private sector is not subject to these quotas and therefore is free to hire "the best and the brightest." There's no doubt that China is also developing top schools, both in science and in business. The latter is particularly important to China since the Communist system is filled with managers of state-owned enterprises that are woefully inadequate in a private-sector economy. India is ahead of China in this area. However, the excellence of education at the top has given Indians a great deal of pride in their ability to achieve world-class excellence, and it has been a strong democratizing influence in a society that has been mired in a rigidly hierarchical caste system.

Private enterprise, private property and the rule of law has been the norm in India since the British occupation. In contrast, until recently, the Chinese government owned and controlled everything. It surprises many that Lakshmi Mittal, an Indian-born steel magnate, is the 3rd richest man in the world after Bill Gates and Warren Buffett. In fact, in Forbes' latest list of the world's wealthiest people, 12 Indians made the list and only two Chinese. And there is a growing consensus in India that this wealth creation can help everybody rise, not just those at the top.


I believe China will evolve into a more democratic political system as it pulls itself out of poverty and feels the pressure of a growing middle class. Although this political evolution is likely, it is by no means a sure thing. Yet for India a democracy already exists, and it has withstood many crises. Furthermore India enjoys an independent judiciary, a critical adjunct to a democratic system. Democracy is the best system in which power can evolve from the private sector, not from dictates of the government. As far as the politics are concerned, there are no reservations about India.

It is well known that the Chinese are master copiers, and openly sell merchandise sporting pirated designer labels or hawk intellectual property that is easily downloaded in our digital world. Although this also exists in India, it does so to a far lesser extent.

I remember reading Economist , was trying to paint stripes on India since 1991. It doesn't realize that India will never be a tiger. It is an elephant that has begun to lumber and move ahead. It will never have speed, but it will always have stamina. A Buddhist text says, "The elephant is the wisest of all animals/the only one who remembers his former lives/and he remains motionless for long periods of time/meditating thereon." The inversion between capitalism and democracy suggests that India might have a more stable, peaceful, and negotiated transition into the future than, say, China. It will also avoid some of the harmful side effects of an unprepared capitalist society, such as Russia. Although slower, India is more likely to preserve its way of life and its civilization of diversity, tolerance, and spirituality against the onslaught of the global culture. If it does, then it is perhaps a wise elephant.

India lags in the hard infrastructure of roads, airports, and buildings, but leads in the "soft" infrastructure of democratic institutions, free press, and an independent judiciary. In general, China has discouraged or actively undermined local entrepreneurship in favor of an foreign direct investment-dependent approach, they say. India, on the other hand, is building an infrastructure—however slowly—that allows entrepreneurship and free enterprise to thrive. By making fuller use of its resources, India's long-term outlook may be far stronger.

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