Slowly but steadily, India will overtake China
Jonathan Power IHT Thursday, May 6, 2004
An economy awakes
LONDON India is now in the middle of what many Chinese would give their right arm for
- a general election. Yet China is the power that gets all the attention.
.
When President Richard Nixon first went to China it was widely assumed that he was
ignoring India and courting China because China had nuclear weapons and could help
balance the Soviet Union. But since 1998 India has possessed nuclear weapons and can
balance China.
.
While Washington is slowly waking up to the fact that the tortoise soon might overtake
the hare, the investors and the press continue in their old ways. Last year the inflow
of foreign capital into China was two and a half times that into India. The press
barely covers the Indian election while every day there is a story out of Beijing.
.
This skewed appreciation has been going on since the time of Mao. China basked in
accolades in the 1960s and 70s, while India was mocked for its "Hindu growth rate."
China's people were fed, housed, clean and tidy, while India's were ragged, hungry and
sinking into a trough of despondency - "a wounded civilization," in the words of the
novelist V.S. Naipaul.
.
With the 1981 famine we could see, to use George Watson's phrase, that "the
intellectuals were duped." China had to beg around the world for grain while India had
managed to survive the savage drought of 1979 without having to import a sack.
.
Now with Mao long dead and the capitalist reforms of Deng Xiaoping well into their
stride, the story is being repeated but in a more complex way. To many, China's
economic progress has been nothing less than spectacular. But inflationary pressures,
bad bank loans, a rapidly increasing maldistribution of income and crime all threaten
its economic stability.
.
India, meanwhile, has been gradually but with increasing speed loosening up its old
Fabian socialist system. After a major economic crisis in 1991, Finance Minister
Manmohan Singh introduced major promarket reforms and fiscal expansion and India's
economy has never looked back.
.
India's annual growth has been averaging 5 percent - and is now 8 percent, thanks to a
good monsoon. Singh, who has become Sonia Gandhi's principal economic adviser,
believes that with more reforms than the present government has so far countenanced,
an average annual growth rate of 6.5 percent is sustainable - which is what he
privately thinks China's overhyped growth rate actually is.
.
India is better placed than China for future growth. Its capital markets operate with
greater efficiency. They are also much more transparent. Companies can raise the money
they need. India's legal system, while too slow, is much more advanced and is able to
settle sophisticated and complex cases. Its banking system has relatively few
nonperforming assets.
.
India's democracy and news media are alive and vital, which provides a safety valve
for the incoherent changes that modern economic growth brings. India has religious
riots, secessionist movements, urban squalor and bitter rural poverty. But the voters
know they can throw the rascals out, and regularly do.
.
Moreover, the massive flows of foreign investment into China are a two-edged sword. It
has become a substitute for domestic entrepreneurship. Few of the Chinese goods we buy
are in fact made by indigenous companies. And the few that exist are besieged by
regulatory constraints and find it hard to raise domestic capital. China's state-owned
enterprises remain massive but bloated and possess a frightening number of
nonperforming loans from China's vulnerable banking system.
.
India, by contrast, has created world-class companies that can compete with the best
in the West, often on the cutting edge of software, pharmaceuticals and biotechnology.
.
India's trump cards are its use of English, its emphasis on mathematics in its schools
and the talents of its diaspora. For decades China has benefited from the wealth and
the investment potential of its diaspora and the economic energy of Hong Kong and
Taiwan. After years of ignoring its �migr�s, India is now welcoming them back - and
they have much more "intellectual capital" to offer than China's, much of it coming
from Silicon Valley, where the Indian contribution has shone.
.
Watch the tortoise continue its course as the hare starts to lose its breath.
.
Jonathan Power is a commentator on foreign affairs.
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