RACE BETWEEN INDIA AND CHINA

Today everyone is talking about the next superpower, will it be China or India. Statistics show that China has outpaced India in every aspect of growth. But some argue that India is fast catching up. But what’s the current scenario? Is India ready for the superpower status? Or are we irretrievably behind in the game of catch-up with China?

Walk into any store, we’ll see Chinese-made goods-everything from shoes and garments to toys and electronics. But the ubiquitous "Made in China" label obscures an important point: Few of these products are made by indigenous Chinese companies. In fact, you would be hard-pressed to find a single home grown Chinese firm that operates on a global scale and markets its own products abroad.

In the process, India has managed to spawn a number of companies that now compete internationally with the best that Europe and the United States have to offer. Moreover, many of these firms are in the most cutting-edge, knowledge-based industries-software giants Infosys and Wipro and pharmaceutical and biotechnology powerhouses Ranbaxy and Dr. Reddy's Labs, to name just a few. Last year, the Forbes 200, an annual ranking of the world's best small companies, included 13 Indian firms but just four from mainland China.

India has also developed much stronger infrastructure to support private enterprise. Its capital markets operate with greater efficiency and transparency than do China's. Its legal system, while not without substantial flaws, is considerably more advanced.

Even as the dragon and elephant economies are together projected to dominate the world in a matter of decades, there is a palpable difference in the way China and India work on the ground. China is spectacularly effective in building infrastructure and is currently investing almost half its GDP. Meanwhile, India is the classic example of a ‘promising’ economy: more than half its GDP is consumed by its billion-plus population; half its population is younger than twenty-five, giving it a unique demographic advantage; 350 million Indians understand English, making it the largest English-using country in the world; and it is, of course, the world’s largest democracy.

But when it comes to gross domestic product (GDP) figures and other headline numbers, India is still no match for China, for now. 
India displays every bit as much dynamism as China. Indeed, by relying primarily on organic growth, India is making fuller use of its resources and has chosen a path that may well deliver more sustainable progress than China's FDI-driven approach. "Can India surpass China?" is no longer a silly question, and, if it turns out that India has indeed made the wiser bet, the implications-for China's future growth and for how policy experts think about economic development generally-could be enormous.

In economic jargon, the supply curve of labor was flat but is now sloping upward, so that rapidly increasing demand for labor resulting from rapid growth is driving up wages. That means that China is beginning to “rejoin the human race” as capital accumulation meets scarcer labor and growth slows.

By contrast, India has a far more abundant supply of labor, as well as a more favorable demographic profile, so that, as India’s investment rate increases, labor will not be a constraint. India will thus become the new China of the past two decades.

Besides, in contrast to China, where economic reforms were quicker and more complete, India still has a way to go: privatization, labor-market reforms, and opening up the retail sector to larger, more efficient operators are all pending – and will give a further boost to India’s growth rate once they are implemented.

In the race to superpower status, who is likely to breast the tape—China’s hare or India’s tortoise? China’s awe-inspiring sweep, compared to India’s relatively mild rise, could tempt an easy answer. But one can argue that the winner of the race with the biggest stakes ever might not be determined by who is investing more and growing faster today, but by something slightly more intangible—who has superior innovative skills and more entrepreneurial savvy and is grappling with and expanding in the most intensely competitive conditions.

At the end, it might come down to just one deciding factor: Can India fix its governance before China repairs its politics?

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Courtesy: http://www.hvk.org/articles/0703/6.html

                 Raghav Bahl: Superpower