Monday, August 04, 2003

India Vs China

Foreign Policy:
China focussed on getting as much foreign investment ina s possible. It did get them, on a scale much larger than India . During the last 20 years, the Chinese economy has taken off, but few local firms have followed, leaving the country’s private sector with no world-class companies to rival the big multinationals.

But 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. 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.

China and India are the world’s next major powers but their development is a study in contrast. In GDP figures and other headline numbers, India is still no match for China.

India is increasingly building from the ground up while China is still pursuing a top-down approach.

In China, Foreign investors have been among the biggest beneficiaries of the constraints placed on local private businesses.

While China has created obstacles for its entrepreneurs, India has been making life easier for local businesses. During the last decade, New Delhi has backed away from micromanaging the economy. True, privatization is proceeding at a glacial pace, but the government has ceded its monopoly over long-distance phone service; some tariffs have been cut; bureaucracy has been trimmed a bit; and a number of industries have been opened to private investment, including investment from abroad.

In China, bureaucrats remain the gatekeepers, tightly controlling capital allocation and severely restricting the ability of private companies to obtain stock market listings and access the money they need to grow. Compounding the problem are poor corporate governance and the absence of an independent judiciary.

WHy has India lagged behind ? that India’s economic reforms only began in earnest in 1991, more than a decade after China began liberalizing. In addition to the late start, India has had to make do with a national savings rate half that of China’s and 90 percent less FDI. Moreover, India is a sprawling, messy democracy riven by ethnic and religious tensions, and it has also had a longstanding, volatile dispute with Pakistan over Kashmir. China, on the other hand, has enjoyed two decades of relative tranquility; apart from Tiananmen Square, it has been able to focus almost exclusively on economic development.

That India’s annual growth rate is only around 20 percent lower than China’s is, then, a remarkable achievement

In a followup interview they note...
Here are our concerns for India. How will India rein in its fiscal deficit? How will India discipline its political class? One challenge India faces is deregulation. India is also quite over-regulated compared to other countries at its level of per capita income.

In India, it( this article) has spread by word of mouth and been reprinted in numerous newspapers and magazines. In China, one is hard pressed to find public discussion of the article; though the message is being discussed, we've been told, in other, less transparent forums. This is, in some sense, part of the very point of the article!


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