A business professor at MIT Sloan argues in the Financial Times that India is economically underrated. Yasheng Huang sounds a clarion call for China to relax its financial controls:
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Rama vs. dragon? Cake. |
From April to June 2005, India’s GDP grew at 8.1 per cent, compared with 7.6 per cent in the same period the year before. More impressively, India is achieving this result with just half of China’s level of domestic investment in new factories and equipment, and only 10 per cent of China’s foreign direct investment…… in 2003 and 2004, [China] was investing close to 50 per cent of its GDP in domestic plant and equipment – roughly equivalent to India’s entire GDP. That is higher than any other country… China’s growth stems from massive accumulation of resources, while India’s growth comes from increasing efficiency…
While India’s stock market has soared in recent years, the opposite has happened in China. In 2001, the Shanghai Stock Market index reached 2,200 points; by 2005, half the wealth wiped out. In April 2005, the Shanghai index stood at 1,135 points… [Link]
Huang argues against using foreign direct investment as a key measure of economic growth:
Brazil was a darling of foreign investors in the 1960s but ultimately let them down. Japan, Korea and Taiwan received little FDI in the 1960s and 1970s but became among the world’s most successful economies…With few exceptions, the world-class manufacturing facilities for which China is famous are products of FDI, not of indigenous Chinese companies… [Link]
His analysis is that India has a more laissez-faire attitude in both politics and entrepreneurship:
[Infosys] was founded by seven entrepreneurs with few political connections who nevertheless managed, without significant hard assets, to obtain capital from Indian banks and the stock market in the early 1990s. It is unimaginable that a Chinese bank would lend to a Chinese equivalent of an Infosys…China was light years ahead of India in economic liberalisation in the 1980s. Today it lags behind in critical aspects, such as reform that would permit more foreign investment and domestic private entry in the financial sector. [Link]
China’s hidden weakness is the massive and often centrally planned investments, which are often less productive than the Indian investments. In the long run, that’s not going to work without more open competition, creativity and entrepreneurship. India’s hidden strength is that the country is already extremely entrepreneurial – but in the informal sector. An Indian friend mentions that most of the cars we see on the roads, and many computers in the offices, are assembled in small, informal factories, outside the law, to avoid the many regulations and taxes that still curbs the Indian economy. Imagine what the Indians could do if all that energy was legalised. [Link]
It contradicts what I’ve read elsewhere, that it is quicker to start a new business in China than in India. If India’s labor laws are better than China’s, it’s only because we’re comparing socialism lite with socialism 2.0:
The Doing Business database ranks China a modest 91st on the overall ease of doing business, with India worse but not dramatically so at 116th… in China it’s quicker to start a business, get goods from factory floor on board a container ship, and register property. But Indians – perhaps surprisingly – seem to have more flexible labour laws and fewer hassles with licences. [Link]In India, about 670 industries are completely reserved for very small companies, which means that the economy lose the benefits of scale, donŽt get foreign investments and are unable to compete globally. In 2001, the average Indian clothing company had only 50 machines, compared to 500 in the typical Chinese plant. The same problem exists in India’s agriculture, where only farmers and their children are allowed to own land, so outsiders can’t buy farm land and introduce modern and efficient technology. Small might be beautiful, but it also creates poverty. [Link]
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p>Huang reverses the casuality of infrastructure and growth, saying the growth comes before the roads and skyscrapers due to the elimination of agricultural subsidies and structural liberalization in the economy:
China built its infrastructure after – rather than before – many years of economic growth and accumulation of financial resources. The “China miracle” happened not because it had glittering skyscrapers and modern highways but because bold economic liberalisation and institutional reforms – especially agricultural reforms in the early 1980s – created competition and nurtured private entrepreneurship… [Link]On the Indian highways we made 40 kilometers/hour when we were lucky. In China that is called a traffic jam. [Link]
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p>Finally, he’s one of the few to tip his hat to India’s investment in rural education. India spends around 60% of what the U.S. does on public education as a percentage of their respective GDPs.
China… created many world-class facilities, but badly under-invested in education… India, meanwhile, has quietly but persistently improved its educational provisions, especially in the rural areas. For sustainable economic development, the quality and quantity of human capital will matter far more than those of physical capital… [Link]
And yet:
Indian bureaucrats keep their jobs no matter if they spend the resources on physical and social infrastructure or on themselves. This is a serious problem with the schools. Unionised teachers keep their well-paid jobs even if they are bad, abuse the children or don’t even bother to turn up. ThatŽs one of the reasons why India’s illiteracy rate is absurdly high – 40 percent. [Link]
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p>It’s an interesting contrarian view; my Indian friends often return from Shanghai agog at its Bladerunner-like resurgence and pessimistic about the ability of the Indian government to execute. It is essentially a tortoise vs. hare argument, that China’s growth is coming via flashy financing (foreign direct investment, the equivalent of VC financing at a startup) while India’s is coming through organic, sustainable growth (the equivalent of revenues).
Outside of regional politics and oil, ‘India vs. China’ is an artificial horse race handicapped to sell copies of Businessweek. The countries will benefit from each other’s rise as trading partners. They recently agreed to collude on oil deals to avert bidding wars where both lose on price.
But India’s ace in the hole is its democracy vs. China’s repression. There’s no way China will beat India in the long run with its new, even stricter censorship. Centralizing thought dampens innovation. And a democracy gives you a much better shot at political and economic stability in the long run.
China on Sunday imposed more restrictions intended to limit the news and other information available to Internet users, and it sharply restricted the scope of content permitted on Web sites… This restriction on the ability of Web sites to republish articles produced by the huge array of news organizations that do not fall under direct government control seems intended to ensure that the Propaganda Department has time to filter content generated by local publications before it can be widely disseminated on the Internet. [Link]According to official reports, there were 160 major incidents of unrest and violent protests every day in China in 2003. This shows why you can’t create political stability without democracy, free press and rule of law. When the powerful abuse, demand bribes or steal land, people have no way to protest peacefully, and they rarely win if they go to the courts. As long as the legal and political system isn’t opened up, the only possible protest is a riot. [Link]
A financial crisis does not seem unlikely, and how the undemocratic system would deal with such difficulties is another mystery. As long as China’s political and legal system is not as open as the economy, China will remain a risky and unpredictable place. [Link]
Related posts: BusinessHype, India still not in the same league as China, The India-China gap, The myth of Indian liberalization,
The New Statesman (UK) has a special cover issue on India this week as well…
Since both China and India are predominantly rural countries, economic progress should be measured by the effect on standard of living in those communities. It pisses me off when people especially from big cities use skyscrapers and malls as indicators of progress.
It would be great if someone could share data about how rural China and India have fared since the start of reforms – 80s and 90s respectively.
This is old, but this survey of India and China by the Economist addresses many of these issues.
Right on, Smruti. Check out the detailed stats on India’s and China’s Human Development Index below, which (just for those who haven’t heard of the index) measures the “progress” of a country based on the quality of life of its inhabitants. Key factors are poverty, literacy, life expectancy, childbirth, education etc. Purchasing power parity is taken into account in the calculation. In 2003, Norway’s #1, China’s 85 and India’s 127 in terms of rank.
http://hdr.undp.org/statistics/data/cty/cty_f_IND.html
http://hdrc.undp.org.in/APRI/hds/hdfct/China.htm
I don’t know if this indicator in isolation tells the correct story. It seems that India’s growth has been driven by non-asset intensive sectors such as IT, where the primary asset is human capital and not plant and equipment. China’s growth on the other hand seems to have stemmed from mostly asset intensive manufacturing. If one compared the growth of India’s industrial and manufacturing sector with that of China’s along with their respective capital expenditures, that would be a better comparison of efficiency. Just doesnÂ’t seem like apples to apples.
let me play provactuer (sp?) here and ask; what are the prospects for the US economy and can “we” help the US to reclaim its past role as an innovator, particularly in a green economy?
its all well and good that India is doing well; but there’s already a by-and-large meritocracy-economy with mostly fairish rules of the game in the world. there’s much “we” might do to ensure that this meritocracy survives
not that i wanted to take away from the india-china discussion, but just add on to it this perspective
the poor indian villager likely does need help in bettering her conditions
Broadly, China is working it’s way up the chain from agricultural –> industrial –> post industrial economy.
India is trying to skip a generation and go straight to Post-Industrial (software, services, etc.)
The problem, however, is that industrial economics (think the 20K employee shoe factory, or the 10K employee electronics assembly plant, etc.) do a far better job at lifting the masses out of poverty than the 1K person software company. (although there’s far more glory in the software company.)
In China, a megafactory is considered a wonder and the govt will work pretty hard to make it happen. In many parts of the Indian government, it’s viewed with an Lefty / Socialist / ArundhatiRoy / anti-globalization inspired angst. Not to mention that the megafactory draws upon infra services far more than the small software co….
Leapfrogging is a smart strategy. If China already dominates manufacturing, what’s the point of India going after it? Relative specialization wins. Especially when the software company generates just as much in tax revenues, which you can then spend on educating the rural poor and putting them to work in Factories 2.0, things like outsourced document processing.
The anti-scale mentality goes back to Gandhi– there’s a spinning wheel on the flag, not a power loom.
mmm… bidis. Fine fine, Poor Indian Villiager, no HDI. But don’t start getting all mutinous when we come build a bowl-a-rama and a multiplex cinema in the middle of your rice paddy this time next year. Although I suppose you can still do it in those movie seats where the arms come up. Oooh! And we’ll get you a cute little hat slap on a bowtie so you can sell hotdogs to your neighbours. 🙂
Successful leapfrogging is a smart strategy. When unsuccesful, however, it’s hastens the income / class divide that leftists like to complain about — a tiny elite (the software engineers) vastly outperform the mass, rural, uneducated populace.
Manufacturing is a MASSIVE global industry and, strictly from a “numbers employed” standpoint will do more to help the poor of india than merely the tax revenues it generates. China’s “dominance” of it in no way prevents India from going after it as well (heck, total US manufacturing output is still huge & growing despite china now, japan earlier, germany before that, etc.). The real thing that prevents india from going after it is… India.
I noticed the following
Mukesh Ambani in a recent speech said that the most dramatic increase in income can be made in the agriculture sector. His Reliance Industries Ltd is going into agri-business also.
Here is what he said in a recent speech.
Dhirubhai Ambani was a gas-station attendant at one point in life and died one of riches in the WORLD. Dhirubhai also created a concept of middle class wealth by RIL’s equity participation by masses.
One more point, the financial markets of India are more democratic than the US market. From Personal Experience !!!!
Manufacturing is a MASSIVE global industry and, strictly from a “numbers employed” standpoint will do more to help the poor of india than merely the tax revenues it generates.
In the U.S., manufacturing is highly automated today, and even though output is up, employment is sharply down:
It’s hard to see that the trend would be different in India. Given a choice between an automated process and a manual one, you improve product quality and cut marginal costs by going with the automated solution. You wouldn’t staff a new Indian factory today the way an American factory was staffed 50 years ago. The best way to help the rural poor in India IMO is agricultural reform and education more than manufacturing.
Manish, that picture makes more sense if it’s Krishna, not Rama (and it’s so small that I guess it could be either.) Kaliya, the poison-emitting multi-headed serpent (sounds kinda like a water dragon to me), manages to “trap” Krishna in his coils before getting his head stomped on during the first Kathak performance. Wives save him from doom. Would make an interest FP cover juxtaposition with a, cough, ahem, cough, eagle. . .the Garuda who scared Kaliya away, causing him to bother Krishna in the first place, but who promised to leave Kaliya alone at Krishna’s request.
That’s the analytical half of me. The Hindu half of me is not so thrilled about the cover, though it’s certainly pretty.
Whoever he’s supposed to be, FP thinks he has four arms.
manish & saheli,
that is neither rama nor krishna.
it is natraj, the dancing shiva.
most probably FP has no clue, so it was really neither of the above when they made the cover.
I think Kush is the closest because of the arms, tassels and snake, but I think it’s a composite– Nataraja is usually drawn with a spotted loinskin, and the upper body is very Rama-like.
I can’t see arms 3 & 4, so will have to see the cover full size some other time, b/c really, it seems like it could some generic blue person. Hell, it could be Arjun.
if you look at history, india resembles what the us looked like in the early 1910’s, both in terms of global outlook, and federalism. a huge class of willingly exploited workers and a hands off government without any antitrust or securities law. i expect the indian stock market to have a number of huge bubbles (and busts).
Contrary to popular misconceptions, manufacturing is NOT a huge job generator in China. In fact, in recent years, China has actually be on the net shedding manufacturing jobs! Of course, this becasue of the restructuring of state-owned enterprise. nevertheless, the private sector is not genrating enough jobs to offset that. Manufacturing’s share of employment is only 23% in China compared to 18 odd% in India. Not such a huge difference.
Looking ahead, over the next generation, manufacturing will gradually go the way of agriculture. Automation and robotics will take the labor out of manufacturing. We are already seeing hints of that today. Added to this trend, rising transportation costs, move away from standardised, mass manufacturing, will see a reversal in everyone scrambling to locate their manufacturing in China or the cheapest labor place.
Caveat: At the risk of being termed a blog whore (or is it actually blog pimp?)…
We’ve been covering the India v China story on IEB for some time now — a lightning rod for many, and a beaten dead horse for some…
http://indianeconomy.org/category/china/
I would like to know what YaleGlobal was smoking when they wrote that India has a:
“business environment, characterized by … minimal political intervention.”
I could almost swallow the healthy competition part but this really stuck in my craw.
I would like very much to hear from anyone who thinks they can have a crack at justifying this statement.
I guess it depends on what you consider ‘political intervention’.
On the whole, I think this India-vs-China thing is taken a bit too far. India should be more focused on developing its resources and improving quality of life, instead of just trying to outdo china in each thing. But I also agree that the “China Syndrome”, as it’s called in India, is having a positive effect.
i guess when these things come out, i feel like saying, india is just barely a meritocracy, maybe in fields like IT. people are still streaming out of india and i’m convinced the lack of education or employment on merit is a big reason. bribery and corruption, and family connections make india kind of suck economically. David Brooks has an article today in the NY Times on how the US versus China and India, what are the advantages and disadvantages of the US versus China or India taking the lead? It seems like there is almost an assumption that having India on the top of the heap is a good thing, but a) the indian system still relies on massive economic unequality, and b) meritocracy is not a hallmark of the system. both of these things to me go beyond projections of growth to what kind of economy we will leave in.
it could be assumed that to suceed india will have to develop a meritocracy, do away with bribery, and level the field so income distribution is not so stark. hopefully
People
i disagree sahej. india IS a meritocracy when it comes to the private sector. it is the scant regard for law and order which makes it a horrible place to run a business in. this was illustrated to me when my peer in the us went to india for the first time … and saw the traffic. his comment – “i am in this car and the driver’s driving like a maniac. he would press his accelerator and go within half a foot of this motorcycle and just when it seemed he’s going to hit the guy, he would ease up and would press down on the horn… and amazingly the motorcycel would give way. he would in turn do the same to the cyclist and this is how traffic would move ..” he added that it’s insane and at the same time very zen like because there is no road rage – it’s chaos but everyone’s getting somewhere and that’s amazing – ok… the guy had a few too many ‘shrooms back in his hippie days – but he had a point. There is freedom to move in every which direction, and everyone takes advantage, and amazingly the mass actually moves, slowly but surely, in the “right” drection
the thing in china’s favor – as another guy once told me – is that they will take as much in bribes as the indians – but the difference is that the job will get done – btw that partly explains why the Southern part of India has been doing better than the hindi belt – they are as big bastards as anywhere, but they deliver
now – the problem i have – the canuck that i am – it is NOT that I am belittling the progress made in getting the middle class on the growth path… it is that there is a large chunk of the population who has no hope in my lifetime to even share any of the glory – and that’s depressing
dhaavak, maybe you are correct but i confess i don’t see it. it seems like there are professions where that is true, but spots are still bought at college no? i think its harder to make it in india without prior money and family connections than it is in the us. granted money and connections make it easier here too. i’m sure things are getting better, but i wonder if they are up to the standards in the us. i think one of the reasons people still come here is they have the feeling hard work is rewarded (along with the racism and discrimination that hampers the meritocracy in the us)
you mention the poverty in india, and i wonder if such poverty can not have a systemic corroding effect on indian society. is there anyway that relatively more well of indian society is not effected by the vast poverty in its midst? if nothing else, the effort it would take to ignore such poverty would effect people individually and the economy as a whole. i’m sure it also makes racism that much more of a problem
sorry to double post but; the other comment to make is the indian middle class that is referred to is not really the same as the american middle class circa 1950. the middle class standard of the US (which looks like its leaving us) and Europe, is health and health care, education, valid infrastructure (water, sewer, roads, electricity), and some modicum of job security. that is not the definition of middle class yet in india. it seems like a certain class in india is rising and their standard of living is going up to European or US levels, or above. but at this point the broader india rising theme is circumspect
There are more Chinese restaurants in the US than McDonalds, Burger Kings, Wendy’s put together…and many many times that of Indian restaurants because many of them are happy with an average tab of $ 3-4…realize that is far from the tech world but the Chinese have shown themselves to be far more discplined and more long term oriented…you can already see Indian tech vendors getting undiscipline and lose some of their pricing advantage
TYPICAL NORTH INDIAN MENTALITY. (P.S>> DO U STILL SHIT ON RAILWAY TRACKS OR HAVE U PROGRESSED)
don compare 1. china develop the country 1st!so it gdp 2.2 time than india! 2. a mistake—–don ever try to think tat more people good i saw some forum in yahoo said tat india 2050 overtake china
become most populos country !at tat moment is 50% more than now! this imposible because land is 30% of china and
then wanna add more 50% tat make india more density!future grow will might slow down!!and most of thing have to import like food !! and water is less and toilet not enouf!!hardly to find job will make create more crime!!
I THINK THE COMPARISON IS UNFAIR CONSIDERING THE FACT THAT BOTH COUNTRIES HAVE DIFFERENT POLITCAL STRUCTURES
In the news “Man in India marries dog as atonement â€Â
mother fucker black monkey indian eat dogs, fuck dogs, and married dogs. The so called 10,000 years old civilization history black monkey, the suffering black asian country.
http://news.yahoo.com/s/ap/20071113/ap_on_fe_st/india_man_weds_dog;_ylt=AuQQ1lFtTPyUNcAYl4jWSN0DW7oF
HEHE, BLACK MONKEY INDIAN, BLACK ASIAN COUNTRY…
WHERE ARE YOU FROM TONADOLO?
EVEN PAKISTAN CAN ALSO BEAT INDIA EASILY.
LONG LIVE PAKISTAN
LONG LIVE BROTHER CHINA
DEATH TO KISS WHITE ASS INDIA
Buddha’s Birthplace Threatened by Dam The Associated Press
KATMANDU, Nepal (AP) — Nepal has asked India to stop building a dam that threatens to flood Buddha’s birthplace.
Nepal formally requested India to “stop the construction of the barrage,” Minister for Water Resources Bijaya Gachchedar said Tuesday.
Four months ago, India began building the Rassiyal-Khurda-Lautan dam across the Danav River, just 655 feet from the Nepal-India border south of Lumbini.
Lumbini, 170 miles southwest of Nepal’s capital of Katmandu, is where Buddha was said to have been born more than 26 centuries ago as Gautama Siddhartha. UNESCO, the United Nations’ cultural arm, has recognized Lumbini as the birthplace of Buddha and declared it a World Heritage Site.
The dam is meant to block and manage the flow of river water, mainly for irrigation, Indian officials have said.
The 20-foot high dam has come under fire from Buddhist scholars and Nepalese political parties. They accuse Hindu-dominated India of violating international laws that bar such constructions within five miles of an international border.
“The construction of this barrage is a well-designed conspiracy of India to inundate the birthplace of Lord Buddha and create another fake Lumbini somewhere in the Indian territory,” said lawmaker Gokarna Bista of the United Marxist Leninist Communist Party of Nepal.
India has long claimed the actual birthplace of Buddha is in India and not Nepal. However, archeologists discovered in 1996 a commemorative pillar placed there by the Indian Emperor Ashoka in 249 B.C. that marked the precise location.
UNESCO has said that Lumbini is one of the holiest places of one of the world’s great religions, and its remains contain important evidence about the nature of Buddhist pilgrimage centers from a very early period.
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