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Watching
India overtaking China
By
Jonathan
Power
May 6, 2004
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 at the time that the reason
he ignored India and courted China was that China had
nuclear weapons and could help balance the Soviet Union.
Since 1998 India has possessed
nuclear weapons and can balance China. Slowly Washington
is waking up to the fact that the tortoise soon might
overtake the hare. Still 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
whilst every day there is a story out of
Beijing.
This skewed appreciation has been
going on since the time of Mao Tse Tung. Whilst in the
1960s and 70s China basked in accolades, India's economic
planners were widely abused. 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" wrote V.S. Naipaul.
Neville Maxwell of Oxford
University was one of the more prominent of the legion of
Western intellectuals who in the 1960s and 70s thought
China had found the answer to underdevelopment. In 1974,
he wrote, "Mao and his party triumphed where Stalin
cruelly failed, basically because Mao understood and
trusted the peasantry". It was hog wash.
With the 1981 famine we could see,
to use George Watson's phrase, "the intellectuals were
duped". As Watson exposed the romantic gullibility of
Beatrice and Sydney Webb, Stephen Spender and Andre Gide
and their glowing reports of the Soviet economy in the
1930s, so too the China seers of the 60s and 70s were
held up to the harsh light of day. China had to beg
around the world for grain whilst India had managed to
survive the savage drought of 1979 without having to
import a sack.
Now with Mao long dead and the
capitalistic 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 fast 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 (now Sonia Gandhi's
principal economic advisor) introduced major promarket
reforms and fiscal expansion and India's economy has
never looked back. Annual growth averages above 5% and
now thanks to a good monsoon is 8%. Singh believes that
with more reforms than the present government has so far
countenanced an average annual growth rate of 6.5% is
sustainable- which is what he privately thinks China's
over-hyped growth rate actually is.
In reality India is better placed
for future growth. Its capital markets operate with
greater efficiency than do China's. They are also much
more transparent. Companies can raise the money they
need. India's legal system whilst over slow is much more
advanced and is able to settle sophisticated and complex
cases. Its banking system has relatively few
non-performing assets. Its democracy and media are alive
and vital which provides a safety valve for the
incoherent changes that modern day 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. Its remaining state owned enterprises
remain massive but bloated and possess a frightening
number of non-performing loans from China's vulnerable
banking system. It is India that 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
language, English, its emphasis on maths in its schools
(begun in Indira Gandhi's time), 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 diaspora 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.
I can be reached by phone +44
7785 351172 and e-mail: JonatPower@aol.com
Copyright © 2004 By
JONATHAN POWER
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