China Vs India: Where Does India Beat China and Why

chillibreeze writer — Chandy John

When the global consultancy major, Goldman Sachs, coined the phrase BRIC in 2003 and predicted its pre-eminence, it seemed premature. In the last two years however, the term which can be expanded to mean Brazil, Russia, India and China, has been increasingly used by columnists, and with a great deal of respect.

The Goldman Sachs report posited the theory of a future economic bloc comprising the four and dominating the world economy by 2050. In India however, the tendency on the part of the media, politicians and the general public has been to compare the country with China.

It is not difficult to see why. Of the four, China is India's immediate and most powerful neighbour. A brief war between the two in 1962, ended in the humiliating defeat of the latter. India is home to the Tibetan spiritual leader Dalai Lama and also to thousands of political refugees from Tibet. The two nuclear armed nations also have long standing border problems.

China is also the only challenge to Indian economic hegemony in the region. With a far more developed infrastructure and with the resources to make it the largest manufacturing base in the world, China seems to have the edge.

The BRIC concept states that while Russia and Brazil would provide the raw material, China and India with their low costs and other numerous advantages would produce goods and services.

This concept seems to have great merit; Russia is now the world's largest producer of oil and natural gas, while Brazil leads in such industrial essentials as iron ore and ethanol.

But while China has the edge in manufacturing goods, India clearly leads in the services space. What stands in India's favour is its huge English speaking work force, second only to the US. Add to that lower costs and India clearly has the advantage in the services sector.

The key to India's advantage in the sector is not just low labour costs, but also its highly skilled human resources; else the country would be losing out to lower cost competitors like the Philippines.

That the country possesses a work force with the necessary skills in programming, engineering, biotechnology, research, mathematics or the English language can be attributed to its educational system— a system, which has allowed India to produce more scientists and engineers than even China.

This is a fruit of its past; a blessing derived from the Nehruvian era, which resulted in the development of institutes like the IITs and an educational system that placed very high stress on mathematics and the sciences.

For its English speaking populace, India can thank its far sighted, even if occasionally chauvinistic, ex-colonial masters who introduced English as a medium of instruction and governance.

India's lower GDP and growth rate vis-à-vis China may be attributed to the fact that liberalisation or economic reforms started a full decade later than in China. FDI was also far less forthcoming, though India is now second only to China in that regard.

However, capital has been more efficiently used in India. Both private and public sector firms raise capital via the stock markets or debt and are pressurised to ensure higher returns than in China where FDI is abundant and savings rates are high. A capital market run by free market forces as opposed to excessive and arbitrary state control is another Indian attribute.

With India's software industry booming, Bangalore and Hyderabad are the new Silicon Valleys. The outsourcing industry has embraced everybody from engineers and doctors to lawyers, architects and accountants.

India also has a much more vibrant private sector than China with more world class home grown companies from the private sector. Corporate Governance is another Indian forte, with Indian entrepreneurs and managers being among the most highly respected in the world. One would be hard pressed to find entrepreneurs like Ratan Tata, Dhirubhai Ambani, Narayana Murthy or KP Singh in China.

Because of its democracy, India possesses a legal system far superior to China. In India, there is rule of law, even if the legal system is overstretched, occasionally corrupt and inefficient. In China, rule of law is arbitrary and subject to the whims of the party.

Herein lies the contradiction: a true market economy can be sustained only in an open society. While China is willing to let go of its stranglehold on the people, albeit very slowly, one never knows the challenges it will face in a country which is already rife with internal tensions.

While China may lead in all important indicators like GDP, GDP growth rate, per capita income, birth control and literacy, it is in India that an individual has a free will and is rewarded for taking the initiative.

If it is in any one area that India clearly beats China, it is this. It is a democracy and that is what matters in the end. Economic growth, foreign investment, a primary regional role et al are secondary.

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Chandy writes for Chillibreeze.

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