India Is Losing the Race
By STEVEN RATTNER
Steven Rattner on economic policy, finance and business.
As recently as 2006, when I first visited India and China, the economic race was on, with heavy bets being placed on which one would win the developing world sweepstakes.
Many Westerners fervently hoped that a democratic country would triumph economically over an autocratic regime.
Now the contest is emphatically over. China has lunged into the 21st century, while India is still lurching toward it.
Thats evident not just in columns of dry statistics but in the rhythm and sensibility of each country. While China often seems to eradicate its past as it single-mindedly constructs its future, India nibbles more judiciously at its complex history.
Visits to crowded Indian urban centers unleash sensory assaults: colorful dress and lilting chatter provide a backdrop to every manner of commerce, from small shops to peddlers to beggars. That makes for engaging tourism, but not the fastest economic development. In contrast to Chinas full-throated, monochromatic embrace of large-scale manufacturing, India more closely resembles a nation of shopkeepers.
To be sure, India has achieved enviable success in business services, like the glistening call centers in Bangalore and elsewhere. But in the global jousting for manufacturing jobs, India does not get its share.
Now, after years of rocketing growth, Chinas gross domestic product per capita of $9,146 is more than twice Indias. And its economy grew by 7.7 percent in 2012, while India expanded at a (hardly shabby) 5.3 percent rate.
The New York Times
Chinas investment rate of 48 percent of G.D.P. a key metric for development also exceeded Indias. At 36 percent, Indias number is robust, particularly in comparison with Western countries. But the impact of that spending can be hard to discern; on a recent 12-day visit to India, not many rupees appeared to have been lavished on Mumbais glorious Victoria Terminus, also known as Chhatrapati Shivaji Terminus, since it was constructed in the 1880s. Parts of Mumbais recently built financial district Bandra Kurla Complex already look aged, perhaps because of cheap construction or poor maintenance or both. Its hardly a serious competitor to Shanghais shiny Pudong.
China has 16 subway systems to Indias 5. As China builds a superhighway to Tibet, Indian drivers battle potholed roads that they share with every manner of vehicle and live animal. Indias electrical grid is still largely government controlled, which helped contribute to a disastrous blackout last summer that affected more than 600 million people.
Yet Morgan Stanley stands resolutely behind its 2010 prediction that India will be growing faster than China by the middle of this decade.
It isnt going to happen, Indias better demographics notwithstanding.
For one thing, many of Indias youths are unskilled and work as peddlers or not at all. For another, despite all the reforms instituted by India since its move away from socialism in 1991, much more would have to change. Corruption, inefficiency, restrictive trade practices and labor laws have to be addressed.
Democratic it may be, but Indias ability to govern is compromised by suffocating bureaucracy, regular arm-wrestling with states over prerogatives like taxation and deeply embedded property rights that make implementing China-scale development projects impossible. Unable to modernize its horribly congested cities, Indias population has remained more rural than Chinas, further depressing growth.
China and corruption may be almost synonymous to many, but India was ranked even worse in corruption in Transparency Internationals annual Corruption Perceptions Index. At its best, the Indian justice system a British legacy grinds exceptionally slowly.
To be sure, summary executions dont occur in India, and its legal system is more transparent and rule-based than Chinas. But a recent visit coincided with the tragic gang rape of a young Indian woman that led to her death; the governments ham-handed initial response was to ban protesters from assembling and impound vans with tinted windows like the one in which she was abducted.
Indias rigid social structure limits intergenerational economic mobility and fosters acceptance of vast wealth disparities. In Mumbai, where more than half the population lives in slums often devoid of electricity or running water, Mukesh Ambani spent a reported $1 billion to construct a 27-story home in a residential neighborhood.
Dont get me wrong I am hardly advocating totalitarian government. But we need to recognize that success for developing countries is about more than free elections.
While India may not have the same eye on the prize so evident in China, it should finish a respectable second in the developing world sweepstakes. It just wont beat China.