Thursday, January 28, 2010

Why the World may have a Stake in India's Growth?

China and India are two countries which missed out on the past industrial revolutions. Now both these countries are experiencing industrial revolution of their own. However the growth stories of both the countries are strikingly different. The Chinese growth has been phenomenal and Indian growth has not been that impressive. However looking beyond the GDP growth figures into social, economic and political dynamics of these two countries throws up some striking differences. These differences are enlightening if one does not get into usual quagmire of which one is better.

India's impressive 8% GDP growth has come from half of China’s domestic investment and 10% of China’s FDI. In 2003-2004, China invested about 50% of its GDP in domestic plant and equipment which is much higher than any other country. Based on similar other figures of capital and resource consumption, it is widely believed that massive resource consumption propelled China's remarkable growth whereas India’s growth comes from efficient use of existing resources. In the same breath one also says that China is Overbuilt and India is Underbuilt. The increased emphasis on infrastructure in India comes as no surprise with targets like building roads at the rate of 20km/day.

Coming to social aspects, China has more autocratic environment which contributes to speedy implementation. If a new highway or a plant has to be built, the Chinese Govt. can bulldoze the existing local inhabitants. No wonder that 'Avtaar' struck a strong chord in China where local inhabitants identified themselves as 'Navi'. In India the same issue will get mired in local opposition, political uproar and long legal suits. Tata's pullout from Singur, Failure of Arcelor-Mittal to get land for its steel-mills are some cases in point.

Coming to political aspects, India has huge ethnic, religious and lingual diversity and on top of it a democratic system. A democratic system in such diversity of views in not very conducive to industrial growth as there are frequent voices of dissent and consensus building takes time with ideas of socialism and communism still kicking. In China, the authoritarian rule removes these hurdles for the industrial growth. But this comes at a cost of poor human-rights record and censorship.

Even in international perspective, China has been able to maintain its currency undervalued for long time which has facilitated its export oriented growth. For India, such regulation would not seem possible. Also when I was talking to some Spanish companies, they find China easier to get in compared to India. In China, they deal with Chinese while standing behind interpreters, without engaging directly. In India, with a large English speaking population, the companies have no choice but to engage with Indians and deal with different social and cultural norms. The famous ones are 'The Indian Nod' and 'Indians neither say Yes nor No'. Also India requires persistence, 'Out of Sight is Out of Mind' in India. And not to speak of India's bureaucracy. Corruption is also high in India and so is in China.

China's growth story is a remarkable one and many in India itself take inspiration from it. China has a way low BPL % compared to India. However, India also realizes that she cannot have the kind of authoritarian and autocratic rule to achieve that kind of growth. And also India has been a relatively soft state in international affairs and like many other major countries is wary of China's expansionism.

Then why the world might have a stake in India's growth? Its because what kind of growth model the world wants to present in modern times to other developing and under-developed countries. The China one or India one. Further, how many countries can really follow the Chinese authoritarian and autocratic political system to achieve the stellar growth. I heard similar concerns being voiced during World Economic Forum at Davos. Success of India is essential to prove to the world that growth is possible in these modern times with less resources, in a diverse society with a democratic political system and freedom rights to its citizens. Though the growth may not be as stellar as that of China but still its possible.

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