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Can India run ahead of China?

Can India run ahead of China?
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First Published: Wed, Jun 24 2009. 10 15 PM IST

Abel Robinson / Mint
Abel Robinson / Mint
Updated: Wed, Jun 24 2009. 10 15 PM IST
Indians have for long suffered from an advanced case of China envy. It has never been just a question of higher growth rates in China. Visitors from India have also inevitably come back with breathless tales about the new downtown Shanghai, the magnetic levitation trains or the new highways being built across that country.
However, the World Bank said on Monday that India is expected to grow at a slightly faster pace than China in 2010. And the two economies will expand at around the same rate in 2011.
Abel Robinson / Mint
Is this a turning point in the long race between the hare and the tortoise?
There is little doubt that the gap between the rates at which the two emerging giants are growing has started narrowing. China used to grow around 3 percentage points faster than India earlier this decade. That gap has now narrowed to the point of insignificance in the past couple of years, even without discounting China’s dodgy macroeconomic numbers.
This change is likely to be enduring for several reasons. First, China is more exposed to the vagaries of the world market because of its high trade intensity. A Japan-style secular slowdown in the US and Europe over the next decade will hurt China more than India unless China moved beyond its admittedly successful mercantilism.
Second, the foreign direct investment boom in China since the mid-1990s pushed up its investment rate, enabled technology transfer and plugged the nation into global supply chains. All this took China closer to the global efficiency frontier, but it now seems that diminishing returns are setting in. Future growth will have to depend more on domestic demand and local innovation, which means that China will have to change its growth model.
Third, China is a fast ageing society, thanks to a one-child policy. This demographic change will increase dependency ratios and social costs.
India seems to be on a stronger wicket right now, thanks to its higher dependence on domestic demand, its vibrant entrepreneurial culture and a young population. But that should not mean that catching up or overtaking China is inevitable.
The joker in the pack is the quality of national leadership. India needs to do several things if it has to realistically overtake China in the next decade: economic reforms, better infrastructure, less bureaucracy and intensive skill development, for example.
What should be done to enable India to overtake China? Tell us at views@livemint.com
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First Published: Wed, Jun 24 2009. 10 15 PM IST
More Topics: Ourviews | China | World Bank | India | Views |