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The bulls say India is the 'next China'. Odds are they are right, if not today then within a decade or so. But even if this proves to be right in terms of growth, India is a very different country than China on many fundamental dimensions, demography and democracy being key. But most importantly, China has been built on infrastructure, investment and manufacturing, while India has barely scratched the surface on all three.
India began its economic reform in the early 1990s, more than a decade after China. But in the past 25 years, China has turbocharged its economy while India has languished in relative terms. Why?
Chinese growth has been driven by some of the world's highest investment rates. This has, in turn, made possible an infrastructure revolution of new cities, high-speed rail lines, airports and ports and manufacturing muscle that is the envy of the world. China has also been the world's factory for 20 years. Its ability to quickly and efficiently move what it produces domestically and around the world has been a critical ingredient in its growth miracle.
Today, India lags far behind China on all three dimensions. India invests about 30% of its GDP, compared with about 50% in China. Manufacturing is about 20% of the Indian economy, compared to China's about 30%. China has arguably the best physical infrastructure outside the western world. India's looks more like the poor country that it still is.
But this is a real opportunity for India. Increase investment. Improve infrastructure. Grow economic output. This is a tried and true path to growth, and it is one India is poised to follow.
Consider India's vaunted tech sector. We all know about the incredible Indian talent running some of America's tech icons. Google's CEO Sundar Pichai did his undergraduate degree in India before coming to the US for a Stanford Masters and a Wharton MBA. Likewise, Microsoft CEO Satya Nadella received his undergraduate degree in India and followed up with diplomas from US graduate schools. These and so many other Indian-American tech sector executives are testament to the power of the immigration-innovation nexus in the US.
However, don't let these rock star CEOs fool anyone into thinking the only way for Indian technologists to succeed is to work in the US for American firms. Homegrown, and still home-centered, companies like Tata Consultancy Services (TCS), Infosys and Wipro are real world leaders when it comes to information technology. And Indian entrepreneurs are killing it today in startups with people like Punit Soni at FlipKart and Kunal Bahl at SnapDeal.
The growth of Indian tech has been fuelled by large-scale private sector investment, from both India and abroad. These companies needed infrastructure to thrive, but the infrastructure was digital not physical — allowing Indian IT firms to beam information and analysis from India to the world and back, long before anyone was talking about 'the Cloud'. They didn't need to ship widgets because their products were all in bits.
About a decade ago, some optimists thought India could leapfrog over the manufacturing and physical infrastructure stage of development (widgets) to build the whole economy around digital (bits). Today, it is clear that while India's tech sector is fantastic and growing, the country will have to develop the old-fashioned way, with better infrastructure and more manufacturing.
What will determine whether India can become a bit more 'Chinese' when it comes to infrastructure and manufacturing? Unlike China, the answer will not be government investment, because the Indian state is hamstrung by endemic budget deficits of big subsidies and limited taxation.
The 'Make in India' initiative is so promising because it does not rely on the Indian government. Boldly launched with a goal of India surpassing China in direct foreign investment, 'Make in India' is a clarion call for global firms to increase their financial commitment to India. Now innovative firms as diverse as Samsung, Lenovo and Boeing have publically supported the initiative proving that the private sector is ready to step in.
Yet it seems that the private sector won't act until it is more confident about politics. Nowhere is India more different from China than in the world of politics. But this doesn't mean that India won't go on a growth charge the way China has. The raw material India has to work with is so rich. The challenge now is to catalyse it.
Can India really be the ‘next China’? - The Economic Times
India began its economic reform in the early 1990s, more than a decade after China. But in the past 25 years, China has turbocharged its economy while India has languished in relative terms. Why?
Chinese growth has been driven by some of the world's highest investment rates. This has, in turn, made possible an infrastructure revolution of new cities, high-speed rail lines, airports and ports and manufacturing muscle that is the envy of the world. China has also been the world's factory for 20 years. Its ability to quickly and efficiently move what it produces domestically and around the world has been a critical ingredient in its growth miracle.
Today, India lags far behind China on all three dimensions. India invests about 30% of its GDP, compared with about 50% in China. Manufacturing is about 20% of the Indian economy, compared to China's about 30%. China has arguably the best physical infrastructure outside the western world. India's looks more like the poor country that it still is.
But this is a real opportunity for India. Increase investment. Improve infrastructure. Grow economic output. This is a tried and true path to growth, and it is one India is poised to follow.
Consider India's vaunted tech sector. We all know about the incredible Indian talent running some of America's tech icons. Google's CEO Sundar Pichai did his undergraduate degree in India before coming to the US for a Stanford Masters and a Wharton MBA. Likewise, Microsoft CEO Satya Nadella received his undergraduate degree in India and followed up with diplomas from US graduate schools. These and so many other Indian-American tech sector executives are testament to the power of the immigration-innovation nexus in the US.
However, don't let these rock star CEOs fool anyone into thinking the only way for Indian technologists to succeed is to work in the US for American firms. Homegrown, and still home-centered, companies like Tata Consultancy Services (TCS), Infosys and Wipro are real world leaders when it comes to information technology. And Indian entrepreneurs are killing it today in startups with people like Punit Soni at FlipKart and Kunal Bahl at SnapDeal.
The growth of Indian tech has been fuelled by large-scale private sector investment, from both India and abroad. These companies needed infrastructure to thrive, but the infrastructure was digital not physical — allowing Indian IT firms to beam information and analysis from India to the world and back, long before anyone was talking about 'the Cloud'. They didn't need to ship widgets because their products were all in bits.
About a decade ago, some optimists thought India could leapfrog over the manufacturing and physical infrastructure stage of development (widgets) to build the whole economy around digital (bits). Today, it is clear that while India's tech sector is fantastic and growing, the country will have to develop the old-fashioned way, with better infrastructure and more manufacturing.
What will determine whether India can become a bit more 'Chinese' when it comes to infrastructure and manufacturing? Unlike China, the answer will not be government investment, because the Indian state is hamstrung by endemic budget deficits of big subsidies and limited taxation.
The 'Make in India' initiative is so promising because it does not rely on the Indian government. Boldly launched with a goal of India surpassing China in direct foreign investment, 'Make in India' is a clarion call for global firms to increase their financial commitment to India. Now innovative firms as diverse as Samsung, Lenovo and Boeing have publically supported the initiative proving that the private sector is ready to step in.
Yet it seems that the private sector won't act until it is more confident about politics. Nowhere is India more different from China than in the world of politics. But this doesn't mean that India won't go on a growth charge the way China has. The raw material India has to work with is so rich. The challenge now is to catalyse it.
Can India really be the ‘next China’? - The Economic Times
