These words were said for India at the time of independence and suddenly they have become appropriate again. Moreover, the same words could have been said for China, without causing any loss of relevance. Both nations are witnessing something that is nothing short of a revolution. China has transformed itself completely over the past three decades and is lifting millions of people above the poverty line every year. India started its reform process much later than China, but what matters is that it has started. Though both the nations are at different stages of economic growth, they have a lot more to achieve in the coming years, to become economic superpowers of the future.
It is widely believed that India is a distant second to China; in fact it is considered a poor cousin of China. It is a favourite pastime of economists and journalists to compare India and China across various parameters like FDI, exports, the number of cell-phone users, etc. and, without any doubt, China appears to be on top in terms of all these rankings. Hence, the judgment is invariably passed in favour of China almost unanimously.
But the situation is not as simple as it appears to be. There were 87,000 protests (official figures) in China in 2006 alone, which highlights the fact that not everything is right with China and the picture is not as rosy as it appears. Though India and China are considered "twins", they are as different as two nations can get. One is a democracy, while the other is an authoritarian state. One believes in a bottom-up approach, while the other follows the top-down approach. One has nurtured domestic entrepreneurs, whereas the other has adopted the foreign route. One swears by the freedom of its people and the media, whereas the other believes in the supreme authority of the government. One is a service-led economy, whereas the other is manufacturing-driven. They are as different as apples and oranges; hence I have called them incomparable. India and China have adopted different models of growth; both models have their own advantages and disadvantages. If two different models have to be compared, then they should be compared in entirety and not by comparing only some aspects. One tends to consider mainly the positives of the Chinese model and negatives of the Indian model, which tilts the balance in China's favour completely. For example, China is praised for its cities and for the fact that there are no slums in China. But one tends to ignore that movement of people is restricted in China; to move from Shanghai to Beijing, one needs a permit from the government. Just imagine applying for a permit to move from one city to another, within one's own country. Are Indians ready to give up this basic freedom of movement to remove slums from their cities?
Moreover, China's strength is its macroeconomic performance, whereas India's strength is its microeconomic fundamentals. But generally, the comparison between the two countries is restricted mainly to macroeconomic factors. China, at the macro level, is far superior to India, with its higher GDP, FDI, exports, forex reserves, etc. But India's strength lies somewhere else. It possesses a vibrant private sector, well-entrenched legal system, quality institutions, and respect for property rights.
One is not surprised when the Global Competitiveness Report (2006-2007) ranks China 6th in terms of macroeconomic performance, whereas India is ranked lowly 88th out of 125 countries. Understandably, one tends to assume that China is far superior to non-performer India and it's a crime to even compare India with China. But macroeconomic performance is not everything. The Report also comes out with various other rankings and one would be surprised to know that it ranks India higher than China in terms of overall rankings. It ranked India 43rd in Global Competitiveness Index, whereas China is ranked 54th. The first reaction of many of us would be, "How could India get a higher score than China?" What is the reason behind this paradox, as one tends to associate macroeconomic performance with overall competitiveness of the country?
Cynics would believe that the rankings are wrong and there must be some major mistake somewhere. But the World Economic Forum, which publishes the Global Competitiveness Report, is a respected body and the Global Competitiveness Index is supposed to be the most trusted measure of evaluating the competitiveness of a country; one cannot ignore their findings.
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Let's try to get behind this seemingly bewildering paradox. The Competitiveness Report says that "a solid foundation of macroeconomic stability alone is not sufficient to ensure rapid economic growth" and looks at various other factors at micro-level, apart from macroeconomic performance, to calculate the Index and India performs much better than China on almost all parameters. On the Innovation Index, India is ranked 23rd, whereas China is ranked 57th. On the Institutions Index, India is ranked 25th, against China's rank of 80th. In terms of Market Efficiency also, India performs much better with rank of 21 compared to China's rank of 56. It is a matter of time before good micro fundamentals would translate into stronger macroeconomic numbers as well.
This is not to wish away China's achievements, but only to point to the fact that things are not as rosy as what appears to be, for China. The above examples are just illustrations to prove that there is more than what meets the eye. What appears on the surface is not enough; one also needs to scratch the surface to get a more holistic picture. After considering all aspects, India does not seem to be as distant as it appears to be. In many respects, it's in fact performing better than China.
There is no denying the superlative infrastructure that China has created. Nor can one deny the reality of Chinese products dominating the shelves in US and EU stores. India has a long way to go, particularly in the case of infrastructure. Nevertheless, there is no room for any kind of despondency, even if one chooses to think in terms of "India versus China," rather than "India and China". There are many other factors that weigh heavily in favour of India, including the demographic profile of its population, its superior banking system, its more sensible approach towards environmental issues, its lead in IT and other knowledge-based industries, its vibrant domestic private sector and, above all, its fully matured democracy, which is more basic to sustainable economic growth than most realise.
The author has written the book India and China