Devangshu Datta: Justifying the ends

BEATING THE STREET

Chinese reformer Deng Xiao Ping once famously remarked that it didn't matter whether a cat was black or white, so long as it caught mice. That pragmatism ushered in 25 years of double-digit GDP growth.

This is an object lesson to India: the PRC exceeds India in terms of scale. Other Asian economies had high growth over long periods. But small countries like Singapore, Taiwan, Hong Kong, South Korea and Japan are easier to manage.

China has large populations, intractable minorities, a huge bureaucracy, open nepotism, massive corruption and most of India's other problems. The one thing it doesn't have is democracy.

Every election, the argument that India would do better if it junked democracy resurfaces. The assumption: an authoritian government would make good economic policy and implement it efficiently. We saw no signs of that during the Emergency or in Jaya's Tamil Nadu.

China's growth has come despite a one-party system. The Party did some things right "" it provided basic education and it created infrastructure, often by ruthlessly displacing populations. But food self-sufficiency came only after famines where millions starved to death.

Economic growth arrived through a combination of high savings rates, large internal markets, directed exports policies and an entrepreneural diaspora, which offered FDI.

In some respects, successive Indian governments have failed but in other respects, they haven't. Basic education remains a shocking lacuna and any Indian political party, which improved basic education, would win landslides.

Food sufficency has come without large-scale famines, notwithstanding Kalahandi and Telengana. As to internal markets, India is more profitable than China! MNCs in China mostly show zero profitability after decades of operations.

Indian Infrastructure development started very recently. The progress in creating viable road and telecom networks is commendable. Successful creation of better all-round urban infrastructure and power reform is vital for future growth. NRIs are mostly professionals rather than entrepreneurs but they are contributing FDI and high-tech skills.

China's problems arise from the abusive nature of undemocratic systems. Indians have a safety valve. Famine versus shortage is an extreme example of this. But Indian nepotism and corruption is timebound since governments can be replaced.

China has massive disparities between town and country "" the rural population is prevented from moving into cities, leading to largescale unemployment in the heartland. India has unbridled urbanisation "" surpluslabour moves to cities. As a result, Indian rural/semi-urban growth is higher than average.

The Chinese financial system is crippled by NPAs "" maybe 50 per cent of Chinese loans are bad! There is no sign that those NPAs will ever be tackled. The Indian financial system has started tackling NPAs and it achieved cleaner balance-sheets in the last two to three years.

China may have social problems transiting to the next stage of development. South Korea offers an example of a continuously growing economy smoothly transiting to functional democracy. Singapore shows that rich, economically-free citizens accept curtailment of personal freedom.

China could move either way if growth stays continuous. But if growth slows, there may well be a complete meltdown in institutions. In similar circumstances, Indians would merely vote non-performing governments out and vote in new (probably equally ineffectual!) governments.