India Will Overtake China In The Next 25 Years

India will overtake China in the next 25 years				Last two years have been eventful with more
Ten years ago, it was unthinkable to compare				than 8 per cent of growth. While India has an
China with India. The emergence of India and				economy that is growing from the grassroots,
China as major global players heralds new				China's economy's roots are not set from the
realities. Both countries have transformed the				individual up but from the government down.
global political architecture increasingly shifting				China's economy is not demand driven but
power from West to the East. The question issue				performance/producers under strict guidance set
here is the nature of the India's economic growth				down by the government. Foreign investors have
and its potentials to outperform China.				looked China for term opportunity where political
				and internal unrest can wipe out gains at one blow.
To-day India has become the world's most				India on the other hand offers long-term
debating chamber before economists and				possibilities for growth, even though the returns
entrepreneurs like you, it is not without a reason				may not be that huge in the short term.
– it is an exiting love-affair with growing
passion which reminds us all that rise of India				India's population is just 200 million short of China's
means that democracy can be good for growth.				1.4 billion, nevertheless, India's medium age is just
It also poses a question that can an Indian political				above 24 years while that of china is into
model based on democracy and rule of law can				thirties.
overtake rival Chinese political model of unbridled				In the last decade, India has emerged next to
government authority as a formula for making				China in their growth rate. Empowered by engine
poor countries rich.				from IT, and exporting its manpower throughout
				the world that has increased the credibility of
India's economic dynamism constitutes a huge				India, and made it an economic powerhouse for
paradox comprising achievements and failures				the 21st Century; and it has shown that it has all
simultaneously. Economic reforms in India over the				the guts to be in that ceremonious position.
last few years in particular are promising but not
sufficient. India may claim that there is no other
country in the world which is so productive and				India is world leader in IT Services and BPO
that India's pluralistic system is in fact strength				off-sourcing with 65% and 46 % share of the
rather than a weakness, it is not too convincing				global pie. The World off-shoring market currently
given the slow pace of development. India may				is valued at $300 billion, of which $110 billion will be
claim that because of the democratic system it				off-shored by 2010 and India has the potential to
has fallen behind China in terms of both FDI and				capture 50% of it employing up to 8.8 million
growth rates, but in fact a lot of problems being				people.
experienced in India are not because of
democracy but because of bureaucracy, controls				The Indian BPO industry has grown at a
and restraints in establishing enterprise and				mind-boggling 60–70 percent annually, with
barriers in the way of entrepreneurship and lack				revenues rising from US$565 million in
of effective governance.				1999–2000 to more than $3.4 billion now -
				China's was only a fraction of it - $210 million.
Two years ago the view that India might have a
more competitive economy than China was met				With huge investments flowing into China and with
with incredulity. To-day comparison of the two				robust domestic demand, it's a paradox of plenty
countries offers valuable insights for us for the				as far as China is concerned. The higher you go,
global economy. A fundamental distinction is that				the harder you will fall. Policy makers in China
China's growth stems from resource accumulation				seem to understand this well as they have taken
while India's is rooted in increasing efficiency.				deliberate measures to slowdown the surging
				economy.
China's rise was due to major investment in				India is better placed than China for future
infrastructure, when economic liberalization and				growth. Its capital markets operate with greater
institutional reforms deserve more credit. China				efficiency. They are also much more transparent.
pursued this goal while giving less priority to				Companies can raise the money they need. India's
education. India's educational system, on the other				legal system, while too slow, is much more
hand, has steadily improved, especially in rural				advanced and is able to settle sophisticated and
areas.				complex cases. Its banking system has relatively
China faces several challenges, such as				few nonperforming assets.
corruption, fragile financial system, unemployment,				India's democracy and news media are alive and
energy security, environment degradation, likely				vital, which provides a safety valve for the
shrinking of the FDI, failure to create enough jobs				incoherent changes that modern economic growth
which is already triggering unrest, its aging society				brings. India has religious riots, secessionist
beginning in the 2020 and it is very unlikely that				movements, urban squalor and bitter rural
China would be able to place pension and health				poverty. But the voters know they can throw
care system and if by any means the economy				the rascals out, and they regularly do.
takes the down trend it would have devastating				For decades China has benefited from the wealth
affect of political instability, HIV/AIDS and most				and the investment potential of its Diaspora and
importantly the Taiwan conflicts. China's				the economic energy of Hong Kong and Taiwan.
emergence could be severely dented if it faces				After years of ignoring its Diaspora, India is now
crisis of confidence.				welcoming them back - and they have much
				more "intellectual capital" to offer than China's. The
The same rule of law that allowed China to				remittance inflow from overseas Indians during
bulldoze homes for skyscrapers, for example, has				2005 was more than 21 billion dollar, much more
also led to corruption, rising inequality and social				than Chinese Diaspora has remitted.
unrest. Conversely, India's apparent weaknesses -
a cumbersome democracy, lack of central				India seems all set to outperform China in the
planning and unrestrained population growth - could				next 20 years. But, hopefully, the biggest
be long-term advantages.				beneficiary of the rise of India will be China itself.
				It will be forced to examine the imperfections of
China's economic superpower ambition has flaws,				its own economic model and to abandon its sense
including graft and waste. India, in contrast, enjoys				of complacency acquired in the 1990s. China was
many hidden, long-term advantages. Although				years ahead of India in economic liberalisation.
India's literacy rate is much lower than China's, its				Today it lags behind in critical aspects, such as
technical and management institutes are far				reform that would permit more foreign
better than such schools in China. It is estimated				investment and domestic private entry in the
that that only 10 per cent of Chinese engineers				financial sector.
have the skills required to work in a global				In the long run, India will overtake China in
company, while the comparable number for India				economic growth owing to home-grown
is 25 per cent.				entrepreneurship, stronger infrastructure to
				support private enterprise and companies which
Moreover, the massive flows of foreign				compete internationally with global firms, a media
investment into China are a two-edged sword. It				report has claimed.
has become a substitute for domestic				The real issue is not where China and India are
entrepreneurship. Few of the Chinese goods are in				today but where they will be tomorrow. The
fact made by indigenous companies. And the few				answer will be determined in large measure by
that exist are besieged by regulatory constraints				how well both countries utilize their resources, and
and find it hard to raise domestic capital. China's				on this score, India seems to be doing a better
state-owned enterprises remain massive but				job.
bloated and possess a frightening number of
nonperforming loans from China's vulnerable				The danger for both China and India, however is
banking system.				that the race to the top will create such huge
				income disparities in both countries which will lead
China's export-led manufacturing boom is largely a				to revolution in China and riots in India. It is not
creation of foreign direct investment (FDI), which				surprising that China is taking active measures to
effectively serves as a substitute for domestic				channel some of its huge financial reserves into
entrepreneurship. During the last 20 years, the				the rural areas. India too is addressing the issue
Chinese economy has taken off, only few local				aggressively.
firms have been developed as world class
companies to rival the big multinationals.				India has also developed much stronger
				infrastructure to support private enterprise. Its
On the other hand, India has managed to spawn a				capital markets operate with greater efficiency
number of companies that now compete				and transparency. Its legal system, while not
internationally with the best that Europe and the				without substantial flaws, is considerably more
United States have to offer.				advanced.

India too faces these challenges that China faces,				Indian policy makers have an opportunity to
some challenges are even greater than one can				change India, fortune of its 1.2 billion people. Both
imagine. Corruption is a major issue. However,				India and China are cruising through eight lane
India is well positioned to tackle these issues				super highways. The Chine superhighways are
through participatory process whereas China can				paved well with side walks but it has lots of
not. Even though India's democratic system				political bumps and pot holes ahead of it whereas
can be cumbersome and slow, it is stable, which				the road for India looks smooth but with several
makes investment less risky than in an opaque,				challenges. With foundations of reforms in place
authoritarian environment.				and the dreams of all Indians to beat all in this
				race, I am convinced that India will eventually
India's banking and financial institutions are well				overtake China.
established and have long been lending on the
basis of market-based analysis, which helps explain				The international system is changing towards an
their more efficient use of capital.				age where human and trade union rights will be an
				important currency of power. Military and
Among the other advantages India has is that the				economic might alone would not do. Although
common language of Indians is English, which				China has 450 million people in its globalize
makes it easier for the country to fit into an				economy compared to India's 250 million, the
international business system.				participation of Chinese workers in the economic
				progress is limited only to "production" without
China faces shrinking workforce due to its one				any rights. Chinese workers are denied their basic
child policy. China's working population will peak at 1				trade union rights. China does not respect
billion by 2025 and then shrink steadily and that				internationally recognized core labour standards.
providing retiring benefits would be a major
problem. On the other hand India will have 1.6				India finds its strength in democracy whereas
billion population - 220 million more than China.				China believes in imposing laws. In fact, to those
Indians with half its population under 25 years				who doubt the universal application of democracy
means that the country will have no problem				and its economic virtues, I say that in spite of
paying for elders' future health care and pension				India's sizeable challenges it faces, it is a
costs.				remarkable example of what democracy can
				achieve. Lastly, in my view one of the important
India has grown steadily at an average 6 per cent				reasons for India having an edge over China is the
since the country embraced market economy.				lack of democracy and one party rule in China.

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India Will Overtake China In The Next 25 Years