India Is Losing the Race

As recently as 2006, when I first
visited India and China, the
economic race was on, with heavy
bets being placed on which one
would win the developing world
sweepstakes.
Many Westerners fervently hoped
that a democratic country would
triumph economically over an
autocratic regime.
Now the contest is emphatically
over. China has lunged into the
21st century, while India is still
lurching toward it.
That's evident not just in columns
of dry statistics but in the rhythm
and sensibility of each country.
While China often seems to
eradicate its past as it single-
mindedly constructs its future,
India nibbles more judiciously at
its complex history.
Visits to crowded Indian urban
centers unleash sensory assaults:
colorful dress and lilting chatter
provide a backdrop to every
manner of commerce, from small
shops to peddlers to beggars. That
makes for engaging tourism, but
not the fastest economic
development. In contrast to China's
full-throated, monochromatic
embrace of large-scale
manufacturing, India more closely
resembles a nation of shopkeepers.
To be sure, India has achieved
enviable success in business
services, like the glistening call
centers in Bangalore and
elsewhere. But in the global
jousting for manufacturing jobs,
India does not get its share.
Now, after years of rocketing
growth, China's gross domestic
product per capita of $9,146 is
more than twice India's. And its
economy grew by 7.7 percent in
2012, while India expanded at a
(hardly shabby) 5.3 percent rate.
China's investment rate of 48
percent of G.D.P. - a key metric for
development - also exceeded
India's. At 36 percent, India's
number is robust, particularly in
comparison with Western
countries. But the impact of that
spending can be hard to discern;
on a recent 12-day visit to India,
not many rupees appeared to have
been lavished on Mumbai's
glorious Victoria Terminus, also
known as Chhatrapati Shivaji
Terminus, since it was constructed
in the 1880s. Parts of Mumbai's
recently built financial district -
Bandra Kurla Complex - already
look aged, perhaps because of
cheap construction or poor
maintenance or both. It's hardly a
serious competitor to Shanghai's
shiny Pudong.
China has 16 subway systems to
India's 5. As China builds a
superhighway to Tibet, Indian
drivers battle potholed roads that
they share with every manner of
vehicle and live animal. India's
electrical grid is still largely
government controlled, which
helped contribute to a disastrous
blackout last summer that affected
more than 600 million people.
Yet Morgan Stanley stands
resolutely behind its 2010
prediction that India will be
growing faster than China by the
middle of this decade.
It isn't going to happen, India's
better demographics
notwithstanding.
For one thing, many of India's
youths are unskilled and work as
peddlers or not at all. For another,
despite all the reforms instituted
by India since its move away from
socialism in 1991, much more
would have to change. Corruption,
inefficiency, restrictive trade
practices and labor laws have to be
addressed.
Democratic it may be, but India's
ability to govern is compromised
by suffocating bureaucracy, regular
arm-wrestling with states over
prerogatives like taxation and
deeply embedded property rights
that make implementing China-
scale development projects
impossible. Unable to modernize
its horribly congested cities,
India's population has remained
more rural than China's, further
depressing growth.
"China" and "corruption" may be
almost synonymous to many, but
India was ranked even worse in
corruption in Transparency
International's annual Corruption
Perceptions Index . At its best, the
Indian justice system - a British
legacy - grinds exceptionally
slowly.
To be sure, summary executions
don't occur in India, and its legal
system is more transparent and
rule-based than China's. But a
recent visit coincided with the
tragic gang rape of a young Indian
woman that led to her death; the
government's ham-handed initial
response was to ban protesters
from assembling and impound
vans with tinted windows like the
one in which she was abducted.
India's rigid social structure limits
intergenerational economic
mobility and fosters acceptance of
vast wealth disparities. In Mumbai,
where more than half the
population lives in slums often
devoid of electricity or running
water, Mukesh Ambani spent a
reported $1 billion to construct a
27-story home in a residential
neighborhood.
Don't get me wrong - I am hardly
advocating totalitarian government.
But we need to recognize that
success for developing countries is
about more than free elections.
While India may not have the
same "eye on the prize" so evident
in China, it should finish a
respectable second in the
developing world sweepstakes. It
just won't beat China.
by new York times