Can India Overtake China?

In response to a comment on an earlier post on China vs. India, I was doing some research on this topic. There is no doubt that China outperforms India currently, as visible in the macro-economic indicators in China & India: A visual essay by Deutsche Bank Research.

However check out the Foreign Policy article “Can India Overtake China?” where the authors write:

“… statistics tell only part of the story—the macroeconomic story. At the micro level, things look quite different. There, India displays every bit as much dynamism as China. Indeed, by relying primarily on organic growth, India is making fuller use of its resources and has chosen a path that may well deliver more sustainable progress than China’s FDI-driven approach. “Can India surpass China?” is no longer a silly question, and, if it turns out that India has indeed made the wiser bet, the implications—for China’s future growth and for how policy experts think about economic development generally—could be enormous… In a survey of 25 emerging market economies conducted in 2000 by Credit Lyonnais Securities Asia, India ranked sixth in corporate governance, China 19th.”

Also worthy of attention are some fundamental weaknesses in Chinese policies/actions which will manifest themselves in the longer term, as brought about by Jared Diamond in his book Collapse and summarised by the CIA Factbook:

“One demographic consequence of the “one child” policy is that China is now one of the most rapidly aging countries in the world. Another long-term threat to growth is the deterioration in the environment – notably air pollution, soil erosion, and the steady fall of the water table, especially in the north.”

Finally the best approach for both economies would be not to compete but collaborate and gain on each other’s strengths, as aptly pointed out by Stephen S. Roach in Morgan Stanley’s Global Economic Forum:

“Interestingly enough, as both of developing Asia’s largest economies look to the future, they do so with an eye toward emulating the other.

India currently has over 25 world-class companies, well-developed capital markets, a modern banking system, and a deeply entrenched rule of law. China is lacking in all of those key respects, and very much wants to move in those directions.

At the same time, India very much aspires to match China’s progress on the manufacturing front.”

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