Can India really be the next China?

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By Geoffrey Garrett
The bulls say India is the 'next China'.
Odds are they are right, if not today then
within a decade or so. But even if this
proves to be right in terms of growth, India
is a very different country than China on
many fundamental dimensions,
demography and democracy being key.
But most importantly, China has been built
on infrastructure, investment and
manufacturing, while India has barely
scratched the surface on all three.

India began its economic reform in the early 1990s, more than
a decade after China. But in the past 25 years, China has
turbocharged its economy while India has languished in
relative terms.

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India began its economic reform in the early 1990s, more than a decade after China. But
in the past 25 years, China has turbocharged its economy while India has languished in
relative terms. Why?
Chinese growth has been driven by some of the world's highest investment rates. This
has, in turn, made possible an infrastructure revolution of new cities, high-speed rail
lines, airports and ports and manufacturing muscle that is the envy of the world. China
has also been the world's factory for 20 years. Its ability to quickly and efficiently move
what it produces domestically and around the world has been a critical ingredient in its
growth miracle.
Today, India lags far behind China on all three dimensions. India invests about 30% of its
GDP, compared with about 50% in China. Manufacturing is about 20% of the Indian
economy, compared to China's about 30%. China has arguably the best physical
infrastructure outside the western world. India's looks more like the poor country that it
still is.
But this is a real opportunity for India. Increase investment. Improve infrastructure. Grow
economic output. This is a tried and true path to growth, and it is one India is poised to
follow.

10/27/2015 11:08 AM

Can India really be the next China? - The Economic Times

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running some of America's tech icons. Google's CEO Sundar Pichai did his
undergraduate degree in India before coming to the US for a Stanford Masters and a
Wharton MBA. Likewise, Microsoft CEO Satya Nadella received his undergraduate
degree in India and followed up with diplomas from US graduate schools. These and so
many other Indian-American tech sector executives are testament to the power of the
immigration-innovation nexus in the US.

SPOT LIGHT
However, don't let these rock star CEOs fool anyone into thinking the only way for Indian
technologists to succeed is to work in the US for American firms. Homegrown, and still
home-centered, companies like Tata Consultancy Services (TCS), Infosys and Wipro are
real world leaders when it comes to information technology. And Indian entrepreneurs
are killing it today in startups with people like Punit Soni at FlipKart and Kunal Bahl at
SnapDeal.

Sale frenzy

No glitches, Flipkart keeps

sellers happy in sale season

The growth of Indian tech has been fuelled by large-scale private sector investment,
from both India and abroad. These companies needed infrastructure to thrive, but the
infrastructure was digital not physical allowing Indian IT firms to beam information and
analysis from India to the world and back, long before anyone was talking about 'the
Cloud'. They didn't need to ship widgets because their products were all in bits.

Unlike last year's fiasco, when the sale

faced several glitches, better preparedness

About a decade ago, some optimists thought India could leapfrog over the

this year by Flipkart resulted in high

volumes for merchants.

manufacturing and physical infrastructure stage of development (widgets) to build the

whole economy around digital (bits). Today, it is clear that while India's tech sector is
fantastic and growing, the country will have to develop the old-fashioned way, with better

Flipkart sells $200 million worth of mobile

phones during 'Big Billion' sale
Direct selling cos hit by ecommerce,
HUL, Eureka Forbes embrace change

infrastructure and more manufacturing.

What will determine whether India can become a bit more 'Chinese' when it comes to
infrastructure and manufacturing? Unlike China, the answer will not be government
investment, because the Indian state is hamstrung by endemic budget deficits of big
subsidies and limited taxation.
The 'Make in India' initiative is so promising because it does not rely on the Indian
government. Boldly launched with a goal of India surpassing China in direct foreign
investment, 'Make in India' is a clarion call for global firms to increase their financial
commitment to India. Now innovative firms as diverse as Samsung, Lenovo and Boeing
have publically supported the initiative proving that the private sector is ready to step in.
Yet it seems that the private sector won't act until it is more confident about politics.
Nowhere is India more different from China than in the world of politics. But this doesn't
mean that India won't go on a growth charge the way China has. The raw material India
has to work with is so rich. The challenge now is to catalyse it.
(The writer is Dean, Wharton School of the University of Pennsylvania)

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