Insights into Editorial: Let us count the ways India surpasses China

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Insights into Editorial: Let us count the ways India surpasses China

04 June 2016

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As China, Russia and Brazil slow down, India is barreling ahead. India is emerging as one of the brighter spots among all the emerging markets today, especially when compared to China.

Indian economy: challenges-

  • Notoriously slow bureaucracies.
  • Lack of good infrastructure.
  • Too much regulation and corruption.
  • Reliable data measuring India’s economy are fuzzy.
  • Most businesses are tiny and unregulated.
  • Many people are employed off the books.
  • India also uses wholesale, not final, prices to deflate nominal GDP.

However, India has following advantages over China:

  • China’s one-child policy, while now relaxed, will result in fewer entrants into the labour force for decades. That could choke growth: Younger people tend to be more geographically mobile and flexible in terms of occupation and ability to learn new skills. By contrast, India has had few constraints on population growth. The dependency ratio—the number of children and seniors relative to the working-age population—will continue to fall in India as it rises in China.
  • English language usage is widespread in India compared to China. It also acts as a unifying force in a country with hundreds of languages and dialects.
  • India also inherited a free press and a legal system from the UK. As a result, India’s rule of law is vastly better than the Communist party-dominated courts of China, complete with show trials and forgone convictions.
  • India has historically had more of a free-market orientation than other large, developing countries, notably Russia and China. State-controlled enterprises in India account for only 13% of GDP compared with 29% in China.
  • Also, the pharmaceutical and technology sectors in India never suffered the burdensome regulations that bogged down the steel and airline industries.
  • Also helpful is the Indian natural bent toward technology. Its booming information-technology sector relies more on new technologies such as satellite transmission, and is able to leapfrog Indian-regulated utilities and the crumbling infrastructure.
  • American and European firms outsource many back-office and even legal and medical services to India. Outsourcing revenue is now $95 billion a year and accounts for a fifth of Indian exports. India’s lower wages and English-speaking ability are the attractions.
  • Many Indians have strong entrepreneurial inclinations, and the economic growth they can spark is vital to reducing high poverty rates and corruption as economic power shifts from politicians to entrepreneurs.
  • The rupee has been relatively free of government intervention. The Reserve Bank of India, the central bank, is largely independent of government influence, while the People’s Bank of China is completely government controlled.
  • In contrast to China’s 36% consumer spending component of GDP in 2014, India’s consumers are responsible for 59% of the economy, despite an equally high savings rate. This is a better balance in a world where exports and capital spending are no longer the easy route to economic growth for developing countries.

Problems with Chinese economy:

  • China is burdened with government-controlled banks and other inefficient, state-owned enterprises that still produce half the country’s output and employ a quarter of the workforce.
  • China is moving slowly to open its financial and currency markets to foreigners. The yuan, however, remains tightly controlled. It’s allowed to appreciate in good times but is held stable whenever the economy is weak.

Way ahead:

Many reforms in India are still needed. Bribe demands are routine, the bureaucracy is byzantine and the infrastructure is backward. All of this impedes entrepreneurial activity.

  • India also has a culture that penalizes risk-taking. Business is concentrated among long-existing and well-connected conglomerates with close ties to the government, much like the state-owned enterprises in China and the chaebols in South Korea.
  • When it comes to the cost of starting a business, India is off the charts—ranked 173rd out of 189 countries, according to the World Bank—compared with the US, Germany, the UK and even China. Only China tops India for the amount of time it takes to start a company. India also ranked 130th for the ease of doing business, behind the notoriously difficult Russia (51st) and Brazil (116th). Even China, at No. 84, ranks higher.
  • Opening the economy to entrepreneurs remains a long-run challenge for India, as does the education of hundreds of millions of students. About 90% of children enter school but more than half drop out before completing high school. Cheating on tests and bribing teachers for passing grades is rampant.


For India to maintain its position, it needs to address its challenges before economic growth can explode. With improved education, faster deregulation and other reforms, India’s many advantages could translate into higher productivity and faster economic growth than in China.