India still tortoise, China the hare:Indian Politics News and Discussion

India still tortoise, China the hare
By William Pesek,

The more important divide between India and China is the pace of growth. Its something to which officials in New Delhi are paying more and more attention, and that bodes well for Asias third-biggest economy. Chinas success is increasingly acting as a catalyst for change in India.

Sitting in Mumbai traffic for two hours to travel a short distance is enough to shake even the most enthusiastic India bulls.

India’s infrastructure needs are painfully apparent the instant one arrives in the second-most-populous nation. From bumpy roads to flaky telecommunications to clogged ports to omnipresent shantytowns, India has a long way to go to join the world's most developed economies.

One gets a very different view visiting major Chinese cities. Beijing’s recently opened airport is Exhibit A. It’s a hypermodern, state-of-the-art monstrosity that offers a hint of the world-class infrastructure you will encounter downtown.

The more important divide between India and China is the pace of growth. It’s something to which officials in New Delhi are paying more and more attention, and that bodes well for Asia’s third-biggest economy. China’s success is increasingly acting as a catalyst for change in India.

Investors have long since stopped viewing things in simplistic India-versus-China terms. Even Finance Minister P Chidambaram admits China has a serious head start in terms of growth rates, infrastructure and foreign investment.

Balancing conflicts

Yet there can be little doubt that, looked at through the lens of one of Aesop’s best-known fables, India is currently the tortoise and China is the hare. In the fable, the hare races forward only to burn out before reaching the finish line, allowing the slower-moving tortoise to win the race. The moral of the story is avoiding complacency. Anyone who has visited China recently or met with its policy makers knows smugness isn't the problem. It's more about balancing conflicting needs to grow rapidly while cooling things down to tame inflation. Pulling that off is requiring more than conventional tools like monetary and fiscal policies.

The idea of China as the hare and India as the tortoise has been mentioned before. Yet operating in China’s shadow is lighting a fire under officials in New Delhi. The question is whether India’s infamous bureaucracy is getting the message quickly enough.

“We want to catch up with China,” Mr Chidambaram told the Wall Street Journal last week. Doing so, he said, requires “greater political consensus on the needed reforms.”

The trouble is, Mr Chidambaram and Prime Minister Manmohan Singh are hostages of a political system that often moves at tortoise-like speed thanks to a smorgasbord of conflicting interests.

China dreaming

“I’m talking about the fact that they are in the position to take some decisions which we are not,” he said, adding that “We have to follow a process that is more consultative, more deliberative and more amenable to judicial scrutiny.”

If ever there was a time for India to look outward — and forward — it’s now. Turmoil in credit markets, slowing global growth and accelerating inflation are threats to the outlook. This isn’t the time to let political squabbling get in the way of longer-term prosperity.

India will have to get used to growing more slowly for a while. Some economists say growth will ease to about 7 per cent, compared with the almost 9 per cent rate that India has enjoyed in recent years. It’s a setback for a nation struggling to reduce poverty.

Growing better

Rising food and energy costs complicate things further. Reserve Bank of India Governor YV Reddy has been steadily raising rates since late 2004. The key is to get more out of the growth that India produces. That means deregulating most industries, cutting red tape in New Delhi, attacking corruption and getting over the nation's aversion to foreign investment. Governments in Asia tend to get hung up on gross-domestic- product headlines. They are often misleading.

The mathematics of such figures in China can overlook the human element -- how China is largely all hardware and no software. World-class infrastructure can only take a nation that censors Google so far. Rather than empowering local entrepreneurs to create indigenous companies, China is often more interested in buying overseas names. China also faces a challenging year with overheating risks, swooning stocks and slowing US growth.

Nor do GDP figures explain how some of India’s advantages aren’t all they seem. The hype about Bangalore being Asia’s Silicon Valley ignores how the old economy — poor roads, transportation systems and power grids — holds back the new economy. And having a young population only helps if you create enough good jobs in the future.

Indian cappuccino

Dilip Parameswaran, head of Asia credit research at Calyon, Credit Agricole SA’s investment-banking unit, finds it useful to think of India as a cappuccino. “There’s coffee at the bottom and lots of froth at the top,'” he says. “It can take a while to get to the coffee. People want more coffee and less froth.”

Adds Pranab Kumar Choudhury, Vice Chairman at ICRA Ltd, “India needs to keep investors from getting frustrated that reforms are moving too slow.”

Even if India slowed to 7 per cent, such growth is nothing to sniff at. It’s no reason to delay efforts to replicate India's success with software and back-office operations elsewhere in the economy. Here, China’s enviable place in the spotlight is playing an unheralded role.

Source: Bloomberg News

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