China could provide cues to fast-track Indian economy: Analysts
25 May 2009
Though China initiated economic reforms in the late '70s, its average income per head was lower than India's in the 1990s. However, it has since increased sharply over two decades and is today more than twice that of India.
One reason advanced for India's lackluster performance vis-à-vis its neighbor is the failure of India's democracy to come up with a reform focused growth model thanks to the competing political interests of its political parties.
However, with the decisive mandate won by the Congress-led coalition last week, markets have been galavanised by the prospect of policy and political continuity and expectations of a resurgent Indian economy starting to close the development gap with China are running high.
Analysts are pointing to the fact that today every second Indian is under 25, a demographic advantage that can be leveraged much like what China did over the last three decades to sustain a close to 10 per cent growth rate.
Also now China is expected to slow down with its population growing older, they say.
The road to an era of double-digit growth, according to leading economic thinkers will pass through reforms that will make it easier to acquire and develop land, a massive expansion of the power grid and a more flexible labour market.
They say, India will need to learn from China and develop light manufacturing to provide employment for millions of surplus farm hands. The IT sector which has been the blue-eyed boy in the Indian economic success story so far, creates relatively few jobs they add.
Another key area that will need to be improved is urban management as more and more Indians will flock to cities in search of work. India can learn a few lessons in urban management from China which has powered ahead with connecting the urban centres and building advanced transportation systems, they say.
The construction of New Delhi's metro has demonstrated that if local government is efficient and supportive, infrastructure projects can be managed as efficiently as in China. But planners in China face far fewer hurdles than their counterparts in India.
To spur growth India has boosted capital spending which has surged to 39 per cent of gross domestic product in 2007 from 27 per cent in 1995.
The election results have been widely interpreted as a reward for good governance, but not necessarily for the sort of deep-seated changes investors who drove the Mumbai stock market up 14 per cent last week have been expecting.
However, how far the Congress party will take the reforms agenda is something of an open question till date as there are influential anti-reforms groups with the party, and the image of as a pro-reform party committed to change the entire face of India is largely overdrawn, according to political sources.
Though some bills that had been blocked by the Congress Party's Left allies in the previous UPA regime, such as those permitting more foreign investment in insurance and opening of the pensions system to private firms are now likely to go ahead swiftly. The government, which did little in the matter of reforms, having been returned to pwer may not feel the need to take up reforms with any urgency, if at all, economic analysts feel.
They say that it was not clear whether Sonia Gandhi and her son Rahul were committed to serious labour and land reforms.
According to analysts India being a democracy will always face policy slips and shifts that can potentially impact the economy quite a bit. But despite everything, both India and China will continue to be the fastest-growing economies on the globe for at least, the next 10 years, they say.
