Wednesday, October 6, 2010

Will India's growth outpace China's?

The Economist's cover this week makes the claim that India's growth will outpace China's. India will be experiencing the demographic wave that other asian countries have ridden to prosperity in which a high percentage of the population falls within working age. Prevalence of English is an extra bonus. Further, India's democracy and entrepreneurial culture give it a flexibility unmatched by China's state dominated economy.

The conventional wisdom is that India's boom in the service sector is leaving a big chunk of the population stranded in poverty. This is because high skilled jobs like engineering or medicine -- even moderately skilled jobs in call centers -- require education and therefore are available largely to the children of the established middle class. In many countries, manufacturing has been the traditional stepping-stone out of subsistence agriculture. For example, a chinese factory girl might be the daughter of farming peasants from the countryside. These missing bottom rungs of the ladder have resulted in rising inequality. Amartya Sen warned that India risks becoming "half California and half sub-Saharan Africa".

Also working against India is it's crappy infrastructure and low literacy rates, 66% vs China's 93%. India's primary schools perform poorly and, the world-class IIT schools notwithstanding, its university system is undersized. The result is a chronic shortage of skilled workers. And business dealings involving land, natural resources and government contracts are riddled with corruption.

On India's cacophonous democracy, they quote a western banker as waying, "It's much easier to deal with the well-understood 'org chart' of China Inc than the freewheeling chaos of India.", which probably says a lot about western bankers.

I'd love to see India, with all it's contradictions, bust out and rival China. Based on Indian multinationals like Tata or Infosys, or the "frugal innovations" like $2000 cars, you might believe it possible. Whether the "freewheeling chaos" of democracy can function in a country of 1 billion; whether democracy is compatible with productivity; whether India can get its act together; those are some serious open questions. I hope the answer is yes.

A political economy

A recent piece in the Economist ( A new anthology of essays reconsiders Thomas Piketty’s “Capital” , May 20, 2107) ends with these words: &q...