India vs China : Who will win the Race?

It has only been a few years since Asia bulls have been touting the arrival of the Chinese Century, citing that nation’s enormous potential. Now, get ready for predictions of the India Century. That, in fact, was the title of a recent white paper by the Chicago-based consultancy Keystone-India, founded by a group of top economists from Ernst & Young who believe that India is on track to surpass China in growth.

“We believe this is India’s moment,” declares Keystone Chief Economist William T Wilson.

Even under Keystone’s projections, India wouldn’t match China’s current hypergrowth rates for at least another 15 years. And even by 2050, China’s economy would be bigger measured in US dollars. But longer term, Keystone contends India will be in a stronger position. It projects that China’s average annual growth will peak at 8.8 per cent over the next five years, and then gradually trend downward to under 7 per cent in the ’20s and around 4% by the ’40s.

Investments

Many signs point to big increases in investment in India, Wilson says. In fact, he estimates investment in India could reach 35% of GDP within a decade, which would enable it to match China’s 9% plus growth. One reason is that the savings rate in India rose from 23.5% of GDP in 2001 to 28.1% in 2004. And because of its growing workforce and the decline in family size, India’s savings rate should continue to rise to a projected 37% in 20 years. Since investment is highly correlated to domestic savings, that should translate into higher investment and economic growth.

However, India is planning to open up many long-protected sectors that have great allure to foreign investors and that could draw huge inflows of money. They include telecom, where Indian demand now is growing even faster than China’s, commercial real estate, and department stores. Although some of the reforms have stalled recently due to domestic political opposition, Wilson believes the government will prevail.

“If you look at the institutional changes and the number of industries that have liberalized over the past five years, the pace has been phenomenal, he says. Wilson predicts India’s real estate sector will draw a huge influx of money from foreign hedge funds, and liberalization of retail will be ‘the real big bang’ for the economy.

Entrepreneurship

They generally have done a good job of taking advantage of new opportunities offered by liberalization since the early 1990s. But the more dynamic companies in India are smaller ones that are led by new generations of entrepreneurs who take greater risks or are more connected to the global economy. These new companies also have more creative managers, argues Debashis Ghosh, another Keystone partner who worked at Ernst & Young.

Keystone focuses on researching mid-sized Indian companies with $10 million to $100 million in annual sales. “The bigger companies are still led by old school types who used to depend on access to government and got huge when there was nobody else in the game. “Because they had scale, foreigners had to deal with them,” says Ghosh. “Now, though, the top talent from the Indian Institutes of Technology and the Indian Institutes of Management are flowing into the mid-sized sector. That is like getting a management team of all Wharton and Massachusetts Institute of Technology grads.”

Productivity

India has averaged respectable productivity growth of 2.5% a year over the past two decades.

But that can grow sharply, thanks to liberalization of many industries, a literacy rate that has risen from 18% in 1951 to 65% now, and India’s rising openness to foreign trade, which has jumped from 15% of GDP in 1991 to 26% now. Manufacturing Surge China dwarfs India as a manufacturing power, especially for export.

And it will be a long time before India, with its inadequate infrastructure and components supply base, will be a serious export rival. But in recent years, India’s domestic manufacturing industry has been growing strongly.

What’s more, a number of Indian companies are especially strong in high-end manufacturing, such as auto parts, power generators, and medical equipment that requires a lot of engineering.

But when you look at the fundamental drivers growth in the workforce, fixed investment, and productivity — over the long run the prospect looks a lot more plausible.

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About theultimaterenaissance

I am an Engineer and a Management Graduate. I love writing poetry and research reports on cars. Surfing, listening to music, and Reading and writing Technical & Research papers are among my most savored hobbies.
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18 Responses to India vs China : Who will win the Race?

  1. M.A.Pai says:

    The development in the first four decades after Independence though dubbed as the ‘Hindu Rate of Growth”, provided a firm
    platform for liberalization to succeed in a measured way consistent with democratic values.The five ares of Infrastructure namley power, education, water, health care and transportation.Moreover the country needs to internally for much of the expertise to absorb and sustain the technology from the West as earlier.Good article.

  2. INDIA! you have world-class companies and topnotch industrialists!

    pls visit and see my blog.

  3. Phil says:

    Now you can see who is at leading position.
    India won’t be a great nation bcs of its complacent culture.

    Today, still alot of my indian friends are so proud of their ” democratic ” government which has been existed for 50+ yrs, and what India has is the largest poverty popullation of this world, which is more than the sum of poor popullation of African. What a shame rather than pride….

    • Well well….. my dear Phil.. you see, having a poor population is nothing to feel shame about. If you don’t have the poor, who will you call rich? This is just a stratification of the society on economic counts. Hope you understand.

      And, regarding India’s complacent nature.. I don’t understand what you are talking about. Count me at least 3 Chinese companies which are well known in the world??? C’mon, tell me!!! ‘M sure you don’t have even one. But, compare that to India, you have so many… The Chinese are no doubt at the top, because of their stable government, and great law and Order all across…. otherwise, The Chinese are well known for making cheap goods, for dumping their asses in India

    • prasanth says:

      you r a fool
      india will be a super power

    • prasanth says:

      how can u say india will not be a super power?
      we have bigger military,economic power
      we have many big countries relationship specially with russia&usa
      we have big population
      we have a supernatured intelligence
      we have a democratic
      we have a confidence

    • rahul says:

      no india is only the best country in world

  4. Phil says:

    Let’s see next 20 yrs if my comments are right…

  5. robert says:

    We like to learn from India, democracy, in all fields that indian friends are proud of. We accept, we improve or modify, in 20 years, we overcome all the weak points and we become a real superpower with all merits.

  6. Titan_2000 says:

    theultimaterenaissance:
    You don’t know it doesn’t mean it doesn’t exist. Did you ever hear Huawei, which files most patents in the world in 2008 even more than the whole contry of India? Huawei is the 3rd largest telecom company in the world and is helping India to build telecomm network. Did you hear Levono, the 3rd largest computer company? Do you know which bank is the largest in the world and which is the second?

  7. Ankush says:

    Very well written, and informative. Enjoyed reading it. Although the picture painted seems too good to be true today, China being ten times India in almost everything, it has sparked my interest in this direction.

  8. 1. BOSE
    2. Infosys
    3. HCL
    4. Wipro
    5. Tata

    You need more??

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