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Not far behind the dragon
Paran Balakrishnan | July 26, 2003
Is there anyone who has been to Shanghai and hasn't been impressed by the corporate palaces of Pudong, the city's sparkling 13-year-old suburb?
Back in 1990 a visitor could have stood on the world-famous Shanghai Bund and gazed at a criss-cross of fields on the other side of the river.
Today, Pudong is a maze of skyscrapers that are testimony to a story of blistering economic growth.
It's a sight that is particularly galling for any Indian visitor. Comparisons are odious but who can gaze at decade-old Pudong and wonder why India doesn't have an equivalent.
The best we can offer by comparison is probably Gurgaon, the fast-growing traffic-congested Delhi suburb.
But are we underestimating the strength of the Indian economic story?
Yes, say Harvard professor Tarun Khanna and another US academic Yasheng Huang. In a study that is creating ripples, Khanna and Huang argue that India has built a stronger foundation for growth than even the Chinese.
And India will be punching its way into the big league in the coming years.
The two offer a variety of reasons for their conclusions. Topmost, is that China has come all this way without building strong global-sized, private companies.
By comparison, say the academics: "India has managed to spawn a number of companies that now compete internationally with the best that Europe and the United States have to offer."
The Chinese failure, say the academics, wasn't an accident. Partly, it was because the Communists didn't want powerful private companies to emerge. So the government encouraged foreigners to invest.
The result: "China's export-led manufacturing boom is largely a creation of foreign direct investment -- effectively a substitute for domestic entrepreneurship."
Rather than the usual criticism of India's political system for its chaos and corruption, they praise it and link it to economic growth by saying, "That India is increasingly building from the ground up while China is still pursuing a top-down approach reflects their contrasting political systems: India is a democracy, and China is not."
Most Indians believe India is wasting its resources. But Khanna and Huang say India is streets ahead of China.
"The speed with which India is catching up is due to its own efficient deployment of capital and China's inefficiency, symbolised by all the money squandered on SOEs (state-owned enterprises). And China's misallocation of resources is likely to become a big drag on the economy in the years ahead."
Most importantly, the authors say it's wrong to get distracted by the big picture.
"Statistics," they argue, "tell only part of the story -- the macro-economic story. At the micro level, things look quite different. There, India displays every bit as much dynamism as China."
There have been comparisons between India and China before. But this study comes at a time when the Indian economic story is suddenly looking more impressive than it has for years.
It would be rash to say we're on the threshold of a giant economic boom but there are promising signs.
For a start, take a look at the feverish construction around the country. More than 24 million sq ft of office space will be added in the next 36 months.
That's the equivalent of six Nariman Points.
At the same time some 250 malls and multiplexes are going up around the country. About 2.9 million sq ft of retail space is being added in southern cities like Bangalore, Chennai and Hyderabad alone. There's also a housing boom and the government's road building projects are in full swing.
A great deal will depend on software and business process outsourcing industries that will be employing about 2 million people by 2007, according to forecasts. About 80 per cent of the office construction is for the software or BPO industries.
Other industries too are accelerating sharply. More cars are being sold than ever before. Newly listed Maruti has just announced profit growth of 971 per cent. So is India about to take the Great Leap Forward?
It may not be evident when travelling down the country's potholed roads but Khanna and Huang seem to think so.