From Businessworld's cover story:
Amartya Sen, the Nobel Prize-winning economist, says that this gives the lie to India's argument that its democracy is the cumbersome, if wonderful, weight that is slowing its road to development. Many democracies are progressing much faster than India. The gurus of India's economic and political establishment would like to claim that China's economic boom is rooted in its authoritarianism. But then, they cannot explain why other authoritarian states such as North Korea, Pakistan and Myanmar are economic basket cases.
New York Times columnist Thomas Friedman writes in his book, The Lexus and the Olive Tree, that the dividing lines of the 21st century are not based on politics, ethnicity or history, but on speed. Success, he says, will come to those who are fast and adaptable. And what India lacks when compared to the East Asian tigers and the rapidly modernising Islamic states such as Iran, the UAE and Qatar is their speed and sense of purpose.
An especially interesting part of the Businessworld cover package was the article on some of the common myths regarding India and China:
..it becomes difficult to argue that getting a head start on reforms is the fundamental reason why China's development is ahead of India's. Instead, it becomes clear that the real reason behind China's success is that its reforms have been consistent, focused and pragmatic. Combined with a breakneck drive to create world-class physical infrastructure, this has allowed China-based businesses to plan projects more aggressively and execute them more effectively. Having virtually destroyed itself during the Cultural Revolution, China is now seized with a determination to rebuild itself and the Communist Party knows its future is at risk if it cannot deliver quick economic growth. Hence, the entire nation is driven by a sense of urgency that is missing in India. And this apathy is the real ghost bedeviling India's development...
...It is the other elements of China's economic system - a disregard for the environment, a ban on independent labour unions, disdain for personal property rights, the use of the banking system to subsidise the public sector and a total disregard of intellectual property rights (IPR) - that are more troubling and less understood. These are not just the ills of the system; these are the essential features of it. The reason China performs so much better than India even in the many industries that are more or less equally open in both countries is that the banking system is used to cover up the cost of the infrastructure, and China-based companies have the advantage of not having to negotiate fairly with workers, pay fairly for land, follow environmental standards, or respect IPRs...
...If the last, American century was defined by a battle between ideologies, the coming Asian century looks as if it will be defined by pragmatism, an art of which the Chinese are the supreme practitioners.
While many analysts seem to be stuck between the 'will India and China co-operate or will they compete?' dialectic, the truth is that they will probably do both. Both countries will compete fiercely at the grassroots level, but they will probably begin to co-operate on macro or strategic issues, i.e., an agreement to compete but within an agreed framework. This is a proven and reliable basis for a relationship, and one which binds the western world together.
From Harvard Business School professor Tarun Khanna's McKinsey Quarterly article:
China trumps India when it comes to industries that rely on "hard" infrastructure (roads, ports, power) and will do so for the foreseeable future. But when it comes to "soft" infrastructure businesses—those in which intangible assets matter more—India tends to come out ahead, be it in software, biotechnology, or creative industries such as advertising.
..Moreover, many hard-asset companies in China exist because the government funnels money to them. The government can do this because it intervenes in domestic capital markets. In India there is no such government intervention. Hence successful companies tend to cluster in industries where capital constraints are less of an issue. You don't need a deep reservoir of capital to start a software company; you do for a big steel plant.
The Indian government's lower level of intervention in capital markets and its decision not to regulate industries that lack tangible assets (software, biotech, media) have created room for entrepreneurs. Entrepreneurial activity is fueled both by incumbent (often family-owned) enterprises and by new entrants...
(In China,) productivity and long-term economic growth, as we all know, thrive on competition, which is all too often stifled by government intervention...
...As India opens up further to foreign direct investment, we might well discover that the country's more laissez-faire approach has nurtured the conditions that will enable free enterprise and economic growth to flourish more easily in the long run.
From McKinsey Global Institute Diana Farrell's McKinsey Quarterly article:
Since there are such big differences in the performance of different sectors within the same country, it makes sense to compare the performance of India and China at the sector rather than the national level. In IT and business-process outsourcing, India is so far ahead of the game that China can't do anything during the next 10 or 15 years that would bring it close to catching up. In consumer electronics, however, China dominates, and India won't provide serious competition during the next 10 years.
The auto sector is a toss-up. India's competitive forces have driven an enormous amount of innovation in the sector. Low-cost labor has been used instead of expensive automation, and local engineering talent has developed innovative new products such as the Scorpio—a sport utility vehicle that sells for a fraction of the price of an equivalent car in the United States. In China, large amounts of foreign direct investment have built a big industry, but regulation has so far limited its competitive potential.
Some older "India-China" links:
Reuters article in which some experts talk about how "Patient investors can win big in India"
Blog post and discussion around an article by Tony Nash (former head of VC Research at Red Herring and The Industry Standard) on foreign investments in India vis-a-vis China at the Pacific Epoch blog.
Extracts from an interesting interview in Businessworld with James J.C. Birch, managing director, Institutional Client Services (equities division), Goldman Sachs International, who recently escorted a group of twenty large institutional investors to India
Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.