Asia's non-identical twins -> Emerging or Submerging?

[overheard at airport transit lounge]

X: India is a big potential market. We should ramp up operations.

Y: But, the market does not seem to have matured. There is no reason to invest so much ahead of its time. It's time has not come.

X: I agree, it will take a while before we can apply the same "global standards" to India.

Y: And, China has other problems. It is so difficult to conduct business there.

At this time, I had to move away. But the conversation stayed with me.

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I am no expert on foreign policy or otherwise, but with the ever growing focus on emerging economies, India and China (or China and India if you like that), makes you sit up and take notice. Economists rave about the staggering growth rates, and marvel at how these economies have seemingly remained insulated from the economic recession. Articles about the success of China/India and the headroom for potential growth, have made it to my daily reading staple. Both economies have taken markedly different approaches (China: planned, govt intervention, export oriented and FDI inviting and India: accidental, still averse to FDI in some sectors, knowledge based and domestic consumption) to economic development. I am not going into that, or which one is better, because enough has already been said about that!

But somehow, I am not completely convinced. I think with these glossy growth campaigns, we sometime fail to see the ugly underbelly of the larger system. And that is needed to make a corrective assessment of the situation on hand.

Do not get me wrong. India and China are growing. And they are very likely to grow in the future. But how much and how fast? And how? are the important questions for me. I think people should take a moment away from this breathless admiration, and look at some of the systemic weaknesses & threats, which could spoil the party. 

"Truth Wins? Hardly"

It seems that the amount of illicit money siphoned off India's shores in the years 2004-08 amounted to 89 billion USD. The last couple of months have seen some staggering claims of corruption. ( 2G Spectrum, CWG mess, Karnataka land de-notifications, Adarsh scam...) Can India afford this?

Often, India's vast English speaking, youth population, is cited as a source of future strength which will decisively tilt the balance in India's favor. I am wondering what kind of future they will have if we do not have a simple notion for accountability and corrective behavior in Indian politics. Will the drain on the resources/infrastructure, lack of ample opportunities finally catch up?  I think people should take a moment to take a look beyond the ITES sectors, and see where the real growth is happening. 

[I know Rama Bijpakur would disagree, but just this once.]

GDP growth, is a much talked about indicator. Given the vast and varied populace of India it is needed that we should take a closer look at the per capita income, which is still currently very low (nearly half of China, which is suprising since they were more or less same as late as 1991, which is also the year of liberalization of Indian economy).  

Crouching Tiger, Hidden Dragons?

China took a very different approach to its economic rise, and its easy to see it has problems of a different kind. China is like a black box to the world. Although it has embraced FDI, most of the industry is govt. controlled. You can be a small entrepreneur in China, but if you want to grow big, you need to associate yourself with government funding/intervention, sooner than later. There are no big Chinese companies of repute. It is a export driven economy which relies on worldwide consumption of the goods it produces.

Is the government intervention a good or bad thing? Well, it has been good so far, but massive amount of bad loans with the state owned banks could spoil the Chinese party. Currency problems have derailed a lot of emerging economies in the past. So far China's inconvertible currency has helped it tide over some crises, but as it loosens its grip on the yuan, it could soon all change.  The social inequality as well as burgeoning  medical care/ pension costs are some of the things which keeps Beijing on its toes.

So is the future bleak? No, it is not. GS predicts India will be the third largest economy in the world after US, China by 2030. There is ample headroom for each countries ambitions and approach. There is significant time for them to avoid the potential roadblocks. But is contingent on the growth continuing, and it continuing to be fast enough, so that all the social factors do not negate the progress and bring everything to a stalemate.  

I take comfort in the words of  a noted NCAER economist who has great optimism for India's continued rise. He compares it to,

 the walk of a drunken man. You know that he will get home eventually, but it will be 2 steps forward, two steps sideways, one step backwards.

Rama Bijpakur, made a very important point in her book, "We are like that only!".

Given the demographic and the economic growth characteristics of India and China, 2 very interesting questions come to mind. First, "what exactly do we mean when we say global standards?" and secondly, "Where is the centre of gravity of global standards going to be (in the future)?" 

If  I could intervene in the conversation at the airport, I wish I could tell them that the "global standards" are not going to apply anytime soon to India or China. These countries are going to create a new path, their own path to greater economic prosperity, wading through unique,very real, challenges that each one faces today. 

Regardless, they have definitely arrived at the table!