Ten years ago, China's GDP was 3.5 times larger than India's. By the end of 2019, the gap has opened even wider. Today, China's economy is more than five times larger than India's. However, with Modi as prime minister, India could close the gap within a few hours, because Modi is a miracle worker.
Why we have lost the race to China
Aakar Patel
A street full of restaurants in Yangshuo. Photo: iStock
I am in China on holiday for a few weeks. I thought I should record my observations, as they occur to me and in no particular order. We say “Made in China" sniggeringly to indicate cheap and poorly made things. The evidence on China’s streets does not betray this lack of quality. The finish and construction of their pavements and parks, the way their gardens are laid out and the trees in their public spaces. All these things are first rate.
The small things, the details in China are right. Platforms are aligned exactly to the height of train floors. There is cleanliness and it comes from an engagement with surroundings.
When we attribute Singapore’s order to Lee Kuan Yew’s genius, we must be able to explain why Hong Kong is also as clean. The reason is of course that it is the Chinese whom we must credit and not some dictator.
One of the first things that one notices at the table is that the Chinese respect vegetables, unlike us. One can taste the flavour of the food on the plate, which is cooked with a light touch, not assaulted with masala. The other thing is how many vegetables they serve. We stress our vegetarianism but are essentially grain eaters.
I would say this difference also extends to tea, which the Chinese respect, unlike us. The freedom fighter Maulana Abul Kalam Azad once began researching tea and came to reject what passed for the beverage in India. He called it “liquid halwa".
On the street in China’s cities and towns, there is equality, physically speaking. The chasm, the physical separation of Indians by class—compare your colour, size, beauty to that of your servant—is unapparent.
The Han, 90% of China’s population, are a beautiful people, small but not malnourished, radiant of skin and with no body hair. Like in European nations, the dominant physical shape is slender and thin.
The old are alive in spirit, active in workplaces (we were rowed on a boat by five men of whom the youngest was 74). The parks are full of old people exercising, the tea houses are packed with them.
The Chinese have a genetic lack of tolerance to alcohol (meaning they get hammered easily). Most beers contain 2.5% alcohol. Two 320ml cans contain only as much alcohol as a small 30ml drink.
Though English is now compulsory from kindergarten in cities, almost nobody speaks it (Chinese people can modernize themselves without leaning on the West, unlike us).
Yet car number plates are in English because the Chinese system is too complicated for the small plates and I suppose for quick reading.
The English on signs is strange, as we all know, and probably the result of someone using a dictionary: “Tickets once sold will be dishonoured."
This kind of translation results in signs that are direct: “Please aim carefully", was pasted over one urinal. “Help keep this cleaner by stepping closer", was pasted over another urinal. I didn’t need to, of course.
There is a high level of state penetration. An example: In the town of Yangshuo, all restaurants are required to use identical crockery that is washed and sanitized by one company that collects and returns the vessels daily, each set in plastic wrapping placed before individual diners at the table.
Is this level of execution possible in India? Not even in my beloved Gujarat.
Currency notes of all denominations have a photo of Mao Zedong and the issuing bank is called Zhongguo Renmin Yinhang.
This is spelled out in six scripts, including Perso-Arabic for the Uighur, an ethnic minority.
Zhongguo is the Chinese name for China. Its opening syllable is pronounced as the lisped Marathi tch. However in Perso-Arabic, the bank’s name is spelled with a J meaning the Uighur cannot pronounce the name of their country properly.
You can get a first-rate meal at a high-end restaurant for seven people, including beer, for ₹ 3,000. That is not possible in India where the quality and the surroundings drop precipitously once the very highest end of expensive places is taken out.
Internet and Wi-Fi are free and without registration at airports. Almost no security is visible. Men and women are frisked together (I was always frisked by women). There is one security check and one ticket check. They have no need for the three other steps we have (ticket check at entrance, boarding pass check and stamp check).
The reason is that, like all Western nations, their idea of security is not limited to securing locations, but the environment.
The literacy rate is very high and so is its quality. Even those in the labouring classes read fluently. It is more expensive to study art and music in China than medicine and engineering. A certain sign of a highly civilized people. There is no tipping in restaurants and there is no pleading for more money, even from coolies, who carry themselves with great dignity.
Things that the Chinese have in common with us: a religious framework centred around demanding material goods as a barter with God (though the Chinese don’t give him gold unlike us). And ancestor worship.
In public spaces and in conversation, the Chinese are as noisy as us but there is none of our mindless honking.
Like us they also revere, if not quite worship, money. The Chinese entrepreneurial base is not restricted either by geography or caste, unlike ours. This is one aspect of why their economic success has a broader base than ours.
China has many negatives. Above all, an authoritarian state intolerant of dissent and a one-party political system. I could not bear to live here as a citizen, a place offering relief and choice in neither ideology not candidates.
The government decides what parts of the Internet to access. There is no access to Google. There’s no Facebook, no Twitter, no Gmail and no YouTube.
Yes, the state is effective and it penetrates. But I suspect the state in China also penetrated during most of the different historical eras and systems, including monarchy.
India compares its economic growth and achievements to China’s. It shouldn’t. This isn’t a race and no prize will be awarded. If it was, we have lost and are losing. The talk when I left India was about overtaking China’s current growth rate. The real figure to race against would be China’s growth rate when their economy was the size of ours (it is four times bigger today). At that point they were clocking double-digit annual growth in metronomic fashion.
We should calibrate our nationalist bombast to our actual achievements.
We Indians, all of us—secularists, communalists, Hindus, Muslims, all put together—are irrelevant in that sense. That is what experiencing the world will teach those of us who can afford to travel and haven’t allowed our minds to be shut by our fierce nationalism.
The truth is we have few achievements. We squabble daily over idiotic things—ban Maggi! ban Uber!—while other nations have lifted themselves.
Sailing to see the Three Gorges dam, my map showed 45 bridges across that patch of the Yangtze river and its tributaries. The entire Brahmaputra has how many? Two? A single Chinese city, Chongqing, a place few Indians have heard of, has likely seen more industrial development in the last decade than all India’s cities combined. Comparisons are embarrassing, and meaningless.
Anyway, even the Chinese are not there yet, not a fully developed nation with economic and political freedom and without everyday corruption, like Europe, like Japan. But you can see their path. Three more decades of this growth and they are there. Political freedom will come automatically in one way or another.
What’s our path out of darkness and into civilization and an equal and prosperous society? Frankly I cannot see it. But I do know that those who say it is through government, meaning that the rest of us—“civil society"—do nothing, are wrong.
India Will Never Be the Next China, Morgan Stanley’s Ruchir Sharma Says
As a child, Ruchir Sharma spent his summers in his maternal grandparents’ small town in Uttar Pradesh, one of India’s poorest and most populous states. Although the town was about four hours from New Delhi, it was a world away from his otherwise urban life. Distractions were few so he spent his summers studying adults—and watching them “hurl their choicest insults at the TV” as they took part in India’s leading spectator sport: politics.
It was an early glimpse into how the world’s largest democracy works.
Sharma, chief global strategist at Morgan Stanley Investment Management, has refined his insights over the ensuing years, frequently making personal trips to India to track at least one Indian state or national election a year alongside a growing caravan of Indian writers and editors. His new memoir, Democracy on the Road: A 25-year Journey Through India, details his travels to 15 of the country’s 29 states, including meetings with Indian politicians in the privacy of their homes and conversations with voters at political rallies in the small towns between the country’s megacities. These byways often play an outsize role in deciding election results.
India’s benchmark S&P BSE Sensex market index hit a record high of 39056.65 on Tuesday. Rising optimism that Prime Minister Narendra Modi’s pro-business coalition will stay in power in national elections beginning April 11 could be partly responsible for the index’s advance. A month ago, India was one of this year’s worst-performing markets. Election season ends at the end of May.
Sharma leaves for India again next month to catch the tail end of this year’s elections. He recently spoke with Barron’s about what drives Indian voters; why investors might want to lower their expectations for Indian stocks even if Modi beats rival Rahul Gandhi, Indira Gandhi’s grandson, at the polls; and why investors need to stop comparing India with China.
Editor's Choice
Barron’s: In your book, you talk about how elections are determined in India’s “mofussils”—a colonial term Indians now use to describe rural places where old ways run deep. What do people miss by not spending time in these towns?
Ruchir Sharma: How the thinking is so different. For example, the national media in India is focused on pollution and the quality of air in Delhi. Yet, as you go outside of Delhi, the smog may be as bad, but nobody talks about it. For the people in these villages, just getting by is more important. The other thing is how deep the caste system runs in India, especially in the rural areas where two-thirds of the people live. Also, Modi’s nationalist message resonates far less outside the northern parts and people underestimate the diversity of the country. It is more like a continent with 29 states than one country.
So local issues trump national ones. What will you be looking for when you head back to India next month?
How much Modi is able to convert his personal popularity into votes for the BJP [Bharatiya Janata Party] and how well the opposition alliances are working together. Whenever the opposition come together, they always pose a threat.
What brings them together?
Often it is to bring down the original leader. In India there has always been populist sentiment against the incumbent politician. Two-thirds of incumbent governments in India have typically lost an election. In the U.S., 80% of incumbents typically get re-elected. Now, though, I’m seeing the anti-incumbency trend go global. Last year, only 40% of governments across the world got re-elected—that is a big change compared with roughly a decade ago.
What is driving that? Rising inequality?
In India, the view is that the state is broken and never delivers so they are always angry at the incumbent. But now across the world there is a growing frustration with what the establishment is able to do for you. It has also been partly stoked by social media, which makes it easy to bring people down now.
What does that mean for investors?
It creates more volatility.
If India always roots for the underdog, that can’t be good for Modi.
That is the risk he faces. The business people in India are feeling listless. They haven’t gotten from the government what they wanted, but they are scared of change. Their default is to favor stability.
In December, the second head of the Reserve Bank of India under Modi resigned amid tensions with the government. The rupee sank. We have a more authoritarian turn in other emerging markets such as Turkey. Could we see that in India if Modi is re-elected?
That is one of the risks. But even if Modi wins, it is unlikely that he is going to come back with a greater majority. Even in 2014, he won only 31% of the vote share. That is the upside to India’s democracy for you. Given the diversity of the country, the checks and balances are stronger than in a place like Turkey.
That diversity also makes economic reform hard. Over the past 20 years, you have had the chance to talk to the Gandhis, Modi, and other leaders and have lowered your expectations for reform. Why?
I’ve become more of a realist, realizing this country will change at its own pace. This isn’t a country where you can go and tell them to be like [Ronald] Reagan or be like [Margaret] Thatcher. It isn’t going to work that way. All the leaders tend to be statist—they believe too much in the state. Whatever reforms or focus on development there is, I tend to see much more of it with the state governments. It is very hard to get top-down change in India.
The last time Modi won, investors were excited about the prospects for economic reform and the reduction of bureaucracy. The market has been rising on similar optimism lately. Should investors temper expectations?
It is good to keep expectations low. The reform and change [Modi brought] is different than what was anticipated. He wants to fix things here and there, but it isn’t free-market reform or liberalization—or the kind of change that, for example, is expected from Brazil today, under [President Jair] Bolsonaro.
What is one big thing investors should know about India?
Forget the India/China comparisons. Apart from the large populations, these two great nations of Asia have nothing in common. Nothing. Everything you say about China, the opposite is basically true of India. Where China is more homogenous, India is as heterogeneous as they come. The risks China’s leaders have taken for economic liberalization are very different compared with what Indian leaders have done over time.
People always think of China as an authoritarian state-driven model, but the share of the Chinese government in the economy has come down dramatically over time. They took some big calculated risks with reforms, often with new leadership—not because of crisis, which is usually the catalyst for other emerging markets. During the reform of the state-owned enterprises in the 1990s, they let go of 70 million employees. That is what kept China ahead of the curve. In the past few years, China is showing some signs of reverting, but that doesn’t’ take away from the big picture. China gave its people much more economic freedom than India did. And that is ironic.
Give us an example of India’s failure in this regard.
Look at demonetization [Modi’s government voided 85% of the currency overnight in November 2016]. India wanted to move to a cashless society, but China has moved to a cashless society much quicker with the private sector. In Beijing or Shanghai today in the middle classes, cash is nonexistent. It happened organically through the tech revolution and the development of some great payment solutions, and not through some massive state intervention or something as draconian as demonetization. India’s not going to become the next China.
Duly noted. Thanks, Ruchir.
India’s Wrong Step
The death of a former prime minister highlights the moment when the country lost its race with China.
India’s political divides increasingly look unbridgeable. Yet, when former Prime Minister Atal Bihari Vajpayee died last Thursday, he was mourned even by those who had been his opponents in life, whether within or outside his Bharatiya Janata Party. His successor, Manmohan Singh, compared his vision to that of India’s first prime minister, Jawaharlal Nehru — the highest compliment a member of the Congress Party can give. And Narendra Modi, whom Vajpayee tried to sack in 2002 as chief minister of Gujarat after thousands died in riots there, walked behind his cortege as it rolled through quiet Delhi streets.
As the first Indian prime minister not from the Congress Party to complete a full term, Vajpayee’s place in history is assured. Behind the mourning was a certain nostalgia; many remember his time in office as an enchanted moment, the high-water mark of confidence in India’s future. The country declared itself a nuclear power and survived the sanctions that followed. It was opening itself to investment and seemed to have weathered the Asian crisis of the late 1990s. It seemed reasonable, then, to put India and China in the same basket as rising powers.
Today, a decade and a half after Vajpayee was voted out, that optimism is a thing of the past. India has moved too slowly and let too many people down too often; many here now wonder if it has missed its moment entirely. You could blame Modi for this situation, or Singh. But, in fact, the foundations for this failure were laid during Vajpayee’s administration — and by his defeat in the polls.
This isn’t to say that Vajpayee’s government wasn’t reformist: It had more market-friendly ministers than any government since. It opened up the telecommunications sector, invested in roads and highways, and defused the fiscal time bomb that India’s state pensions were becoming.
But, the one moment you can point to as emblematic of the opportunities that India missed came in early 2001. Vajpayee’s finance minister, Yashwant Sinha — now a trenchant critic of Modi — had proposed that India’s draconian labor laws be relaxed. Criticism was widespread, including from within his own party. Eventually, Vajpayee backed off and the promise to amend labor law went unkept.
Vajpayee’s decisive turn away from reform of the world’s most restrictive market for labor — not to mention land and capital — is the biggest reason India went on to lose to China the race to become the world’s manufacturing hub. In the years since 2001, world trade in goods exploded, even as India continued to deindustrialize. It was just too difficult to run a decent-sized factory in India.
Larger companies needed government permission to fire even one worker. India became an IT services superpower; trade and telecom fired up its growth rate. But the country signally failed to create the manufacturing jobs that became the foundation of the Chinese miracle. Under Vajpayee, India backed away from the only path that leads to prosperity.
At the time, this was hard to see: As I said, we all felt optimistic. Vajpayee tried to distill that energy into a single two-word slogan in his 2004 reelection campaign: “India Shining.” When he lost, many assumed it was because of a backlash to that reform-friendly rhetoric.
That was never really an accurate explanation; indeed, Vajpayee himself saidafter the loss that the Gujarat riots were responsible. Yet the fear that economic reforms would be electoral poison has haunted Indian politicians ever since. Even Modi, with more political capital than Vajpayee ever had, has been overly cautious. One crack from his opponents that he was running a “suit-boot” government, too close to rich businessmen, was enough for him to turn into a red-blooded economic populist.
Vajpayee’s biggest moment, perhaps, was when he took India nuclear in 1998 and tended India’s economy through the sanctions that followed. Nobody can still argue now that India shouldn’t have openly admitted to its nuclear capability; it’s shown that it can be responsible about proliferation and nuclear doctrine.
But, there’s another way of looking at it. The Chinese consciously decided to avoid rocking the geopolitical boat until they had the firepower to overturn it. Instead, they kept foreign investors and governments happy while they prioritized getting their domestic act together. When Vajpayee was giving up on fixing labor law because it was politically difficult, Chinese premier Zhu Rongji was fighting to reform state-owned enterprises, laying off millions in the process. Two decades on, it’s easy to see what India’s priorities should have been.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
China versus India: A race India lost, even before it could start
Published on January 27, 2016
In November 2011, Time Magazine dedicated its cover to a green elephant, with a charkha as an eye, battling a red dragon, symbolizing the great game of one-upmanship between China & India in the 21st century.
For last many years, commentators have time and again compared the two Asian giants & described their quest for economic prosperity as 21st century race between two of the oldest and richest civilizations, for global superiority. However, if one thinks rationally, it is not difficult to find that it was a race that never really happened. The Chinese had already won the game, even before Indians could take off from the starting line.
Recent GDP data & various projections put forth by various institutions & agencies showing India surpassing China as the fastest growing major economy, has prompted a flurry of news stories and articles.
Now consider this, a research paper, published in October 2014 (Asiaphoria Meets Regression to the Mean) by two Harvard economists, Lawrence Summers & Lant Pritchett, made a splash about economies of China & India. According to the paper, if China and India continue their current rate of growth, both will add US$56 trillion to the global economy by 2033 and China's share of the additional US$56 trillion would be a staggering US$51 trillion, while India would contribute just US$5 trillion.
The reason I quoted the report is to highlight the real story. Let us be very clear; India is so far behind the Chinese (Indian GDP: US$2.1 trillion; China GDP: US$11 trillion), that even a 5-6% growth off such a huge base would keep China out of India's sight for at least next 50 years, if not more.
Now coming back to why India lost the race before it could even start, there are many reasons for that.
First & foremost, India's utterly corrupt, rotten and disgusting political system. Many argue that India despite its problems is far better than China because we are a democracy and we have freedom of speech & expression here. In later part of this article, I would debunk this theory. But before that, let us understand little bit about Indian political system.
As a matter of fact, Indian political system is so easy to manipulate that even the most dyslexic of politicians can easily buy, fib, bribe or con their way to power. Politicians across the spectrum offer money along with meals, liquors or goodies to ensure people vote in the election. So, in reality, that is all it takes, few million rupees and bottomless carat of liquor to win a seat in country's parliament or state legislatures.
This speaks volume for the very character of Indian politicians who unlike in the west or other countries are not the usual statesman. These bunch of illiterate and FIR evading buffoons are disgrace to this great country. Their ultimate lust for power and the ease with which they could steal the mandate is one of the most important reason for India's problems.
I have been told numerous times that China is far more corrupt and officials and party cadres take huge kickbacks while processing every business request. Well, they'd be correct and indeed they are correct. But there is one thing that differentiates two countries and that is,"China is more corrupt but too efficient, while India has this dubious distinction of being too corrupt and too inefficient at the same time" That's why you have Mumbai Trans-harbour Sea Link bridge, a 20-odd kms long sea-bridge first conceptualised in 1980s to decongest the city. However even after 35 years, project is yet to see the light of the day!!
"Oh common!! delays happen, we are a free country after all" the very Indophile in most of you must be screaming loud. Well, then let me shut this Indophile once and for all. India perhaps is one of the largest dictatorship, in disguise and our buffoons aka politicians exercise its right to be autocratic as and when it desires or as it suits them. Incidents after incidents, be it corruption, scandals, scams, Indian politicians do exactly what they want to and trust me, nine out of ten times, they get away with it. A fall person takes all the blame, thereby protecting the fat cats on top, and after spending a few years of time, the fall person is set free to walk out of the Bellagio version of Indian jails, Tihar, scot-free. Some past incidents have proved that in many cases even Indian judiciary had been hand in glove with these buffoons. Corrupts, scamsters, & murderers are set free by this very judiciary, with judges pronouncing their judgements,"Baizzat Bari Kiya Jata Hai (not guilty and free to go)
How then are we any different from China? We are in fact worse. At least they don’t act like they have systems to defend the freedom of civil rights and laws in their country. “It’s our way or the highway,” they say, while the Indian government prefers to pussyfoot around and do back-room dodgy deals, sugar coating it all under a flaccid façade of democracy and freedom.
Then India's crumbling urban infrastructure comes into the picture. Time and again, even United Nations report ranks Indian infrastructure lower than Equatorial Guinea. Just compare any Indian city with the Chinese. Their cities are clean, their skyscrapers put Manhattan to shame, their roads are wide, their airports make ours look like glorified cow sheds and their public transport is super efficient. The Chinese have learnt a very important lesson early on here - that they have to invest in their own urban infrastructure. A concept that is completely lost on us Indians.
Just compare Mumbai & Shanghai. Any traveller flying from Mumbai to Shanghai feels like a direct ‘beam-me-up-scotty’ from hell to heaven. Both are port cities, but yet so different. Chinese authorities have very well maintained the old sector of Shanghai, while the newer reclaimed Pudong area of Shanghai on the other side of the Yangtze looks like something out of The Jetsons. Mumbai in comparison looks like the poor, disease ridden cousin who gambled away all his money and is now left with only a few family heirlooms, which once shined but are now fungus covered.
Even on social front, India's performance have been so poor that it puts sub-Saharan nations to shame. Illiteracy, malnourishment, gender inequality, on all important parameters, India has showed little to no progress. Even after 60 years of independence, more than 40% Indians defecate in open. Availability of clean drinking water remains elusive for more than 400 million Indians. Female foeticide, a practise that indeed is most prevalent among the very so-called middle class families in India. Crimes against women have peaked and what our society does? Nothing! After Nirbhaya rape incident, instead of taking some thoughtful and effective actions, the best solution our 'buffoon' politicians could come up with was, Banning the Taxi apps!!
India needs to be taught to respect women, if it ever wants to achieve the status of the Chinese. Of course, some Indophiles would quote, "Beti Bachao, Beti Padhao scheme, but such a dear project of Indian PM gets only Rs. one billion as budgetary support. Do we really treat women badly? Of course, not. There definitely are various countries especially in Africa and Arab world, who treat women as slaves, but they don't aspire to be like China, like we do.
The elephant on Time Magazine’s cover for me is thus nothing more than symbolism. Of course, with the size of our population, India would easily achieve second largest economic power status by the mid of this century,but it just won't ever be able to beat China.
Why we have lost the race to China
Aakar Patel
A street full of restaurants in Yangshuo. Photo: iStock
I am in China on holiday for a few weeks. I thought I should record my observations, as they occur to me and in no particular order. We say “Made in China" sniggeringly to indicate cheap and poorly made things. The evidence on China’s streets does not betray this lack of quality. The finish and construction of their pavements and parks, the way their gardens are laid out and the trees in their public spaces. All these things are first rate.
The small things, the details in China are right. Platforms are aligned exactly to the height of train floors. There is cleanliness and it comes from an engagement with surroundings.
When we attribute Singapore’s order to Lee Kuan Yew’s genius, we must be able to explain why Hong Kong is also as clean. The reason is of course that it is the Chinese whom we must credit and not some dictator.
One of the first things that one notices at the table is that the Chinese respect vegetables, unlike us. One can taste the flavour of the food on the plate, which is cooked with a light touch, not assaulted with masala. The other thing is how many vegetables they serve. We stress our vegetarianism but are essentially grain eaters.
I would say this difference also extends to tea, which the Chinese respect, unlike us. The freedom fighter Maulana Abul Kalam Azad once began researching tea and came to reject what passed for the beverage in India. He called it “liquid halwa".
On the street in China’s cities and towns, there is equality, physically speaking. The chasm, the physical separation of Indians by class—compare your colour, size, beauty to that of your servant—is unapparent.
The Han, 90% of China’s population, are a beautiful people, small but not malnourished, radiant of skin and with no body hair. Like in European nations, the dominant physical shape is slender and thin.
The old are alive in spirit, active in workplaces (we were rowed on a boat by five men of whom the youngest was 74). The parks are full of old people exercising, the tea houses are packed with them.
The Chinese have a genetic lack of tolerance to alcohol (meaning they get hammered easily). Most beers contain 2.5% alcohol. Two 320ml cans contain only as much alcohol as a small 30ml drink.
Though English is now compulsory from kindergarten in cities, almost nobody speaks it (Chinese people can modernize themselves without leaning on the West, unlike us).
Yet car number plates are in English because the Chinese system is too complicated for the small plates and I suppose for quick reading.
The English on signs is strange, as we all know, and probably the result of someone using a dictionary: “Tickets once sold will be dishonoured."
This kind of translation results in signs that are direct: “Please aim carefully", was pasted over one urinal. “Help keep this cleaner by stepping closer", was pasted over another urinal. I didn’t need to, of course.
There is a high level of state penetration. An example: In the town of Yangshuo, all restaurants are required to use identical crockery that is washed and sanitized by one company that collects and returns the vessels daily, each set in plastic wrapping placed before individual diners at the table.
Is this level of execution possible in India? Not even in my beloved Gujarat.
Currency notes of all denominations have a photo of Mao Zedong and the issuing bank is called Zhongguo Renmin Yinhang.
This is spelled out in six scripts, including Perso-Arabic for the Uighur, an ethnic minority.
Zhongguo is the Chinese name for China. Its opening syllable is pronounced as the lisped Marathi tch. However in Perso-Arabic, the bank’s name is spelled with a J meaning the Uighur cannot pronounce the name of their country properly.
You can get a first-rate meal at a high-end restaurant for seven people, including beer, for ₹ 3,000. That is not possible in India where the quality and the surroundings drop precipitously once the very highest end of expensive places is taken out.
Internet and Wi-Fi are free and without registration at airports. Almost no security is visible. Men and women are frisked together (I was always frisked by women). There is one security check and one ticket check. They have no need for the three other steps we have (ticket check at entrance, boarding pass check and stamp check).
The reason is that, like all Western nations, their idea of security is not limited to securing locations, but the environment.
The literacy rate is very high and so is its quality. Even those in the labouring classes read fluently. It is more expensive to study art and music in China than medicine and engineering. A certain sign of a highly civilized people. There is no tipping in restaurants and there is no pleading for more money, even from coolies, who carry themselves with great dignity.
Things that the Chinese have in common with us: a religious framework centred around demanding material goods as a barter with God (though the Chinese don’t give him gold unlike us). And ancestor worship.
In public spaces and in conversation, the Chinese are as noisy as us but there is none of our mindless honking.
Like us they also revere, if not quite worship, money. The Chinese entrepreneurial base is not restricted either by geography or caste, unlike ours. This is one aspect of why their economic success has a broader base than ours.
China has many negatives. Above all, an authoritarian state intolerant of dissent and a one-party political system. I could not bear to live here as a citizen, a place offering relief and choice in neither ideology not candidates.
The government decides what parts of the Internet to access. There is no access to Google. There’s no Facebook, no Twitter, no Gmail and no YouTube.
Yes, the state is effective and it penetrates. But I suspect the state in China also penetrated during most of the different historical eras and systems, including monarchy.
India compares its economic growth and achievements to China’s. It shouldn’t. This isn’t a race and no prize will be awarded. If it was, we have lost and are losing. The talk when I left India was about overtaking China’s current growth rate. The real figure to race against would be China’s growth rate when their economy was the size of ours (it is four times bigger today). At that point they were clocking double-digit annual growth in metronomic fashion.
We should calibrate our nationalist bombast to our actual achievements.
We Indians, all of us—secularists, communalists, Hindus, Muslims, all put together—are irrelevant in that sense. That is what experiencing the world will teach those of us who can afford to travel and haven’t allowed our minds to be shut by our fierce nationalism.
The truth is we have few achievements. We squabble daily over idiotic things—ban Maggi! ban Uber!—while other nations have lifted themselves.
Sailing to see the Three Gorges dam, my map showed 45 bridges across that patch of the Yangtze river and its tributaries. The entire Brahmaputra has how many? Two? A single Chinese city, Chongqing, a place few Indians have heard of, has likely seen more industrial development in the last decade than all India’s cities combined. Comparisons are embarrassing, and meaningless.
Anyway, even the Chinese are not there yet, not a fully developed nation with economic and political freedom and without everyday corruption, like Europe, like Japan. But you can see their path. Three more decades of this growth and they are there. Political freedom will come automatically in one way or another.
What’s our path out of darkness and into civilization and an equal and prosperous society? Frankly I cannot see it. But I do know that those who say it is through government, meaning that the rest of us—“civil society"—do nothing, are wrong.
India Will Never Be the Next China, Morgan Stanley’s Ruchir Sharma Says
As a child, Ruchir Sharma spent his summers in his maternal grandparents’ small town in Uttar Pradesh, one of India’s poorest and most populous states. Although the town was about four hours from New Delhi, it was a world away from his otherwise urban life. Distractions were few so he spent his summers studying adults—and watching them “hurl their choicest insults at the TV” as they took part in India’s leading spectator sport: politics.
It was an early glimpse into how the world’s largest democracy works.
Sharma, chief global strategist at Morgan Stanley Investment Management, has refined his insights over the ensuing years, frequently making personal trips to India to track at least one Indian state or national election a year alongside a growing caravan of Indian writers and editors. His new memoir, Democracy on the Road: A 25-year Journey Through India, details his travels to 15 of the country’s 29 states, including meetings with Indian politicians in the privacy of their homes and conversations with voters at political rallies in the small towns between the country’s megacities. These byways often play an outsize role in deciding election results.
India’s benchmark S&P BSE Sensex market index hit a record high of 39056.65 on Tuesday. Rising optimism that Prime Minister Narendra Modi’s pro-business coalition will stay in power in national elections beginning April 11 could be partly responsible for the index’s advance. A month ago, India was one of this year’s worst-performing markets. Election season ends at the end of May.
Sharma leaves for India again next month to catch the tail end of this year’s elections. He recently spoke with Barron’s about what drives Indian voters; why investors might want to lower their expectations for Indian stocks even if Modi beats rival Rahul Gandhi, Indira Gandhi’s grandson, at the polls; and why investors need to stop comparing India with China.
Editor's Choice
Barron’s: In your book, you talk about how elections are determined in India’s “mofussils”—a colonial term Indians now use to describe rural places where old ways run deep. What do people miss by not spending time in these towns?
Ruchir Sharma: How the thinking is so different. For example, the national media in India is focused on pollution and the quality of air in Delhi. Yet, as you go outside of Delhi, the smog may be as bad, but nobody talks about it. For the people in these villages, just getting by is more important. The other thing is how deep the caste system runs in India, especially in the rural areas where two-thirds of the people live. Also, Modi’s nationalist message resonates far less outside the northern parts and people underestimate the diversity of the country. It is more like a continent with 29 states than one country.
So local issues trump national ones. What will you be looking for when you head back to India next month?
How much Modi is able to convert his personal popularity into votes for the BJP [Bharatiya Janata Party] and how well the opposition alliances are working together. Whenever the opposition come together, they always pose a threat.
What brings them together?
Often it is to bring down the original leader. In India there has always been populist sentiment against the incumbent politician. Two-thirds of incumbent governments in India have typically lost an election. In the U.S., 80% of incumbents typically get re-elected. Now, though, I’m seeing the anti-incumbency trend go global. Last year, only 40% of governments across the world got re-elected—that is a big change compared with roughly a decade ago.
What is driving that? Rising inequality?
In India, the view is that the state is broken and never delivers so they are always angry at the incumbent. But now across the world there is a growing frustration with what the establishment is able to do for you. It has also been partly stoked by social media, which makes it easy to bring people down now.
What does that mean for investors?
It creates more volatility.
If India always roots for the underdog, that can’t be good for Modi.
That is the risk he faces. The business people in India are feeling listless. They haven’t gotten from the government what they wanted, but they are scared of change. Their default is to favor stability.
In December, the second head of the Reserve Bank of India under Modi resigned amid tensions with the government. The rupee sank. We have a more authoritarian turn in other emerging markets such as Turkey. Could we see that in India if Modi is re-elected?
That is one of the risks. But even if Modi wins, it is unlikely that he is going to come back with a greater majority. Even in 2014, he won only 31% of the vote share. That is the upside to India’s democracy for you. Given the diversity of the country, the checks and balances are stronger than in a place like Turkey.
That diversity also makes economic reform hard. Over the past 20 years, you have had the chance to talk to the Gandhis, Modi, and other leaders and have lowered your expectations for reform. Why?
I’ve become more of a realist, realizing this country will change at its own pace. This isn’t a country where you can go and tell them to be like [Ronald] Reagan or be like [Margaret] Thatcher. It isn’t going to work that way. All the leaders tend to be statist—they believe too much in the state. Whatever reforms or focus on development there is, I tend to see much more of it with the state governments. It is very hard to get top-down change in India.
The last time Modi won, investors were excited about the prospects for economic reform and the reduction of bureaucracy. The market has been rising on similar optimism lately. Should investors temper expectations?
It is good to keep expectations low. The reform and change [Modi brought] is different than what was anticipated. He wants to fix things here and there, but it isn’t free-market reform or liberalization—or the kind of change that, for example, is expected from Brazil today, under [President Jair] Bolsonaro.
What is one big thing investors should know about India?
Forget the India/China comparisons. Apart from the large populations, these two great nations of Asia have nothing in common. Nothing. Everything you say about China, the opposite is basically true of India. Where China is more homogenous, India is as heterogeneous as they come. The risks China’s leaders have taken for economic liberalization are very different compared with what Indian leaders have done over time.
People always think of China as an authoritarian state-driven model, but the share of the Chinese government in the economy has come down dramatically over time. They took some big calculated risks with reforms, often with new leadership—not because of crisis, which is usually the catalyst for other emerging markets. During the reform of the state-owned enterprises in the 1990s, they let go of 70 million employees. That is what kept China ahead of the curve. In the past few years, China is showing some signs of reverting, but that doesn’t’ take away from the big picture. China gave its people much more economic freedom than India did. And that is ironic.
Give us an example of India’s failure in this regard.
Look at demonetization [Modi’s government voided 85% of the currency overnight in November 2016]. India wanted to move to a cashless society, but China has moved to a cashless society much quicker with the private sector. In Beijing or Shanghai today in the middle classes, cash is nonexistent. It happened organically through the tech revolution and the development of some great payment solutions, and not through some massive state intervention or something as draconian as demonetization. India’s not going to become the next China.
Duly noted. Thanks, Ruchir.
India’s Wrong Step
The death of a former prime minister highlights the moment when the country lost its race with China.
India’s political divides increasingly look unbridgeable. Yet, when former Prime Minister Atal Bihari Vajpayee died last Thursday, he was mourned even by those who had been his opponents in life, whether within or outside his Bharatiya Janata Party. His successor, Manmohan Singh, compared his vision to that of India’s first prime minister, Jawaharlal Nehru — the highest compliment a member of the Congress Party can give. And Narendra Modi, whom Vajpayee tried to sack in 2002 as chief minister of Gujarat after thousands died in riots there, walked behind his cortege as it rolled through quiet Delhi streets.
As the first Indian prime minister not from the Congress Party to complete a full term, Vajpayee’s place in history is assured. Behind the mourning was a certain nostalgia; many remember his time in office as an enchanted moment, the high-water mark of confidence in India’s future. The country declared itself a nuclear power and survived the sanctions that followed. It was opening itself to investment and seemed to have weathered the Asian crisis of the late 1990s. It seemed reasonable, then, to put India and China in the same basket as rising powers.
Today, a decade and a half after Vajpayee was voted out, that optimism is a thing of the past. India has moved too slowly and let too many people down too often; many here now wonder if it has missed its moment entirely. You could blame Modi for this situation, or Singh. But, in fact, the foundations for this failure were laid during Vajpayee’s administration — and by his defeat in the polls.
This isn’t to say that Vajpayee’s government wasn’t reformist: It had more market-friendly ministers than any government since. It opened up the telecommunications sector, invested in roads and highways, and defused the fiscal time bomb that India’s state pensions were becoming.
But, the one moment you can point to as emblematic of the opportunities that India missed came in early 2001. Vajpayee’s finance minister, Yashwant Sinha — now a trenchant critic of Modi — had proposed that India’s draconian labor laws be relaxed. Criticism was widespread, including from within his own party. Eventually, Vajpayee backed off and the promise to amend labor law went unkept.
Vajpayee’s decisive turn away from reform of the world’s most restrictive market for labor — not to mention land and capital — is the biggest reason India went on to lose to China the race to become the world’s manufacturing hub. In the years since 2001, world trade in goods exploded, even as India continued to deindustrialize. It was just too difficult to run a decent-sized factory in India.
Larger companies needed government permission to fire even one worker. India became an IT services superpower; trade and telecom fired up its growth rate. But the country signally failed to create the manufacturing jobs that became the foundation of the Chinese miracle. Under Vajpayee, India backed away from the only path that leads to prosperity.
At the time, this was hard to see: As I said, we all felt optimistic. Vajpayee tried to distill that energy into a single two-word slogan in his 2004 reelection campaign: “India Shining.” When he lost, many assumed it was because of a backlash to that reform-friendly rhetoric.
That was never really an accurate explanation; indeed, Vajpayee himself saidafter the loss that the Gujarat riots were responsible. Yet the fear that economic reforms would be electoral poison has haunted Indian politicians ever since. Even Modi, with more political capital than Vajpayee ever had, has been overly cautious. One crack from his opponents that he was running a “suit-boot” government, too close to rich businessmen, was enough for him to turn into a red-blooded economic populist.
Vajpayee’s biggest moment, perhaps, was when he took India nuclear in 1998 and tended India’s economy through the sanctions that followed. Nobody can still argue now that India shouldn’t have openly admitted to its nuclear capability; it’s shown that it can be responsible about proliferation and nuclear doctrine.
But, there’s another way of looking at it. The Chinese consciously decided to avoid rocking the geopolitical boat until they had the firepower to overturn it. Instead, they kept foreign investors and governments happy while they prioritized getting their domestic act together. When Vajpayee was giving up on fixing labor law because it was politically difficult, Chinese premier Zhu Rongji was fighting to reform state-owned enterprises, laying off millions in the process. Two decades on, it’s easy to see what India’s priorities should have been.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
China versus India: A race India lost, even before it could start
Published on January 27, 2016
In November 2011, Time Magazine dedicated its cover to a green elephant, with a charkha as an eye, battling a red dragon, symbolizing the great game of one-upmanship between China & India in the 21st century.
For last many years, commentators have time and again compared the two Asian giants & described their quest for economic prosperity as 21st century race between two of the oldest and richest civilizations, for global superiority. However, if one thinks rationally, it is not difficult to find that it was a race that never really happened. The Chinese had already won the game, even before Indians could take off from the starting line.
Recent GDP data & various projections put forth by various institutions & agencies showing India surpassing China as the fastest growing major economy, has prompted a flurry of news stories and articles.
Now consider this, a research paper, published in October 2014 (Asiaphoria Meets Regression to the Mean) by two Harvard economists, Lawrence Summers & Lant Pritchett, made a splash about economies of China & India. According to the paper, if China and India continue their current rate of growth, both will add US$56 trillion to the global economy by 2033 and China's share of the additional US$56 trillion would be a staggering US$51 trillion, while India would contribute just US$5 trillion.
The reason I quoted the report is to highlight the real story. Let us be very clear; India is so far behind the Chinese (Indian GDP: US$2.1 trillion; China GDP: US$11 trillion), that even a 5-6% growth off such a huge base would keep China out of India's sight for at least next 50 years, if not more.
Now coming back to why India lost the race before it could even start, there are many reasons for that.
First & foremost, India's utterly corrupt, rotten and disgusting political system. Many argue that India despite its problems is far better than China because we are a democracy and we have freedom of speech & expression here. In later part of this article, I would debunk this theory. But before that, let us understand little bit about Indian political system.
As a matter of fact, Indian political system is so easy to manipulate that even the most dyslexic of politicians can easily buy, fib, bribe or con their way to power. Politicians across the spectrum offer money along with meals, liquors or goodies to ensure people vote in the election. So, in reality, that is all it takes, few million rupees and bottomless carat of liquor to win a seat in country's parliament or state legislatures.
This speaks volume for the very character of Indian politicians who unlike in the west or other countries are not the usual statesman. These bunch of illiterate and FIR evading buffoons are disgrace to this great country. Their ultimate lust for power and the ease with which they could steal the mandate is one of the most important reason for India's problems.
I have been told numerous times that China is far more corrupt and officials and party cadres take huge kickbacks while processing every business request. Well, they'd be correct and indeed they are correct. But there is one thing that differentiates two countries and that is,"China is more corrupt but too efficient, while India has this dubious distinction of being too corrupt and too inefficient at the same time" That's why you have Mumbai Trans-harbour Sea Link bridge, a 20-odd kms long sea-bridge first conceptualised in 1980s to decongest the city. However even after 35 years, project is yet to see the light of the day!!
"Oh common!! delays happen, we are a free country after all" the very Indophile in most of you must be screaming loud. Well, then let me shut this Indophile once and for all. India perhaps is one of the largest dictatorship, in disguise and our buffoons aka politicians exercise its right to be autocratic as and when it desires or as it suits them. Incidents after incidents, be it corruption, scandals, scams, Indian politicians do exactly what they want to and trust me, nine out of ten times, they get away with it. A fall person takes all the blame, thereby protecting the fat cats on top, and after spending a few years of time, the fall person is set free to walk out of the Bellagio version of Indian jails, Tihar, scot-free. Some past incidents have proved that in many cases even Indian judiciary had been hand in glove with these buffoons. Corrupts, scamsters, & murderers are set free by this very judiciary, with judges pronouncing their judgements,"Baizzat Bari Kiya Jata Hai (not guilty and free to go)
How then are we any different from China? We are in fact worse. At least they don’t act like they have systems to defend the freedom of civil rights and laws in their country. “It’s our way or the highway,” they say, while the Indian government prefers to pussyfoot around and do back-room dodgy deals, sugar coating it all under a flaccid façade of democracy and freedom.
Then India's crumbling urban infrastructure comes into the picture. Time and again, even United Nations report ranks Indian infrastructure lower than Equatorial Guinea. Just compare any Indian city with the Chinese. Their cities are clean, their skyscrapers put Manhattan to shame, their roads are wide, their airports make ours look like glorified cow sheds and their public transport is super efficient. The Chinese have learnt a very important lesson early on here - that they have to invest in their own urban infrastructure. A concept that is completely lost on us Indians.
Just compare Mumbai & Shanghai. Any traveller flying from Mumbai to Shanghai feels like a direct ‘beam-me-up-scotty’ from hell to heaven. Both are port cities, but yet so different. Chinese authorities have very well maintained the old sector of Shanghai, while the newer reclaimed Pudong area of Shanghai on the other side of the Yangtze looks like something out of The Jetsons. Mumbai in comparison looks like the poor, disease ridden cousin who gambled away all his money and is now left with only a few family heirlooms, which once shined but are now fungus covered.
Even on social front, India's performance have been so poor that it puts sub-Saharan nations to shame. Illiteracy, malnourishment, gender inequality, on all important parameters, India has showed little to no progress. Even after 60 years of independence, more than 40% Indians defecate in open. Availability of clean drinking water remains elusive for more than 400 million Indians. Female foeticide, a practise that indeed is most prevalent among the very so-called middle class families in India. Crimes against women have peaked and what our society does? Nothing! After Nirbhaya rape incident, instead of taking some thoughtful and effective actions, the best solution our 'buffoon' politicians could come up with was, Banning the Taxi apps!!
India needs to be taught to respect women, if it ever wants to achieve the status of the Chinese. Of course, some Indophiles would quote, "Beti Bachao, Beti Padhao scheme, but such a dear project of Indian PM gets only Rs. one billion as budgetary support. Do we really treat women badly? Of course, not. There definitely are various countries especially in Africa and Arab world, who treat women as slaves, but they don't aspire to be like China, like we do.
The elephant on Time Magazine’s cover for me is thus nothing more than symbolism. Of course, with the size of our population, India would easily achieve second largest economic power status by the mid of this century,but it just won't ever be able to beat China.
Last edited:
