NOT TWINS

India can Make in India, but will probably never catch up with China

Quartz india
Quartz india

The question has often been asked, what lessons can India learn from the Chinese success story? Can they be applied to India—or is the national genius, or DNA, so different that copycat strategies won’t work?

It is when one confronts these questions that the similarities assumed on the basis of size, scale and (once upon a time) income level are seen to be superficial. The historical and cultural differences between the two entities, and, therefore, their political and economic choices, are more substantive factors.

China’s geographical core has been a centrally administered empire for a couple of millennia, whereas India’s history mostly comprises multiple feuding monarchies. China is overwhelmingly Han, while India is a polyglot nation with every kind of diversity: ethnic, linguistic, religious, caste. China has a long experience of being run by a merit-based bureaucracy, India does not. China has a sense of destiny (the Middle Kingdom with a mandate from heaven), history and continuity, while India’s history is the cause of current political contestations. Chinese nationalism is unifying, while some kinds of Indian nationalism are divisive.

Differences in the modern era are equally substantial. China became a one-party dictatorship while India imitated Westminster democracy. China’s rulers emerged hardened from a civil war and could take the tough decisions about breaking down old ways of doing things in order to create a new reality, whereas India won its freedom through non-violence, so its leaders were inclined to make the softer choices.  China mobilised its masses to bring about revolutionary change, whereas India sought change through laws passed in Parliament. 

China mobilised its masses to bring about revolutionary change, whereas India sought change through laws passed in Parliament and implemented by a bureaucratic set-up inherited from colonial rulers. China began under Mao by emphasising change in the countryside while India under Nehru sought industrialisation. China achieved rapid progress on the key human indicators while India did not.

China began reforming its economy in 1978 with a sense of national purpose; India’s reforms since 1991 have been half-hearted at best and without much political conviction. The end results have thus been very different for the two economies; China has become a global power that casts a shadow over India’s regional status.

The two countries’ paths to development have been almost polar opposites. For a long time, China was seen to have a better macro story than its micro-story: that is, its state performed better than individual companies. India, in contrast, had an underperforming state that failed to deliver the basics, while its entrepreneurs (usually from the traditional trading castes) ran a better-performing private corporate sector. China, therefore, attracted more foreign direct investment in job-creating new factories, while India attracted portfolio investment in existing companies. In recent years, following sweeping reform of its public sector, China’s micro story has improved as well, though in general corporate governance norms remain superior in India.

China achieved what it did by throwing resources on an unprecedented scale into the development of infrastructure, by offering factory owners swarms of workers with no real rights to industrial action or collective bargaining, and by keeping its currency artificially low in order to capture export markets while suppressing local demand. It operated an opaque banking, financial and pricing system in which outside observers found it hard to understand cost structures; also by stealing or copying technology from foreign firms that invested in China; and by achieving exceptionally high productivity norms on factory floors.

India is not about to do any of these; it couldn’t even if it wanted to. While the Indian state has never been able to deliver adequate physical infrastructure (electricity, roads, ports), the existence of a capital market meant that the relationship between capital investment and increased output (the incremental capital-output ratio) has always been better in India than in China—that is, it can achieve similar rates of economic growth with the use of less capital. At the same time, the attempt to apply private-sector efficiency to building infrastructure (through public-private partnerships) has resulted in bad investments, stalled projects and debt-laden balance sheets.

 Chinese workers are better educated and better fed, and seem to take willingly to the monotony of repetitive shop-floor work. 

Taking away the collective bargaining rights of industrial labour, as China has done for all practical purposes, would be unthinkable in a multi-party parliamentary democracy with a long-term left-of- centre bias. A mercantilist currency policy to keep the rupee cheap is ideologically taboo among Indian policymakers who buy into mainstream orthodoxy about not manipulating the exchange rate, and in any case, is not without its costs if pursued for any length of time. India’s politicians, in turn, have often confused a strong currency with national strength—as some Bharatiya Janata Party (BJP) politicians did during the 2014 election campaign. Meanwhile, the wholesale theft of industrial technology is impossible in a country with an independent judiciary.

Importantly, the combination of large-scale production and very high productivity, which seems to have an East Asian patent, appears to be a leap too far for India. Chinese workers are better educated and better fed, and seem to take willingly to the monotony of repetitive shop-floor work. Those in charge of India’s National Skill Development Corporation report, in contrast, that young Indian men show a marked preference for training that will help them get white- collar jobs, even if manufacturing work pays more. Anecdotal evidence suggests that they are willing to take up to a 50% cut in pay, to switch from blue- or brown-collar to white-collar work (such a preference could be linked to caste and status; among other things, it improves prospects in the marriage market). Similarly, whereas young, single women in China are willing to move far away from home and stay in dormitories located next to factories, their Indian counterparts prefer to stay at home and get bussed to work. This is slower, costlier, less efficient, and results in higher absenteeism.

The Chinese system has fewer checks and balances, so the alignment of objectives is easier, with coordinated action to follow. In India, the two major political parties can agree on the need for a new law, yet each will try to stop the other from getting it passed in Parliament. Much of Narendra Modi’s initial legislative thrust and policy stance were on issues that his party had opposed when in opposition (higher foreign investment in the insurance sector, a border settlement with Bangladesh, the goods and services tax, majority foreign investment in organised retail trade, and so on). Even more ironically, its principal political battle after it formed the government was to try and undo something it had voted in favour of when in opposition (the 2013 land acquisition law).

The separation of powers between legislature, executive, and judiciary makes getting project clearances a complicated hurdle race. This is especially so when populism comes easily to politicians seeking votes and legislatures pass unrealistic laws. The executive is rule-bound rather than result-oriented, and the judiciary given to overreach, issuing sweeping judgments that sometimes show a divorce from economic logic. The result, as Singapore’s Lee KuanYew declared tersely a few years ago, is that “Indians talk while Chinese do”—a remark that drew raucous laughter in the Singapore business forum where Lee was speaking.

THE TURN OF THE TORTOISE

Excerpted with permission from Penguin Books India from the book The Turn of the Tortoise: The Challenge and Promise of India’s Future authored by T. N. Ninan. Available in all major bookstores. We welcome your comments at ideas.india@qz.com.

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