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By
R.N.Bhaskar
June 21, 2007 (published in the
DNA). pdf version available here (2007_06_DNA_The elephant may make
way for the dragon_3.5mb.pdf)
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India’s economic growth has largely been entrepreneur
driven, unlike China’s where much of the growth is state driven. In India, the government’s role has often
been that of a spoiler
India continues
thwarting genuine investors. It has
harangued the likes of Hutch and Vodaphone, and has instead encouraged
Participatory Notes that have only brought in more dubious speculative
money.
Instead of
accelerating primary and secondary
education, improving educational standards of literacy and learning,
and
providing financial incentives to those who offer people basic and
vocational
education, the government has sought to tinker with even its best
educational
institutions – the IITs and the IIMs. It
has meddled with their plans for financial autonomy;
muscled its way
into their admission procedures and has cast many of their expansion
plans on
the backburner.
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The World Bank has already sounded a warning
bell. India’s GDP growth rates are likely
to be
lower than had been predicted. As
against earlier forecasts of 8-9% during 2007-2009, the World Bank has
now
pegged them lower at 6-8%. There are
chances that they could be further lowered.
Sadly, the downgrade is not because India’s industry isn’t
competitive, but because its own government has become an obstacle.
India’s
economic growth has largely been entrepreneur driven (see table),
unlike
China’s where much of the growth is state driven. In
India, the government’s role has often been that of a spoiler.
Consider the manner it which India has
treated its most
abundant factor of production – its people. Instead
of accelerating primary and secondary education,
improving
educational standards of literacy and learning, and providing financial
incentives to those who offer people basic and vocational education,
the
government has sought to tinker with even its best educational
institutions –
the IITs and the IIMs. It has meddled
with their plans for financial autonomy; muscled its way into their
admission
procedures and has cast many of their expansion plans on the backburner.
Incapable of attracting better teachers, yet unwilling to
allow private entrepreneurs to open more schools where the best talent
could be
attracted, the government has instead focussed merely on collecting
more money
through the imposition of service tax and education cess. The
consequence:
India may have to forego the natural advantage of its large population.
Instead
of being a boon, the ‘demographic dividend’ may turn out to be a
nightmare as
more divisive forces rear their heads in the face of poverty and
unemployment.
That could destroy all the achievements of India’s entrepreneurs.
Take a second yardstick.
India’s strength has been its vibrant financial acumen,
including its
stockmarkets. This is where it scores over
China because Chinese companies don’t even adopt proper accounting
processes.
Its companies do not adhere to accounting standards, and don’t have
reliable
annual reports. It was only in November
2005 that China took the decision to adopt International
Financial Reporting Standards (IFRS) that were to be put into effect in little more than a year.
The elephant and the dragon – some differences
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India’s recipe
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China’s growth path
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Entrepreneurship directed
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State directed
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Consumption led
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Infrastructure driven and export led
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Stockmarkets & services
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Manufacturing
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Transparent valuation of corporates
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Little transparency in corporate
balancesheets
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Less than 2% bad loans in Indian banks
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Over 20% as bad loans
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That hasn’t been
easy. This is evident from a second announcement in January this year
that all
the 1,200 companies listed on the Shenzhen and Shanghai stockmarkets
should
adopt – with some significant exceptions – 39 ‘principle-based
standards’ aimed
at revealing the economic value of companies. And
what China decides to do, it eventually does. Once
this happens, you
can be sure that investing in China’s companies will become a lot more
meaningful and attractive. At that stage, India could witness even the
limited
investment flows it benefited from drifting away to China.
<>That is why India
should woo foreign direct investments more aggressively today itself.
Instead,
it continues thwarting genuine investors. It
has harangued the likes of Hutch and Vodaphone, and has
instead
encouraged Participatory Notes that have only brought in more dubious
speculative money.
Take the third
indicator. When China began its
‘liberalisation’ and benefited from the subsequent economic boom, it
ensured
that its growth was catalysed by investments – mostly in
infrastructural
projects. India’s boom was on account
of domestic consumption, in much the way its 1982 boom also was. But such booms are not sustainable unless
investment in infrastructure also takes place at a blistering pace. Yet, airport modernization is stuck with
only two airports getting the go-ahead. Its
highway plans are woefully behind schedule, and its
railway
turnaround remains an exercise in financial obfuscation, not of
infrastructure
improvement.
If such investments
are not cleared immediately, India could see its economic growth grind
to a
shuddering halt. Coupled with social
unrest, dwelt on above, India could become an economic hot potato.
China will obviously
emerge as the undisputed winner.
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