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What China Needs to Learn From India

by Elizabeth C. Economy
July 31, 2013

Labourers are silhouetted against the setting sun as they work at the construction site of a residential building in the southern Indian city of Hyderabad on October 5, 2012. (Krishnendu Halder/Courtesy Reuters) Labourers are silhouetted against the setting sun as they work at the construction site of a residential building in the southern Indian city of Hyderabad on October 5, 2012. (Krishnendu Halder/Courtesy Reuters)

In discussions and writings about the Asia Pacific, India often seems to get short shrift—despite its size, record-breaking economic growth, and growing regional and global influence. Earlier this week, I had the opportunity to pose some questions to the renowned economist—as well as Columbia University professor and my CFR colleague—Jagdish Baghwati about his terrific new book with Arvind Panagariya on India, Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries.

Here are his responses:

1. Jagdish, talk a little bit about the impetus for writing this book. What did you want to accomplish?

Having written countless books and articles on India, both I and my co-author Arvind Panagariya were conscious of the fact that people might say: there they go again!

But this time, we did feel that Indian attempts at reforms were continually being assailed by populists and left wing economists whose conclusions (i.e. critiques) were more obvious than their arguments. We felt that finally we had to take their critiques apart, even if it ruffled some feathers as they have in the case of even such a well-known economist as Amartya Sen. So, we devoted our first section to setting out several “myths” that were like hand grenades thrown at our reformers each time they decided to make more progress.

2. You and your co-author, Arvind Panagariya argue that over the long-term, India provides a better model for developing countries than China because it has been moving forward on both Track I and Track II reforms. Explain what you mean, and is China likely to catch up?

By Track I reforms we mean the growth-enhancing reforms which manage to pull people out of poverty by offering the poor more opportunity. But the growth also generates more revenue at any given tax rates. This enhanced revenue means that we can spend more on education, health, etc. for the poor, and we call these policies Track II policies which of course rest on the shoulders of Track I reforms. But Track II policies do not necessarily follow enhanced revenues: these revenues could be spent on expanding defense out lays instead! Here, we argue that India’s liberal democracy—with relatively independent judiciary, free press, NGOs (i.e. civil society), and opposition parties—has ensured that the rising aspirations of the poor as growth spreads its benefits are transformed by India’s democracy into effective political demands, whereas the authoritarian regime in China prevents this from happening effectively. A liberal democracy does matter and China is probably learning this lesson painfully.

3. In your discussion of higher education in India, you suggest a number of reforms you believe necessary to support a rapidly growing economy. What are the most salient of the reforms and how likely do you believe the Indian government is to adopt them? What will be the ramifications if the government does not move forward?

What has been most impressive in India is that, while the public sector provision of health and education has often been marked by inefficiencies like absentee doctors and teachers, the private provision thereof has been huge. Thus, you have private schools operating on streets, for example! The poor are in fact spending their moneys, which growth has put into their hands, on buying such private schooling for their children. The mistake of some of the leftwing ideologues is to believe that if public revenues are to be spent to provide health and education, this must mean that the public sector must be the mechanism through also believe that, with aspirations aroused, we need to use IT technology to improve access by the multitudes of the poor to education.

A literate labor force would improve the returns we get from importing equipment embodying technical change; this is the lesson from the Far Eastern economies. Again, some economists like Sen argue that education will lead to growth. But that is like the “Field of Dreams” in the movie; education, when the policy framework is not promoting growth, cannot work by itself to engineer growth.

4. One of the aspects of your book that I enjoyed most was your debunking of myths, for example, “reforms have led to increased inequality” throughout the first half of your book. As a non-India expert, I confess that I certainly had fallen prey to many of them. Share with us one or two myths that you debunked for yourself in the process of writing the book.

We were surprised to find that post-1991 reforms had  been so remarkably successful in reducing poverty. Then again, the benefits had extended unmistakeably to the “untouchables” (who are now called Dalits), and to women, tribals and lower castes. As for inequality, there was no trend increase in it, as many alleged. Then again, some observers, like the political scientist Asutosh Varshney, had argued that India was having its own Gilded Age like the American one a century ago. But even this was not true. The Indian rich spent moneys on fancy cars and on extravagant weddings; but not much beyond that.

5. You devote very little time in the book to infrastructure—which many observers consider to be one of the most serious obstacles to a continued strong development trajectory for India—and your prescription for improvement is largely that the government agencies need to coordinate better. Can you talk a little bit more about other obstacles to infrastructure, such as the grass-roots opposition and funding? Are there examples of states within India that have done a relatively better job of infrastructure development and if so, what makes them stand out?

True, we could have spent more time on this issue (and on climate change and pollution) though there is an advantage in keeping the book short. Both in India and China, rapid growth has led to shortage of infrastructure; and the government has not mobilized enough to fill the lacuna. China has built far more; but it too faces shortages in several areas. [By contrast, in many African countries, many advocate the building of infrastructure before the growth materializes. Much like the "Field of Dreams" approach, the hope is that roads will generate traffic. Alas, that hope rarely works out.]

Returning to India, the State that has the best infrastructure development is Gujarat where the ports and roads are splendid and the credit goes to the hands-on government of Chief Minister Narendra Modi who, in eleven years and three successive victories, has now catapulted himself into a potential prime minister on the basis of his economic performance which has also translated into impressive changes in Gujarat’s social indicators.

6. Throughout the book, you offer comparisons between India and China. What do you think Indians, themselves, perceive to be India’s greatest strengths and weaknesses vis-a-vis China. Do they have it right?

Comparisons between India and China have preoccupied social scientists since the 1940s. Both countries were supposed to be the giants that would awaken and dominate the world. But they continued snoring instead. Now they have indeed awakened. China has emerged as a huge powerhouse; India is behind the curve though its growth has accelerate considerably since the 1991 reforms. India’s weakness is its slowness of decision-making, which is cultural. We had a great Prime Minister Vajpayee of the BJP government who typified the slowness as he took forever to respond. So Prime Minister told me a story about how he had told President George W. Bush about going to India to see Vajpayee. So, Bush said: But you saw him only six months ago. So Blair said: I asked him a question then; I am now going for the answer! China’s main problem by contrast is going to be the increasingly restive population: growth does lead to demands for civil and political rights. How Chinese leaders respond—whether by political suppression of dissent or by political accommodation—will influence greatly what the future holds for China.

Post a Comment 2 Comments

  • Posted by ltlee

    Haven’t read Jagdish Baghwati’s book. But whenever one says “over the long run…” without at the same time specifying the time horizon, he is just speculating or kidding himself. If the authors is confident that the Indian approach is superior, they could be more specific. As a matter of fact, many faith based intelligent designer have more confidence on when their Lord will come back.
    Concerning restive population, India has long running open rebellion in many of its provinces. Chinese does not.

  • Posted by Alexis de Pleshcoy

    Without any doubt this book is a must read for anybody interested in the past and future of the Western civilization. I will post an in depth analysis on the Amazon website.
    Analyzing strictly this interview, I would add some facts from other sources.
    “… India was having its own Gilded Age like the American one a century ago. But even this was not true. The Indian rich spent moneys on fancy cars and on extravagant weddings; but not much beyond that.”
    Between 2008 – 2010, the Antillia residence was built in South Mumbai, valued at $1 – $2 billion. This is more than a fancy car.
    It is not an exception.
    The article “A passage to Mayfair”, ( at http://www.economist.com/news/britain/21582254-indias-super-rich-elite-are-colonising-heart-former-british-empire-passage, free access) adds additional facts which contradict the above assertion.
    “Both countries [India/China] were supposed to be the giants that would awaken and dominate the world. But they continued snoring instead. Now they have indeed awakened. China has emerged as a huge powerhouse; India is behind the curve though its growth has accelerated considerably since the 1991 reforms. India’s weakness is its slowness of decision-making, which is cultural.”
    I have to disagree with the “awakening” theory. In fact it was the largest transfer of wealth in human history from the West to the East. How the West got the wealth in the first place is a long story in it itself, but that doesn’t change the substance of the facts. How the West transferred in a generation what it accumulated over centuries, is a question to be answered in the future by sociologists.
    To get started, very helpful would be to read http://www.globaldashboard.org/2008/01/03/martin-wolf-prospects-for-civilisation-in-a-zero-sum-economy/ and analyze how Detroit morphed from the Arsenal of democracy into the present form.

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