MY OWN CONSLUSION is that India made more substantial economic progress since the last serious financial crisis in the beginning of the 90’s than younger India sceptics refer to. You need to know about the present as well as the history.
SURE, THE FIRST VISIT to India opens up to many questions – particularly if you visited Beijing and Shanghai before. China is a much more organised society than India. It begins already at the Delhi airport and the taxi to the hotel – mostly a chaotic experience. A car trip to another city will clearly reveal the infrastructure bottlenecks.
A CAR TRIP TO ONE OF India’s better universities will show a different picture. You meet well educated researchers with their own opinions and a rich individual diversity. It gets even more interesting when you can observe that these skilled academics, in most contexts, operate along the same (scientific) paths as in the US and Europe. The individual and intellectual flexibility seems considerably larger than in the Middle Kingdom. Taking a closer look at faculty records at large American universities, they are almost abound with well known or even world famous Indian names. In economics, management and finance (for example Sen, Baghwati, Banerjee, Dixit, Srinvasan etc).
THESE ARE SOME of India’s future comparative advantages compared to China. But there is more. For example, the democracy is stable and the rule of law is in place (even if the execution of it may take time). Do not forget about the financial markets; they are considerably more modern than in China and at the same time more transparent and better monitored. In 25 years, India clearly will have more favourable demographic prerequisites than their large neighbour.
HOWEVER, with more favourable demographic advantages, we also face great future challenges. Indian experts like professor Bardhan at Berkely in San Francisco use to say that, so far, India’s demographic advantages is theoretical since the creation of human capital is still marked down by an insufficient spread (illiteracy in India is close to 40% - declining among the young; in China it is only approximately 10%).
FOR INDIA TO grow by 8-10% in the next 20-25 years, the country needs to achieve:
- a substantially larger average educational level (extremely important)
- several deregulations
- critical infrastructural improvements (roads, railroads, harbours)
- improved health care
- considerably less bureaucracy and corruption
AS STATED, India already has an established democracy. Even though the Indian democracy has its twists, this is an important advantage compared to China. The Indian democracy is characterised by a very slow political decision-making processes, particularly regarding the transition of central decisions to state levels. With this in mind, you should work on the supposition that the Indian transformation will be relatively slow henceforth (risking temporary setbacks). India has however, become part of the global economy.
PROCESSING AND COMBATING today’s weak points in the Indian system could create substantial potential for a better structure in India’s economy. This could be emphasized by a positive example from the micro world. According to Silf and Swedbank’s recent publication “Inköparnas Omvärld”6), India is ranked as number two among the most expansive future purchasing countries (after China) with Swedish buyers.
MY OWN GUESS IS that in 25 years, China and India will not be far from each other struggling for the position as the world’s largest economy (in PPP terms).
Hubert Fromlet
Chief economist
Financial secretariat at Swedbank
From Discussion Paper No 21
”25 years back and 25 years ahead – the world’s and Swedish economy from a personal perspective”