Who will grow faster in the future: China or India?

One crude measure of relative sophistication or entrepreneurial capability is how much direct investment (FDI) these countries are exporting, especially to the richer countries and especially in sophisticated sectors.

Based on new data on mergers and acquisitions, Aaditya Mattoo of the World Bank and I calculated that India’s FDI exports to the OECD countries overall and even in the manufacturing sector were substantially greater than China’s (measured as a share of GDP).

China is rightly considered the world’s manufacturing powerhouse and export juggernaut, and yet in the manufacturing sector, Indian entrepreneurial and managerial capital (in the form of FDI) has been more successful than China’s in taking control of and managing assets in the sophisticated markets of Europe and the US.

So, while both private sectors have improved, India can claim today that it is ahead of China in fostering entrepreneurial capitalism.

That’s Arvind Subramanian writing in Business Standard. In spite of India’s entrepreneurial talent, however, Arvind thinks that it will lag behind China in growth.

Why? It’s easier to be entrepreneurial than build a strong state. Institutionally, he argues, India is deteriorating.

I’m not convinced that India’s government is so weak, or that the situation is getting worse.

And even if true, it’s not clear to me that a vibrant private sector is less important to long term growth than a strong (controlling?) state, as in China. Arvind could be right, but I’ll wait for the evidence. The next article or book, perhaps?

5 thoughts on “Who will grow faster in the future: China or India?

  1. Not sure I agree with the ‘fragile foundations’ comment above by demerzel.
    One of the problems that I see, is that the gains of the fast growth in some of the sectors are not adequately getting pumped into programmes aimed at social change, – not fast enough anyway. In the absence of this catalyst, the growth will not benefit all sectors. In the Indian context, social change is, I think – imperative for change in 2 areas: a) curbing corruption, and b) impacting on the gender dimension, – both – if impacted on rapidly – will lead to a better rounded spurt in the progress.

  2. Interesting–I’ll admit that I have a bias towards China growing faster, but it could be a toss-up either way when the foundations are so fragile in either country (in terms of international affairs, infrastructure, pollution, population growth, etc).

  3. To Nick above,
    Thanks for he link. For a lay person like me some of it is unclear but a lot of it feels right.

  4. Lant has posted a very interesting paper on India on his website that relates to this. The basic idea is that while India has seen great reform at the national level (where reform means changing regulation with the sweep of a pen), at a grass-roots level the state functions terribly. This dysfunction is deeply ingrained socially and institutionally, and dealing with this next wave of reforms is going to be MUCH more difficult than the reforms of the 1990s.

    http://ksghome.harvard.edu/~lpritch/Is%20India%20a%20Flailing%20State_v1.doc