NEW YORK: India's long-term potential may be greater than China's as the Communist giant faces a shrinking work force due to its one child policy, according to a leading American business weekly. "I believe India has a better model than China, and overtime will surpass it in growth," Chief Economist William T. Wilson of consultancy Keystone Business Intelligence India said. Also experts point out China's lack of innovation in industry and its tendency to be wasteful while marching on the growth path can prove to be a major drawback in the next couple of decades. China 's working-age population will peak at 1 billion in 2015 and then shrink steadily. China then will have to provide for a graying population that has limited retirement benefits By mid-century, India is expected to have 1.6 billion people - and 220 million more workers than China. "That could be a source for instability, but a great advantage for growth if the government can provide education and opportunity for India's masses," says Business Week Online. Painting a rosy picture, it said New Delhi is just now pushing to open its power, telecom, commercial, real estate and retail sectors to foreigners, which could lure big capital inflows. "The pace of institutional changes and the industries being liberalized is phenomenal," it quoted Wilson as saying. For its part China has yet to prove it can go beyond forced-march industrialization. China directs massive investment into public works and factories, a successful formula for rapid growth and job creation. "But considering its massive manufacturing output, China is surprisingly weak in innovation. A full 57 percent of exports are from foreign-invested factories, and China underachieves in software," it adds. "China has a lot of capability," says Microsoft Chief Technology Officer Craig Mundie. "But when you look under the covers, there is not a lot of collaboration with industry." China also is hugely wasteful. Its 9.5 percent growth rate in 2004 is less impressive when you consider that 850 billion -- half of GDP -- was plowed into already-glutted sectors like crude steel, vehicles, and office buildings, Business Week says. Two-thirds of China's 1,300 listed companies don't earn back their true cost of capital, estimates Beijing National Accounting Institute President Chen Xiaoyue. India, by contrast, has had to develop with scarcity. It gets scant foreign investment, and has no room to waste fuel and materials like China. India also has western legal institutions, a modern stock market, and private banks and corporations. As a result, it is far more capital-efficient. A Business Week analysis of Standard & Poor's (MHP) Compustat data on 346 top listed companies in both nations shows Indian corporations have achieved higher returns on equity and invested capital in the past five years in industries from autos to food products. The average Indian company posted a 16.7 percent return on capital in 2004, vs. 12.8 percent in China. What holds India back are red tape, rigid labor laws, and its inability to build infrastructure fast enough. With Beijing now pushing software and pledging intellectual property rights protection, some Indians fret design work will shift to China to be closer to factories.