India will overtake China: MIT, Harvard

By agencies   |   Wednesday, 29 June 2005, 07:00 Hrs
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WASHINGTON: In the long run, India will overtake China in economic growth owing to homegrown entrepreneurship, stronger infrastructure to support private enterprise and companies, which compete internationally with global firms, a media report has claimed. The report, written by Yasheng Huang, Associate Professor at the Sloan School of Management at the Massachusetts Institute of Technology, and Tarun Khanna, a professor at Harvard Business School, said India was 'superior' in utilizing its resources, thus contributing to economic performance. "The real issue is not where China and India are today but where they will be tomorrow. The answer will be determined in large measure by how well both countries utilize their resources, and on this score, India is doing a superior job," the duo said in the report published in FP - a magazine published by the Carnegie Endowment. Differentiating between 'routes' to economic prosperity, they said that India's homegrown entrepreneurship gave it an advantage over China, where Foreign Direct Investment (FDI) largely fuels growth. "What is the fastest route to economic development? Welcome FDI, says China, and most policy experts agree. But a comparison with long time laggard India suggests that FDI is not the only path to prosperity. Indeed, India's homegrown entrepreneurs may give it a long-term advantage over a China hamstrung by inefficient banks and capital markets," they argued. They said the ubiquitous "Made in China" label on everything in a major department store from shoes to garments to toys and electronics obscured an important point: few of these products are made by indigenous Chinese companies. "You would be hard-pressed to find a single homegrown Chinese firm that operates on a global scale and markets its own products abroad. That is because China's export-led manufacturing boom is largely a creation of FDI, which effectively serves as a substitute for domestic entrepreneurship," they said. The duo stressed that India provided a more "nurturing environment" for domestic business, thus spawning a number of companies that now compete internationally with the best that Europe and the us have to offer. "Many of these firms are in the most cutting-edge, knowledge-based industries -- software giants Infosys and Wipro and pharmaceutical and biotechnology powerhouses Ranbaxy and Dr. Reddy's Labs, to name just a few", Khanna and Huang said. India has also developed much stronger infrastructure to support private enterprise. Its capital markets operate with greater efficiency and transparency than do China's. Its legal system, while not without substantial flaws, is considerably more advanced, the two argued. Huang and Khanna also contrasted India's "increasingly building from the ground up" to China's pursuit of a "top-down approach" for economic growth, saying it reflected the political systems of both the countries. "India is a democracy and China is not." "China and India have pursued radically different development strategies. India is not outperforming China overall, but it is doing better in certain key areas. That success may enable it to catch up with and perhaps even overtake China," the two experts felt. "It would not only " demonstrate the importance of homegrown entrepreneurship to long-term economic development; it will also show the limits of the FDI-dependent approach China is," the duo said.

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