From China Could Learn From India’s Slow and Quiet Rise, a Yale Global Online reprint of Yasheng Huang’s FT article of 27 January 2006:
Two years ago the view that India might have a more competitive economy than China was met with incredulity. Now a comparison of the two countries offers valuable insights for anyone studying economic growth. A fundamental distinction is that China’s growth stems from resource accumulation while India’s is rooted in increasing efficiency. . . .
In an article published in 2003 called “Can India overtake China?” Tarun Khanna of Harvard Business School and [Yasheng Huang of MIT Sloan] argued that India’s domestic corporate sector – strengthened by the country’s rule of law, its democratic processes and relatively healthy financial system – was a source of substantial competitive advantage over China. At that time, the notion that India might be more competitive than China was greeted with wide derision.
Two years later, India appears to have permanently broken out of its leisurely “Hindu rate of growth”– an annual gross domestic product increase of around 2 to 3 per cent – and its performance is beginning to approach the east Asian level. From April to June 2005, India’s GDP grew at 8.1 per cent, compared with 7.6 per cent in the same period the year before. More impressively, India is achieving this result with just half of China’s level of domestic investment in new factories and equipment, and only 10 per cent of China’s foreign direct investment. While China’s GDP growth in the last two years remained high, in 2003 and 2004 it was investing close to 50 per cent of its GDP in domestic plant and equipment – roughly equivalent to India’s entire GDP. That is higher than any other country, exceeding even China’s own exalted levels in the era of central planning. The evidence is as clear as ever: China’s growth stems from massive accumulation of resources, while India’s growth comes from increasing efficiency.