Inefficient public sector lets down India’s entrepreneurial spirit

By Xue Lei Source:Global Times Published: 2012-10-10 22:30:05

As the two most prominent emerging countries in the fast-growing Asian region, China and India have often been compared. Over the next two or three decades, these two countries will play even greater role in framing the global agenda and forging sustainable global economic architecture.

But despite their commonalities, the two are diverging in development paths and have fostered different comparative advantages for economic growth. We also need to bear in mind that there is actually a great gap in terms of GDP per capita between the two countries, with $5,414 for China and $1,389 for India according to the IMF statistics in 2011.

A brief survey of different aspects in the two economies can give us a general picture of the gap in development stages.

The first is the indicators used to examine macroeconomic stability. In recent years, although the Indian economy has been staying in a high growth track, its achievement was attained with higher costs compared to China. India's debt to GDP ratio is now over 70 percent, accompanied by over 7 percent inflation. China has performed better in many macroeconomic indicators, with even higher growth rates.

China may have stepped into a period of a relatively stable macroeconomic environment combined with rapid growth and moderate inflation rates as well as a healthy fiscal structure, while India may still be in a stage characterized by fluctuation amid growth.

More than 50 percent of Indians are still working in the agricultural sector, which means it needs further efforts to transform itself into a modern industrialized or post-modern service-led economy. Therefore, we can say that in economic terms India still lags far behind China.

But during the current post-crisis period, both China and India have to face the challenge of economic transformation.

The differences between the two countries have become more vivid in this regard. With a large share of public sector and SOEs in the aggregate GDP, China's reform focuses on the reactivation of the private sector. The emphasis on innovation and emerging strategically important industries demands even greater role of private enterprises.

In comparison, India does not need to worry so much about the development of the private sector and entrepreneurial spirit, which are the key to innovative activities. Some researchers have pointed out that Indian entrepreneurial and managerial capital has been more successful than China's, especially in taking control of and managing assets in the sophisticated markets of Europe and the US.

However, India is plagued by its inefficient and impotent public sector. Many scholars in the field of development economics have stressed the critical role of the governmental or public institutions in fostering and supporting the growth of the market, which they see as a distinguishing threshold for different performance outcomes of various developing countries.

One of the crucial bottlenecks for Indian economic development, the backwardness of its infrastructure, can be traced back to the ineffectiveness of public institutions. Investment in infrastructure needs long-term visions and a strong guarantee of continuous flow of income. Hence without the initiating role of the public sector, there will be little incentive for the private sector to participate.

The restraints caused by the deficiencies in infrastructure investment also become a great impediment to the development of the Indian manufacturing industry, which could lead to greater job creation if given full scope.

And the successful Indian software and banking industries have often been referred to as economic enclaves which contribute little to the employment and income growth of the overall economy.

We can discover the place for China and India to work together. They can learn from each other's experiences or lessons and forge their respective road toward sustainable growth.

The dragon and elephant can dance together, even if in different ways.

The author is a research fellow in the Department of International Organization and International Law of Shanghai Institutes for International Studies. opinion@globaltimes.com.cn



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