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Tuesday, September 14, 2004

China and India: The race to growth via Mckinseyquarterly

Mckinsey Quarterly analyses the growth between India and China and tries to predict who would be the winner - the answer - sectoral strengths would be the key.China used its vast reservoirs of domestic savings to build an impressive infrastructure and sucked in huge amounts of foreign money to build factories and to acquire the expertise it needed. In 2003 it received $53 billion in foreign direct investment, or 8.2 percent of the world's total—more than any other country.the country is rapidly creating world-class businesses in knowledge-based industries such as software, IT services, and pharmaceuticals. These companies, which emerged with little government assistance, have helped propel the economy: GDP growth stood at 8.3 percent in 2003, up from 4.3 percent in 2002. But India's level of foreign direct investment—$4.7 billion in 2003, up from $3 billion in 2002—is a fraction of China's.Both countries still have serious problems: India has poor roads and insufficient water and electricity supplies, all of which could thwart its development; China has massive bad bank loans that will have to be accounted for. The article concludes by writing,"In IT and business-process outsourcing, India is so far ahead of the game that China can't do anything during the next 10 or 15 years that would bring it close to catching up. In consumer electronics, however, China dominates, and India won't provide serious competition during the next 10 years.

The auto sector is a toss-up
. India's competitive forces have driven an enormous amount of innovation in the sector. Low-cost labor has been used instead of expensive automation, and local engineering talent has developed innovative new products such as the Scorpio—a sport utility vehicle that sells for a fraction of the price of an equivalent car in the United States. In China, large amounts of foreign direct investment have built a big industry, but regulation has so far limited its competitive potential.It is far from clear which economy will emerge as the stronger one. The foundations of robust, sustainable economic growth must be built at the industry level, on the back of high productivity, which is achieved when governments ensure a level playing field through sound regulation and remove the barriers that stifle competition. Both China and India still have ample opportunity to help their industries and economies thrive I think that the article underemphasises the infrastructure gap between India and China and the difference in economy size between the two countries. I beleive that while India may have the potential to remain strong and have a strong economy, China would be more strong anytime, any which ever way measured and at the rate at the slow rate at which progress is happening, it may become a little anachronistic to even compare India with China in the next five to eight years, taking current readiness of India into account. Also I beleive that the stakes for poweful global economies like the US and Europe in regard to china and its economy would be several times more compared to that of India -This should make a huge difference.

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