I covered in this blog several months ago a perspective on China Vs India race. Dan Fineman then wrote that India's development model might never reproduce the multi-year, double-digit GDP expansion the Tigers and China registered in their peak years. Hypercharged investment fuelled by underpriced capital propelled those growth spurts. Lower investment and savings rates could limit India's expansion. But India's model should prove more sustainable than the typical East Asian strategy adopted by China. India is developing more efficient corporates, healthier banks, more robust service industries and a bigger consumption base. China has won the sprint. India is training for the marathon
Stephen Roach last year wrote that the road to economic development is a long and arduous journey and India is India is now at a key fork in that road. Now after a visit to the country recently he writes, India is on the cusp of something big. He sees the most exciting thing about India is the potential for an increasingly powerful internal consumption dynamic - an ingredient sorely missing in most other Asian development models, including China. India’s constraints - infrastructure, saving, foreign direct investment, and politics are well known, but this is improving. The consumption story - the organic sustenance of sustainable growth and development casts India in a very different light. India’s per capita income and consumption levels are about half those of China’s. But it is growth at the margin that always drives powerful macro and market trends. The potential comes from the structure of the Indian economy: Private consumption currently accounts for 64% of Indian GDP - higher than shares in Europe (58%), Japan (55%), and especially China (42%). He argues that the increased vigor of private consumption provides a powerful leverage to the Indian growth dynamic that is rarely found in the externally-dependent developing world.
In Roach's eyes - there was one key difference between visiting Chinese and Indian maals - the locals were buying in India. Indian companies all have very sophisticated marketing and product development plans. And all of the banks were very focused on consumer-oriented growth strategies, especially in the mortgage finance and credit and debit card businesses. The competitive juices are coursing through the veins of India’s consumer industry. Unlike other Asian economies, India’s entrepreneurs are eager to compete. With a foundation of consumer support that is broadening and deepening, the underlying Indian GDP growth dynamic could now shift toward the upper end of a 7-8% range. He sees that the Infrastructure in India is showing palpable progress and warns that without the foundation of private consumption, this is not a sustainable growth dynamic for any nation, including China. India, by contrast, has the balanced-growth foundation that China would die for. He also notices that over the past 25 years plus, China has repeatedly outdistanced India by its brilliant execution of resource mobilization - putting together the pieces of the greatest export machine the world has ever seen. But now transition time is looming for China. It must come up with new sources of growth such as those that are evident in India’s consumption-led model. India lost the first round of the race with China by a wide margin. The jury is still out on the endgame. I was pleasently surprised to see the change in tone in Roach's writings - he used to be critical about the sustainibility of the meek progress made by India and seems to be getting positive about the country. All I can say is that direction alone won't do - the degree, pace and intensity of growth is very important and we now need to begin talking and comparing from that perspective India also needs to aim big and aspire for qualitative global leadership in key areas - like patents, no.of nobel laureates, demonstrable advances in science & technology etc.