Asia's Economic Tortoise
India has lagged behind China in GDP, but may be a more fertile land for home-grown entrepreneurs.
“Can India Overtake China?” by Yasheng Huang and Tarun Khanna, in Foreign Policy (July–Aug. 2003), 1779 Massachusetts Ave., N.W., Washington, D.C. 20036.
Though India, like China, has more than one billion inhabitants, it is no match for its fellow Asian giant in terms of gross domestic product ($477 billion in 2001, compared with China’s $1.2 trillion) and other high-profile economic indicators. Even so, argue the authors, in the long run of economic development, India may have the last laugh.
“China’s export-led manufacturing boom is largely a creation of foreign direct investment” ($44.2 billion in 2001), with much of that money coming from the 55 million Chinese living abroad, note Huang and Khanna, professors at the Massachusetts Institute of Technology’s Sloan School of Management and Harvard Business School, respectively. But Beijing has imposed restrictions on indigenous private firms to keep them from challenging its state-owned enterprises. Though the Chinese economy has taken off in recent decades, “few local firms have followed.”
In India, by contrast, foreign direct investment has been paltry (only $3.4 billion in 2001), in part because the Indian diaspora is much smaller (20 million), and, resented for its success, it has been much less willing to send money home. But New Delhi, which has backed away from micromanaging the economy in recent years, has provided “a more nurturing environment for domestic entrepreneurs,” say Huang and Khanna. Indian companies such as software giants Infosys and Wipro and pharmaceutical and biotechnology powerhouses Ranbaxy and Dr. Reddy’s Labs “now compete internationally with the best that Europe and the United States have to offer.” The Forbes 200 ranking of the world’s best small companies last year included 13 Indian firms but only four from mainland China.
“Democracy, a tradition of entrepreneurship, and a decent legal system have given India the underpinnings necessary for free enterprise to flourish,” write the authors. And entrepreneurs there—such as Narayana Murthy, the founder of Infosys, who is often compared to Microsoft’s Bill Gates—have become folk heroes.
“India soon may have the best of both worlds,” say Huang and Khanna, for it is poised to reap significantly more foreign direct investment in the coming years. After decades of standoffishness, New Delhi is embracing the Indian diaspora. Not only are expatriates being encouraged to open their wallets, but many engineers and scientists are being lured home.
“With the help of its diaspora, China has won the race to be the world’s factory,” the authors conclude. “With the help of its diaspora, India could become the world’s technology lab.”