Arvind Subramanian, India’s CEA, has a piece in ‘Project Syndicate’ on the Greek bailout. He think that Greece should have been allowed to exit with a generous haircut in its debt. I think that is what Schauble offered them.
Dani Rodrik’s ‘Project Syndicate’ piece has a sense of déjà vu. This is what he writes on China and India:
Compare China and India. China grew by building factories and filling them with peasants who had little education, which generated an instant boost in productivity. India’s comparative advantage lies in relatively skill-intensive services – such as information technology – which can absorb no more than a tiny slice of the country’s largely unskilled labor force. It will take many decades for the average skill level in India to rise to the point that it can pull the economy’s overall productivity significantly higher.
So India’s medium-term growth potential lies well below that of China in recent decades. A significant boost in infrastructure spending and policy reforms can make a difference, but it cannot close the gap.
On the other hand, being the tortoise rather than the hare in the growth race can be an advantage. Countries that rely on steady, economy-wide accumulation of skills and improved governance may not grow as fast, but they may be more stable, less prone to crises, and more likely to converge with advanced countries eventually.
China’s economic achievements are undeniable. But it remains an authoritarian country where the Communist Party retains its political monopoly. So the challenges of political and institutional transformation are immeasurably greater than in India. The uncertainty that confronts a long-term investor in China is correspondingly higher. [Link]
This reminded me of a famous piece by Tarun Khanna and Yasheng Huang in 2003 titled, ‘Can India overtake China?’. Indians loved it. India did not overtake China in the next twelve years – neither in growth and, of course, nor in debt.
The problem is not with rapid growth, per se. But addiction to rapid growth to an extent that one wishes to defy law of nature. Just as very few companies have seldom grown their topline 20% CAGR for five years, countries can achieve rapid growth in catch-up phase. Then, they must slow down. China attempted to defy gravity by borrowing heavily. It happened mostly in the new millennium and that too, after the global crisis of 2008.
But, I do recall reading in Yasheng Huang’s ‘Capitalism with Chinese Characteristics’ that China did enjoy good quality , bottom-up sustainable growth until Tiananmen Square happened. That was a 10-11 year period. India is yet to experience even that kind of longevity in rapid growth. That is the truth.
That brings me to the issues flagged by two of Prof. Bibek Debroy’s pieces on Indian labour laws – one in April and one recently. But, that has to be a separate post.