The most common analogy used when discussing China and India is that of the tortoise and the hare. The two largest countries in the world by a comfortable 900 million people each, they share 4 000 kilometres of border, and together took centre stage when the BRIC(S) concept was founded in 2001. India is the tortoise, shackled by political inefficiency and colonial-era bureaucracy but steady in its progress, while China is the hare, bounding ahead with a series of targeted five-year-plans but at risk from inflexible politics and instability. Though, as predicted, India currently boasts the fastest-growing services sector in world, with barely a fifth of Chinese GDP she lags far behind her neighbour. As it stands, the hare is in the lead.
This is due to a myriad of complex problems that face the Indian economy. A mixture of corruption and over-regulation have stunted fiscal progress; the current governor of the Reserve Bank of India has been on record claiming that recent, top-level corruption could have cost the government as much as 2 trillion rupees. A series of labour laws and bizarre corporate restrictions are blamed for holding back local businesses and discouraging foreign investment. Many of these archaic regulations date back to the early 20th century, when all ‘big business’ was still under close British control, leading some firms to deliberately remain small in order to avoid bureaucracy. For example, any business with more than 100 employees needs government permission before it is allowed to scale back, despite only 15% of Indian workers having any kind of job protection. The result is labourers who work in small companies under poor conditions, who are nonetheless extremely expensive to lay off.
However, no one denies that India has real economic potential. A young, ambitious population (with half its residents under 25), is yet to be tapped into by investors either at home or abroad, and so-called ‘catch up growth’ can happen extremely quickly (see places like Dubai and Singapore). India is so poor in so many areas that any concentrated development could bring extremely rapid change. Consequently, many projections suggest that India is now better placed than any other BRICS economy for a successful next ten years.
The recent slash in oil prices has worked in the favour of a nation that imports four-fifths of its oil, and the government budget unveiled in February was met by approving nods from businessmen. The new reforms, mostly aimed at removing obstacles that constrict business owners, have helped the Indian growth rates stabilise at 7.5 per cent, above that of China for the first time in decades. Democracy can be top-heavy but it also has economic advantages – when Narendra Modi’s BJP government was elected last year, it came off the back of a long, laboured conversation about India’s stuttering economy and the promise of change. After the recent stock market crash in Shanghai, now known as ‘Black Monday’, the Chinese government’s response was to arrest journalists.
There is still much to be done – PM Modi must follow through on his promises to end the corruption and cronyism in the civil service, and regular power cuts still cost some firms up to five working hours a week – but there can be no doubt that things are looking up. With the Chinese hare tottering after Black Monday revealed institutional instability, and the tortoise plodding with increasing confidence, India has cause for cautious optimism.