Why we don't need to talk about an India-China race

As Prime Minister Narendra Modi heads to China mid-May, there is renewed global interest in two of the world's biggest emerging economies. With the International Monetary Fund (IMF) once again forecasting last week that India is set to grow faster than China in the coming year, clocking 7.5 per cent growth compared to China's 6.8 per cent, talk of a "race" between India and China has been revived - after a decade that saw China move ahead, becoming the world's second-largest economy even as India grappled with slowing growth and a government beset by corruption scams.

But are such talks of a "race" between India and China still premature? Haiyan Wang, the managing partner of US-based China India Institute certainly seems to think so. Wang believes that India is not going to become a serious competitor for China "in the next 20 years". "After 30 years of dedicated efforts in building China into a manufacturing powerhouse, it would take a long time for India to build [the same] manufacturing capabilities," Wang argued during a debate analysing the future of India and China that I was recently part of, on CNN.

Wang is right inasmuch as one or two years of higher gross domestic product (GDP) growth wouldn't imply that India is going to overtake China anytime soon. Just consider the sizes of the two economies: if you look at nominal GDP, China is five times the size of India, and if you look at its real GDP, it's about three or four times as India's. Therefore, even if China adds three or four per cent every year and India grows at seven or eight per cent, in real terms, China is still pulling away from India by adding more to its economy.

On the other hand, the slowdown in China's economy is very real - last year's 7.4 per cent growth is the slowest in the past 24 years. The question is: is India in a position to take advantage, for instance, because labour is cheaper? "It's not just about lower labour cost," argues Wang. "Because you have to have a complex industry cluster of supply chains, you have to have the knowledge, you have to have the skills, and you have to be connected to selling to the international market."

Her point: companies aren't going to simply move to India - and uproot their massive supply chains built around China's modern infrastructure of expressways and ports - unless India builds a similar ecosystem that makes investing worthwhile.

Rangarajan Vellamore, who as the head of Infosys in China has closely followed both countries' parallel stories, especially in technology, provided some grounds for optimism. Investors, he suggested, will get higher returns in India in the long term. His sense was even Chinese companies are increasingly turning to India because of an access to a lower cost labour pool - a sentiment that is being reinforced by the "Make in India" campaign, which has scored marks at least when it comes to branding and boosting overseas sentiment, even if policy changes are yet to be fleshed out.

Then there are the different political systems in both countries. Wang was of the view that when it comes to manufacturing, China has the huge advantage of a centralised, one-party apparatus that can move at great speed (a case in point being the way Xi Jinping has rolled out a $100 billion-funded Silk Road multi-national project linking China to central and south-east Asia, all in the span of one year).

At the same time, a Chinese political system would never work in a country as democratic and diverse in India (whether an Indian political system would work in China is an uncertain question too). No one would suggest trading in India's democratic, federal structure, as messy as it can seem, for an authoritarian system, as efficient as it can seem. But it would also be shortsighted to dismiss out of hand the China success story as being entirely irrelevant to India. Perhaps rather than talk of a race, it would make more sense to ask what can be learned from across the border, especially in terms of how China got manufacturing right - by opening up its economy, investing in education over decades, and building the right infrastructure - even as both countries continue to move forward on strikingly different paths.

(Ananth Krishnan was part of CNN's monthly show On China this month. The show focuses on India-China relations and airs in India on Friday, April 24 at 9am and on Saturday, April 25 at 10am and 9pm.)