The first day of the World Economic Forum was vibrant and instructive. ‘The China Context’ session gave much food for thought, especially since India is invariably compared to China in terms of the global business they attract. In fact, India and China have seemingly always been up for comparison in the past. There has been no end to the debate around which of the two economies out-performs the other, and China seems to have emerged as the default favourite for a number of reasons.
I have to admit that China’s government has a strong reputation for thinking on its feet and leveraging global business opportunities. There is much to be said for a single, unopposed government that switches sails quickly and decisively in the face of global economic headwinds. China’s focus on world-class infrastructure is also nothing short of admirable – and here, again, India would have to concede a certain shortfall.
However, the basic differences between India and China should not be ignored. One is comparing apples with oranges when it comes to government structure and economic policy-making. In any case, it looks like India may emerge as a stronger long-term player than China. This has become increasingly evident after the global economic downturn, which China addressed with exuberant stimulus packages and India tackled with far more circumspect fiscal policies. This circumspection is evident even today, and it is still turning out to be the more sustainable stance.
By 2030, India will have 800 million workers, with more than 590 million people located in cities and per-capita income that is expected to increase 200 percent over the next two decades. India also has the world’s largest pool of educated, English-speaking workers, and attracts jobs from service-oriented companies seeking talented knowledge workers. This includes the IT, ITeS, education and banking industries. Wages for those jobs are low by Western standards, but allow a much better standard of living than the labour intensive jobs that typically go to China.
Greater disposable income, plus a political structure that protects businesses and workers from unfair government intervention, help to raise India’s level of ‘domestic consumption.’ This makes India attractive to global companies as a market for their products and services, whereas China is seen mainly as source of cheap labor for exports. If Chinese workers raise their level of domestic consumption, they will eventually not be the world’s cheapest labor pool anymore. Global companies will then move some of their manufacturing operations to other countries.
India’s political system is more suited for long-term equity investments, while China holds more attraction for mid-term investors. Naturally, this also reflects on the country’s real estate market via a more robust long-term health prognosis. However, interestingly we have seen two types of corporate occupiers heading to each of these two countries. The services, knowledge talent seeking companies are heading for India – demonstrated through growth in IT and ITES, banking etc. whilst the large scale manufacturing and skill based corporates are expanding their base in China.
In my opinion, India’s scale of development stands a strong chance of outstripping that of China for a couple of fundamental reasons. The first is that most of the land in China is unrelentingly government-owned, which puts a default ceiling on overall availability. This is not the case in India. Moreover, India relies more on IT, which requires less land and infrastructure than manufacturing – which just happens to be China’s forte. Also, Indian Grade A commercial space developers are a pretty wealthy and seasoned lot, with many of them holding substantial land banks.