Chinese government vs Indian private sector

Updated: Nov 18 2005, 05:30am hrs
A recent trip to China proved very illuminating. I share some observations to further fuel the India and/versus China debate. On hard infrastructure, China leaves India cold. The quality of buildings, roads, airports, hotels, retailing, sports infrastructure, etc, is so far ahead of Indias that we can never hope to catch up. On softer factors, such as capital markets, the financial system, clarity of regulations, official arbitrariness and so on, Chinas situation is similar to Indias. But it is on social issues that India really scores over China. The latter has press censorship, a one-child policy, and little by way of political freedoms.

The comparison brings to mind the old school debate about the well fed slave versus the starving free man. Indias elite would argue that the freedoms we enjoy have more value than being well fed, but that is because we already are well fed! For a different perspective, we must ask those below the poverty line about the relative value of things such as press freedom (cant read anyway), the right to vote (rather have food), and our elected representatives (the less said the better).

But on a serious note, there are some things that are completely impossible to do in India, for example, the one-child policy in China. Having just one child has become a way of life for most Chinese and seriously compromises their otherwise higher quality of life. Such policies reveal the iron grip with which the Chinese communist government manages its people, enforcing unpopular policies with single-minded determination. It is like the army running the country, once it decides on a course of action, the whole machinery swings into action behind the decision. Dissent is not tolerated, slackness is not condoned.

So far, it has worked for the countrythe government has taken a prudent pathits macro strategy of putting peoples economic welfare ahead of a social agenda, and then consistently delivering high growth rates has been extraordinary. But the economically enlightened dictatorship could so easily have taken the wrong path, and still can.

In infrastructurebuildings, roads, airports, etcChina is far ahead
But on the social issues front, India is well ahead of China
China has to work to develop its financial system and provide social freedom
Historically, no system has survived in the long term where capital allocation decisions are taken by a central agency. Ample evidence is to be found in the fall of the communist regimes and the lack of performance of socialist ones (including India). Pressures have as well built up in China as directed lending by the government to build infrastructure has led to a high percentage of non-performing assets in the financial system. The twin challenges before China are how to develop the financial system and when to loosen the social freedoms. Given the governments track record, they will probably be able to pull off this highwire act, and for the sake of the global economy, too, one hopes there are no slip-ups in China.

The Chinese governments attitude towards privatisation, the private sector and foreign participation has undergone a significant change in recent months. There is a clear shift towards encouraging privatisation of state assets and encouraging entrepreneurial talent in the country.

The situation in India is quite different. We have a vibrant private sector, strong capital markets and a strong financial sector. On the other hand, we are more restrictive than China on foreign direct participation; we still cling to the concept of state ownership of assets, and to outdated labour laws. Because the Chinese communist party does not have to be elected, they can afford to do whats right for the country as a whole. This is unlike our comrades, who have to represent their vested interests who help them get elected. This explains the paradox that a true communist government can be more capitalist than one that operates in a democratic country.

In sum, it is a race between Chinas government and the growing Indian private sector. If the Indian government is able to create a more conducive environment and increase the field of play while at the same time reducing the number of rules that govern that play, if it allows in the best players from other countries, and if it ensures that the field of play is even, I see no reason why India cannot be on the same growth trajectory that China currently enjoys, at the same time having the kind of freedoms that an ordinary Chinese can only dream of.

For example, having two children!

The writer is president, finance, Aditya Birla group. These are his personal views