Is India ready for superpower status? Or are we irretrievably behind in the game of catch-up with China? What are our key strengths and weaknesses, and what unique things do we have to contribute to the global community in the 21st century?
Network18 Founder and Editor Raghav Bahl answers these questions in his book 'Superpower?' The Amazing Race Between China’s Hare and India's Tortoise.
Superpower? published by Penguin Books India, is already being called as one of the most definitive books on the subject.
In the race to superpower status, who is likely to breast the tape - China’s hare or India’s tortoise? China’s spectacular sweep, compared to India’s relatively mild rise, could tempt an easy answer. But history unfolds over time.
Bahl argues that the winner of the race with the biggest stakes ever might not be determined by who is investing more and growing faster today, but by something slightly more intangible: who has superior innovation and more entrepreneurial savvy and is grappling with and expanding in the most intensely competitive conditions. And, at the end, it might come down to just one deciding factor: can India fix its governance before China repairs its politics?
Speaking on the occasion of the book's launch, Bahl said, "I always had this niggling little doubt whether I had the resilience and the gumption to actually sit down and work on a 200-250 page book. So I said while this is as good a time I need to try it out and let me go and take this challenge for myself."
He offers solutions in the book when he talks about a new escape velocity model of capital investing. He said India must learn to take risks as the Chinese state has done. "We are just 10 years behind China, which we were ahead of 20 years ago. If we put the required amount of policy energy and risks, I have no reason to believe that this gap is unbridgeable. We have constraints but there are opportunities as well," he added.
The hindi version of the book was unveiled by union minister for Road Transport & Highways KamalNath. Also present on the occasion were Chairman of the Unique Identification Authority of India or UIDAI, Nandan Nilekani; Bimal Jalan, Former Governor, RBI; M Damodaran, Former Chairman, SEBI, and Shekhar Gupta, Editor-in-Chief, Indian Express.
Excerpts from Raghav Bahl's opening remarks and the panel discussion that followed.
Bahl: The crisis was beginning to ebb for the world. In India you could say with much confidence that it had virtually ended. And in our own little world of Network18, we were quite clear as well that we had negotiated the worst of the crisis and had managed to come out of it fully intact and strong.
So I knew that if anything I would have some mind space which had been completely consumed in the previous years by the crisis to turn to something that I had spent the first 10 years of my professional life doing, which was mainstream journalism.
My first option of course was to launch another television show. But then something inside my told me that perhaps the time had come to try something entirely untested, entirely new for me and I'd always had this niggling little doubt whether I had the resilience and the gumption to actually sit down and work on a 200-250 page book.
So I said while this is as good a time I need to try it out because while the crisis was ebbing it was also clear that it would take about a year. So there was going to be a very long tail, there was going to be a very long wake. And in that long wake you wouldn’t be allowed to get too adventurous in business or entrepreneurial terms. So it was fairly clear that you would have some time and mind space in that one year. So I said let me go and take this challenge for myself.
When looking for themes to write on, one story which has fascinated me both in my capacity as an entrepreneur and as a business journalist was absolutely the inexorable rise of China.
I’ll take you back just 32 years, just 32 and that number is important because in 1978 when Deng Xiaoping started his economic reform programme in China, a fact that I think very few people today remember is that the Indian economy was larger than China. India’s GDP was bigger than China in 1978, and I am talking just 32 years ago.
And even more critically, China’s economic institutions had virtually been decimated through the Cultural Revolution. They virtually did not have a central bank, they did not have a stock market, their universities had been very largely emptied out. They did not have a judiciary worth the name, they had virtually annihilated the entire lawyer community in that country.
So it was in such a weak state economically speaking, institutionally speaking that China was in 1978. As opposed to that, India was not just a bigger GDP, our institutions of economic governance were actually maturing, evolving in a very throbbing and vibrant democracy and were acquiring a pedigree which was quite similar to what existed in the other developed economies of the world.
So if anyone was a betting man in 1978 and he was asked to wager that which economy do you think would win this race? I think 100:1 odds would have been India because there really was a hopeless case for China.
One more marker needs to be mentioned, 1990, just 20 years ago, two decades. What is that in the life of a country? Just two decades ago, China’s per capita income was smaller than India’s. So just 20 years ago in per capita income terms we were a larger and a more prosperous country.
But look at where we are today. China is not one, it is not even two, it is not even three, it is actually four times India's size and I’ll repeat that because it’s an absolutely stunning statistic, China is four times India’s size in GDP terms, they have a GDP of USD 5 trillion and we have a GDP of about USD 1.25 trillion.
So here is a country which in 20 years not only has left us behind but made us a quarter of their size. In per capita income terms while we were larger just 20 years ago, we are today I think one-fourth. So a very legitimate question needs to be asked in this country and needs to be asked from people who manage our economy and I just don’t mean politicians, I mean everybody who is a part, who has a stake in managing this economy. Why did this happen?
And I think the people of India very legitimately need to ask this question that why is it that we have been in a relative sense impoverished by a neighbour who has grown so dramatically. What is it that they have done so right and what is it perhaps that we haven’t done that we are now one-fourth their size. This is not about political one-upmanship. This is just about a very strong political economy question. Why is it that we are so far behind?
So it’s a question which has always fascinated me as an entrepreneur and as a business journalist. So I said this is a good enough theme to dig one's teeth into and let's see if we can come up with something here.
In a very simplistic sense and either by design or unwittingly, China in a sense seemed to pick up some of the most effective economic policies of the two miracle economies which preceded China. I use the word effective, I do not use the word efficient. There is a vital difference in economic terms between those two words.
Effective, they have picked up from the Soviet Union. Remember the Soviet Union in the 70s was being thought of as an economy which would overtake America by 1990. Similarly remember that in the 1980s Japan was an economy which was targeted to overtake America. I think the year was 1998 when they were supposed to have overtaken America. Very similar things are being said about China today that it is set to overtake America in 2030, which is the date that a lot of people talk about.
So what China picked up from the Soviet Union was frankly the ability to extract massive surpluses and accumulate them in the hands of the state. China extracted major surpluses from its land by virtue of the fact that land in China belongs to the state and the peasant is a mere tenant. They were able to take land away rather cheap from the tenant and then sell it at a high price and create a surplus for the state, which is something of course in India is impossible to do and mercifully it is impossible to do.
They also extracted massive surpluses from their workers by keeping wages in that economy extremely low. They then extracted massive surpluses from their consumers and their trading partners by keeping their currency extremely low.
Then they created even more surpluses in the hands of their state by keeping the price of money, particularly money lent to the state corporations in China by keeping the price of money very low. It is 3% or 4% often when state corporations can borrow from state banks. So they kept the price of money very low and they kept the price of infrastructure services and they kept the price of industrial inputs very low. So all of these things created massive surpluses in the hands of the Chinese state.
The trick they learnt from Japan was, and I use trick in a positive sense. What they picked up from Japan was unlike the Soviet Union which did all of this but then whirled itself out from the western world, China did exactly the reverse. It actually engaged very dramatically with the western world, opened the flood gates to foreign direct investment and actually welcomed not only a cascade of dollars, but welcomed technology and welcomed management practices from the west, particularly America.
That created a huge amount of foreign equity in the economy along with a technological base particularly in the coastal areas. So it was a very dramatic alignment of economic policies which China put into place which led to this accumulation of massive surpluses in the hands of its state.
What they did with those surpluses actually is even more dramatic. One thing they did was to invest very massively in their economy. China today - and this is a stunning statistic - is investing 50% of its GDP. No other country at no other time in the history of this world has invested capital on this scale, 50% of the GDP is being invested. And within that 50%, they are putting very large sums of money into infrastructure. And within infrastructure, they are putting very large sums of money into social infrastructure which is education, health, farm productivity, rural investment, technology.
Earlier in the world it was thought that infrastructure and capital investment should happen along with economic growth. But China since it wanted to do this in 20 years rather than wait like the west to develop over 50 or 60 or 70 years, actually took that bet and invested well ahead of the curve, so that the rest of the economy and consumption has played catch up with China’s investment.
In the book I have tried to talk about this as a new escape velocity model of capital investing which perhaps raises the whole threshold and something that India must examine very carefully why and the book deals with why are we so reticent about investing in our economy. We have constraints but there are opportunities as well.
The other thing that China did with that surplus was again a master stroke, something they borrowed if not consciously but unconsciously from Japan again, where they actually lent large amounts of those surpluses back to America. Today between Japan and China, I think they hold nearly USD 900 billion to USD 1 trillion of US Treasuries apiece. China is slightly more than Japan.
But they lent this money back to the US, US interest rates were low, it has refueled US consumption, it came right back into Chinese factories, China exported again created further surpluses, lent it back to the US, invested in their economy. So it was a very virtuous cycle between the world economy and China, which created these massive surpluses.
This virtuous cycle actually continued till three years ago until the US consumption cycle got pricked and the US asset bubble got pricked. So it is a rudimentary thing what I am trying to say. But that in a sense was the underpinning of China’s dramatic economic expansion.
This led to major imbalances. No one is saying that this has been an easy ride for China and today they are grappling with major imbalances in their economy; whether it is imbalance between investment and consumption, whether it is imbalance in the environment side of the economy, whether it’s the fact that they could be looking at massive bad debts on the books of their banks.
So there are massive imbalances that they have had to deal with. But that is the challenge today for China and how to deal with those imbalances. But you cannot deny the fact that they have taken and pulled more people out of poverty than at any other time in the history of this world in such a short period of time.
What India needs to do and what India is doing or not doing, I think the audience knows well. So I won’t dwell too much on that. I think the lessons for India are very clear. We should be investing in infrastructure far ahead of the curve and we should be far more bold in taking entrepreneurial policy risks.
If Mr KamalNath talks about 20 km a day then that is a great ambition. But metaphorically speaking, 20 km should be 40 km a day once he crosses 20 km because the absorptive capacity of this economy has to go up. Otherwise you will not have a structural inflation of 10% if the absorptive capacity of this economy is not going to go up you will have all those problems.
So I think what India needs to do – fix its public finances, invest in infrastructure, become far more welcoming of private capital investment, far more welcoming of foreign capital investment, shed its incrementalism to economic growth and get the state to focus. The state just focusses on 3 or 4 areas like education, health, and agriculture. These are the three colossally neglected sectors of our economy. If the state just focuses on these and lets the well regulated private sector take off every other sector, a lot of the problems of this economy can be solved.
So the book looks at all these issues, does a lot of anecdotal mix and match, does a lot of point to point comparison between what the two countries have done. I would be delighted to receive your feedback and your constructive criticism of what one has written right or written wrong.
In the end, the book makes one conclusion and says that actually the question that was asked in the beginning is perhaps a bit incorrect. Actually this is not a race that one country will win. This is actually a race that one country will lose. If China does not repair its politics and does not today handle the imbalances and the destabilization that is threatening China then they are in real danger of losing this race even if they maybe four times India's size today.
India has to put much more energy into getting its public policies put out there and implement it with much more vigour, with much more risk taking by the state. The Indian state tends to think very incrementally. It probably now needs to think in terms of quantum changes.
Very often these arguments that are put out by people like me are thought of as elitist arguments. They are not. When you talk about quantum changes, you are talking about quantum changes in let's get a good fair Land Acquisition Act in. There is nothing elitist about it. Can we get and build more power for our people, more power plants? There is nothing elitist about that as well. Can we build more roads? There is nothing elitist about that. Can we have more education and health for our people? There is nothing elitist about that.
So this is not about getting an elitist argument about government versus private sector. This is not about that. This is about getting the Indian state far more energized into talking much quicker policy actions.
I just want to leave with one last thought for a lot of people who said that this race is over. Some very respected commentators, whom I admire very much have said that if there ever was a race, this is not the time. This is over because now China has gone irretrievably ahead.
I just want to remind people who have those convictions and as I said they are very respected people that if you look at it in terms of time, it is only 10 years. Just rewind to 1999-2000. China’s economy was as big as India’s economy is today and institutionally much weaker than India's economy is today. India is a much stronger institutional economy, if you suspend disbelief and compare China of 2000 with India of 2010.
So you can say we are 25% and way behind China. But you can postulate the same hypotheses and say we are just 10 years behind China. To me someone whose first calling is that of an entrepreneur, that is really the way the hypothesis should be postulated in this country. That is really the way the debate should be run in this country. We are just 10 years behind China, we are just 10 years behind the country which we were ahead of 20 years ago.
So if we put the requisite amount of policy energy and take requisite amount of policy risks, our state has to learn to take risks, it doesn’t take risks, it must learn to do that as the Chinese state has done and several other states in the world have done, then I have no reason to believe that this gap is unbridgeable. It can be bridged.
So please do, if you can, read the book. I would be delighted to receive your feedback and your constructive criticism so that this piece of work can be improved.
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The latest report that has been put out by Morgan Stanley in its edition of reports on India and China says that by 2020 India’s GDP will cross USD 6 trillion while China’s will cross the USD 20 trillion mark. But here is the interesting twist. The report says India should start matching China’s economic growth barring another global crisis and by 2013-15 India will actually start outpacing China’s GDP growth notably.
Q: Let me start with Nandan Nilekani because you are really our hope as far as India being able to fix its governance is concerned. It really is as far as middle class India is concerned you are our hope to fixing our problems as far as governance is concerned. Now that you are an insider, do you truly believe that India is poised to fix its governance and we can compete in this race effectively with China and in fact by 2013 or 2015 outpace China?
Nilekani: I don’t know about the race but certainly I am very positive that we will be able to fix a lot of the things that we have. As I have said long back, maybe Mr KamalNath may not agree with me, it’s harder to build a democracy than to build a road. Therefore I think the fact is that the tough task of building a democracy has been done and now I think actually the challenges are simpler and they are all execution oriented. If you can really get that going I think we can do a lot.
Q: Is there a race then. It is all very well to glorify Indian democracy and say we are a democracy and China is not but because we are a democracy we have some many authorities, we have too many people each wanting to empowered and take decisions and whether it is land acquisition or even the Common Wealth Games. The job does not get done till like a monsoon wedding it happens at the very last moment. I am saying this with Mani Shankar Aiyar in the audience who we will get to respond to this but first you?
Gupta: You've put me in a spot because I am actually on your side in this debate. Metaphorically and literally in the red corner. Having said that, I have to give you the opposite answer right now. I have to take you back to an experience I had in Dalian, one of the great Chinese growth cities where the World Economic Forum held its first 'summer Davos' and that was the year of the Olympics. I am a member of a small group called the International Media Council and we had some meetings.
One of which was with a very high ranking Chinese official. A very senior editor of Time Magazine complained to him. He said my magazine wrote a very flattering story about how Beijing is preparing for the Olympics. But I had one line there saying that there are concerns about the pollution. So what happened. When my copies came every single page of that story had been torn.
What was the Chinese officials response? Somebody tore off pages from your magazine. Who does such a thing in China? You produce them to me and I will take action. It was all nonsense. You can have very quick preparations for Olympics, for whatever you want but you also have to accept it.
So my point is I disagree with the argument that the Chinese get it right because they have no democracy and we cannot get it right because we have no democracy, because one that is very unfair to our democracy. Secondly in the way we run our governance and the way we run our politics, we actually do a great discredit to the idea of democracy.
So I refuse to accept the argument that the Chinese do better than us because they do not have democracy and we do worse than the Chinese because we have democracy. The Chinese, as Kamalsaid, they are a genius of their own. We should have genius of our own which I am afraid we have not yet discovered.
Q: Doesn’t democracy slow down India? Let’s be honest, look at the Land Acquisition Act. As Raghav has mentioned in his introduction it is not necessarily elitist yet you have got pulls and pressures within the government with the result that a consensus cannot be built. Then democracy makes it more and more difficult it seems to evolve a consensus particularly in a country like us?
Jalan: No, but I think that the question about democracy and non-democracy and what it can do is about trade offs. You can say that we want a Soviet Union type of government. You can say that we want a Chinese type of government because that can give us higher growth. But what does it mean?
You trade off something else which is perhaps freedom, which is perhaps the media, which is perhaps the ability of Shereen and Rajdeep to ask this question here. So it is all about the trade off.
My main point to you would be that don’t think of it as a race to become a super power, don’t think of it as India versus China. We were all there in the 60s, Aid India Consortium days and everything, my generation at least, Aid India Consortium, borrowing from the IMF, trying to live through that day in the 60s. Who was the idol? Soviet Union.
In the 70s, oil economies, and all said it was wonderful. In the 80s, everyone was talking about East Asian economies. Then you had an East Asian crisis. In the 90s, it was again the United States with the most vigorous financial system. It was can we do it like the US at that particular point of time.
So my advice to you is believe in democracy, with democracy you can do it. If we can take a sample of countries which are democratic and a sample of countries which are non-democratic, you will find on an average democracies have done better. So it can be done.
Gupta: It is an obscene and self-defeating argument to raise the question whether India can progress inspite of its democracy. We just became too defensive and too negative.
Bahl: Just to add, the world’s wealth resides in democracies. Democracy has become something that we have whipped to hide our own failures. Democracy is the biggest strength of this country but then it cannot become something that we hide behind.
Q: How do we actually get to benefit from this democratic dividend and how do you actually get the democracy actually to work more efficiently. Your answer cannot be to do away with the Planning Commission?
Nath: Sometimes I enjoy a discussion which talks about democracy where many people know the least about it. I am a product of that democracy. I feel proud to be a product of that democracy. As Shekhar said that his magazine was torn up because he said something unpalatable, I think that what we have achieved, we have achived democracy or no democracy. It is our Indian mindset that we are looking at ways not to do things.
When I look at the 80s, what were the aspirations of the people in the 80s. The aspirations were very little. Today, India has the largest aspirational society on this planet. That is what is going to drive. And democracy will be the vehicle to drive those aspirations. Otherwise if I cannot perform, I lose my election. People are watching. That was not the case in the 80s.
Q: The limited point that I was trying to make, I am sorry to pursue - is it easier for China to let us say if it wants to add these 85,000 kilometers of road to push through decisions while in India you have to deal with MPs, with MLAs, I am not saying that democracy is a huge advantage but is it also a constraint when it comes to setting targets in key areas like infrastructure?
Nath: What roads are you talking about? If you are talking about roads in Delhi, I wish you spent more time in rural India. Let me make this point first. We have 3.4 million kilometers of roads in India which is the second largest in the world, bigger than China’s. Our roads are district roads, village roads, state roads, national highways. Don’t undermine that.
The point is this that having the second largest road network in the world after United States, we have got to now build this to meet the aspirations of people as I said the largest aspirational society on this planet.
China does not have the kind of aspirational society we have I believe. And amongst the studies which have been made of India’s aspirational society – when I was saying earlier about rural India and what is growing, you are reading 37% growth in the auto sector. Is that happening because of Delhi? That is happening because of growing disposable incomes in rural India.
None of you are talking about growing disposable incomes. A Rs 5 lakh income in Delhi means nothing, a Rs 5 lakh income in Chhindwara, my district, means one SUV. That is the big difference.
Q: On the strength of India's financial system - is that perhaps one of India's biggest advantages over China the fact that we may have a robust, transparent financials system?
Jalan: I don't know whether it's an advantage over China. But it certainly is an advantage and a means to achieve the kind of growth to do whatever you want to do through a financial system. The question is whether we can do it.
Money is not the issue now. Our savings rate is 35-37%, the investment rate is 38%. The question is where it is going, how it is going and what can you do with it. So I don't want to compare China with India. But I do want to tell you that as far as the financial system is concerned there is no issue which is inhibiting growth. Those who want to grow they can raise money, those who want to do something they can do it.
Q: There are question marks at this point in time on the quality of China’s growth. Some analysts seem to suggest that this is perhaps the worst time in actual quality of China’s growth that we have seen. Do you think this is the key advantage for India the fact that we actually have robust institutions governing the capital markets, governing the financial markets at this point in time?
Damodaran: There are two sets of issues that you are raising. Our institutions are strong and they are robust. You need to do a lot more with them to make them even more robust to meet the future challenges.
As for the quality of China’s growth, I have also seen some of these comments about question marks about quality of China’s growth. I think somewhere in that book, Raghav has the answer to this. He says that text book economics, the text books that have been out and the ones that economists have been reading and talking about are text books that the Chinese have disproved over the last several years. The point that you make in your book and the one that I am buying into is that they will re-write economic theories.
This business of the Chinese economy will go bust because there are problems that you and I think they don’t seem to know how to fix, I am sure they know how to fix that. If you go back to what Galbraith said at the beginning of one of his books and I remember that line because it is so telling. He said that the aerodynamics of the bumble bee is such that it cannot fly but fly it does, that’s what the Chinese are now trying to explain to you. Your theories must be stood on the head. Is that the expression you used?
The real question is I think democracy has been used as a punching bag for far too long to hide our efficiencies. Now you talk about a noisy, messy democracy whatever adjectives you want to use, the point is that, and then you talk about is consensus possible?
The question of consensus arises only in a democracy. In a dictatorship what is consensus, you have only one point of view that flows from the top, good bad, indifferent there is no need for consensus. I just want to complete this. What we need really and these are not inconsistent, you can have a vibrant, noisy democracy. But what you need to have along side that and it is not inconsistent is faster decision making, more accountability in terms of pulling up the guys that don’t take decisions.
Where India has gone wrong over the last several years is the guys that don’t take decisions have got away with everything. The guys that take decisions have been held up. One point which I wanted to say, I don’t know Mr KamalNath will agree or not, I think the Planning Commission must be wound up.
I am saying it must, not because I have anything against the people there but you need to look at the institutions that you have. I am taking this as an example, the institutions that over time that you have set up in place, to see whether that is really enabling faster decision making and then go on.
Bahl: The debate often gets sidetracked into this democracy. I do not think it is democracy. What has democracy got to do with the fact that this country has not done policy reforms for 20 years? What has democracy got to do with the fact that this country has written three administrative reforms, reports and not implemented even one?
What has democracy got to do with this? Democracy should be aiding these things. What has democracy go to do with the fact that our judicial reforms have not been done. Democracy I am telling you has become a very convenient whipping boy for not taking decisions.
Q: Let me bring in Nandan Nilekani here because your book suggested a scale of ambition when you wrote 'Imagining India' and that India had to look ahead with a scale of ambition which perhaps China has shown. At the end of the day does it then if it is not about democracy, is it about simply the people and the leadership over the years, that the leadership has been unwilling to take the risks of the kind that China has, you have made the transition in our sense from the private sector to the public sector, had you found that that in the government, the ability to take risks, to take big challenges has diminished?
Nilekani: Before that, let me just defend the Planning Commission. I am in attached office of the Planning Commission. So I think it is unfair to leave it. I think they are doing a great job and certainly for me personally they have been a great host and helped us in this issue.
Source : CNBC-TV18
