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Article in The Financial Express
Authored by Dr.Jayaprakash Narayan

National Coordinator of
VOTEINDIA movement

Disparity between the Himalayan giants
August 12, 2005

China caused major convulsions in global markets by delinking the yuan from the dollar and announcing its decision to shift to a ‘managed float’ against a basket of currencies. In line with this, the yuan has been allowed to appreciate by a mere 2.1% against the dollar. But even this limited revaluation has had a dramatic effect on currency, bond and commodity markets worldwide.

China’s rise to power and prosperity is astonishing. It was in deep slumber for centuries. Then, for about three decades, China seemed to follow the predictable Communist-Maoist path to economic ruin. There was some human development, but Mao Zedong’s suicidal ‘Great Leap Forward’ and ‘Cultural Revolution’ policies did huge damage to the society, polity and economy. Mao’s departure and Deng Xiaoping’s assumption of power proved a watershed. With astute steadfastness, pragmatism and foresight, Deng and his successors embraced market policies and buried Marxist orthodoxy.

The results are for all to see. China has spurred growth all over the world and serves as an inspiring model. As The Economist notes: “China’s growing influence stretches much deeper than its exports of cheap goods. It is revolutionizing the relative prices of labour, capital, goods and assets, in a way that has never happened so quickly before. Over the coming years, developed countries’ inflation and interest rates, wages, profits, oil and even house prices could increasingly be ‘Made in China.’ ”

We, in India, have more than a passing interest in this. We are comparable countries, inheritors of the world’s two longest continuing civilisations. Both have huge, young populations. Both are fast-growing economies. But there are many dissimilarities. China, even after discounting statistical errors, recorded over 9% yearly growth over the past 20 years. Its GDP is doubling every eight years, and since 1978, has grown eight-fold.

With a stable population, per capita income grew dramatically, promoting an unprecedented consumer boom. Vast infrastructure has been, and is being, built: it matches the best the West can offer. Almost all cities in the east, south and central China are connected by 6-8 lane express highways. The Maglev train track scheduled to be completed between Shanghai and Beijing by 2008 will carry passengers over the 1,400

km distance (two hours’ flying time) in four hours! Over 150 million young Chinese found productive employment in the past 20 years. India’s average of 6-6.5% growth pales by comparison, doubling GDP in 12 years. Our employment generation is, at best, tardy.

Why such a difference in outcomes between China and India, despite both countries embarking upon market policies? There are three substantial factors slowing India’s growth. First, we have never given adequate importance to education and healthcare. Productivity suffered and the bulk of those seeking jobs are unproductive in a modern economy. Even the declared ambitions of the state in the education sector are extremely modest. Universal enrolment in elementary schools and low dropout rates are our goals! Quality, guaranteed classroom instruction for at least eight years, higher education reform, additional knowledge creation... are not seriously on the agenda.

Contrast this with China. They guarantee free, accessible and high-quality education up to 8th grade to all children. After that, for high school or college, sizable tuition fee is collected. But again, quality of education is far superior to ours. Equally important, our health indicators are appalling. Even now, with a new rural health mission on the anvil, there is no serious effort to change incentives in healthcare delivery, generate public demand for better care, or enforce accountability. Our public health expenditure continues to languish at 0.9% of GDP. Even if the projected extra allocation of Rs 100,000 crore by the Union over the next seven years materialises, we will still be hard put to maintain 0.9% of GDP as public health expenditure!

Second, the severe infrastructure bottlenecks. Roads, power, public transport, ports, water resources, drainage, sanitation — all are in short supply. The only significant improvement witnessed is in communications, thanks to competition, choice and technology. Sensible policies, vast investments, public-private partnerships, competition, rational pricing, effective recovery, and constant monitoring are required. The devastation suffered by Mumbai, our financial capital, due to the recent heavy rains, illustrates the inadequacies afflicting our cities.

Third, India never acted with consistency even in pursuing economic reform. Centuries ago, geography and climate dictated a nation’s rise or fall. But in today’s world, organisation and ideas are the keys to prosperity. China’s leadership over the past two decades exhibited good sense and perseverence, as opposed to our flip-flop policies and mindless adherence to failed ideologies. Needless dithering over the role of public vs private sector, rigid labour laws, stuck pension reform, irrational and counter-productive subsidies and lack of fiscal prudence have been our bane.

We may dismiss irrational policies as the inevitable price for liberty. The truth is, these are signs of failed leadership. China’s success is not because of authoritarianism, but despite it. Sound policies, greater decentralisation, more competition and unusual openness to trade and investment are the keys to Chinese prosperity. India’s sub-optimal performance is not due to democracy. It is a product of un-informed public discourse, lazy policies and a continued propensity for state control.



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