Tackling the Myth of Indian Inefficiency (Sort Of)

http://business.time.com/2012/10/29/tackling-the-myth-of-indian-inefficiency-sort-of/

Tackling the Myth of Indian Inefficiency (Sort Of)

By Michael SchumanOct. 29, 2012

 

couple of weeks ago, I tried to convince the world that China isn’t as efficient as many believe. Now I’m about to take on an even more daunting challenge — making the case that India isn’t quite as inefficient as most people insist.

Many of you reading right now are probably having a good laugh. How can India, with its cow-lined roadways and infamously entrenched bureaucracy, even come close to the slick, high-speed railways and directed policymaking of China? Those same people who praise the modern transport and quick decisionmaking of China often go on to criticize India for its miserable infrastructure and plodding reform efforts. India’s fractious democratic political system, the critique goes, compares poorly with China’s more clinical authoritarian regime when it comes to implementing tough economic policies and building necessary roads and airports.

Is the comparison fair? To a great degree, yes. Reform in India has often ebbed and flowed on the unpredictable tides of electoral politics. While villagers in China can get cleared away to build a new road, villagers in India have rights to protect their interests and their land, slowing down the pace of development. India’s overly bureaucratic bureaucracy ties up power projects and other important investments in regulatory knots. Consulting firm McKinsey figures that completing a power plant in India takes about twice as long as in China. In the World Bank’s rankings of countries by ease of doing business, China, at 91, sits well ahead of India, at 132. These hurdles are having a detrimental impact on India’s growth and are big reasons why India’s development has trailed China’s.

(MORE: In Search of a New India)

But the situation in India is improving. I was recently in the New Delhi airport for the first time in three years, and I discovered that the old international terminal, in which I have spent far too many bleary-eyed hours in the middle of the night waiting in interminable lines, has been replaced with a spiffy new one that is every bit as efficient as anything in China. (Just try to ignore the vomit-colored carpeting.) The top policymakers at the national level clearly realize the need to slice through the red tape blocking other projects. New Finance Minister P. Chidambaram is striving to form a multiministerial “national investment board” to fast-track important power projects and other investments held up by the bureaucracy.

Chidambaram has been on a bit of a roll lately. Just when it seemed the current administration of Prime Minister Manmohan Singh was too tied up in politics to mount any meaningful reform effort, Chidambaram engineered a flurry of measures over the past two months, which further opened the retail, insurance and airline sectors to foreign investors. The recent reform drive proves a point about Indian democracy as well. Though at times it may seem messy, India’s democratic system has produced a tremendous amount of economic reform over the past 20 years. All it takes is the political will to press forward with the changes, and some effort to build enough consensus to support those changes. China, despite the fact that it is an authoritarian regime, often gets stuck in political paralysis of its own on important reform. There is widespread agreement both inside and outside of China on the sort of reforms the country requires to make growth more sustainable — promoting consumption, improving the financial sector, reining in state enterprises — but the reforms have come only slowly because of opposition from political factions and special interests. India’s reform debates happen on TV and in the newspapers; China’s take place behind closed doors.

(MORE: China’s Century — or India’s?)

That isn’t to say India doesn’t have a ton left to do. As I detail in my contribution to TIME’s recent special issue on India, Chidambaram’s latest reforms need to be just an opening salvo in a much more sustained effort at dismantling the barriers to economic growth and investment. That means reforming the government to make it more responsive to the needs of businesspeople and effective in implementing new policies; further improving infrastructure to bring down the costs of doing business; and much deeper deregulation. Such steps would allow the real strength of India to drive growth higher — the nation’s stellar private businesses. If there is one area in which India is no doubt more efficient than China, it is the corporate sector. Historically, Indian companies are better managed and more profitable than China’s.

If India does become more and more efficient, the potential is enormous. Citigroup economists predicted in a report last year that India, not China, could be the world’s biggest economy by 2050. So instead of complaining about India, maybe businesspeople should bet on its (more efficient) future.