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India or China?

Author: Jagdish N. Bhagwati, Senior Fellow for International Economics
November 30, 2010
Project Syndicate

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When US President Barack Obama visited India in November and complimented its leaders on the growing success and prowess of their economy, a tacit question returned to center stage: Will China grow faster than India indefinitely, or will India shortly overtake it?

In fact, this contest dates back to 1947, when India gained independence and democracy became the country's defining feature, while China turned to Communism with the success of Mao Zedong after the Long March. Both countries, the “sleeping giants,” were expected to awaken at some point from their slumber. But, since the growth model in vogue at the time laid principal emphasis on capital accumulation, China was widely held to have the advantage, because it could raise its investment rate higher than India, where democracy limited the extent to which the population could be taxed to increase domestic savings.

As it happened, however, both giants slept on – until the 1980's in China and the early 1990's in India – mainly because both countries embraced a counter-productive policy framework that crippled the productivity of their investment efforts.

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