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Will India Eclipse China?

Discussants: Manjeet Kripalani, and Adam Segal, Ira A. Lipman Chair in Emerging Technologies and National Security and Director of the Digital and Cyberspace Policy Program
Updated: June 8, 2007


With a soaring economy and an expanding “soft power” initiative to expand its global influence, China appears on the road to superpower status. Yet, in recent years, India has emerged as a contender with a booming IT sector, GDP growth that rivals China’s, and a similarly massive labor force. The rapid rise of the world’s two most populous nations has spurred discussion on whether democratic India or authoritarian China will emerge as the greater economic power.

Two CFR fellows, Manjeet N. Kripalani, India bureau chief for Businessweek and Adam Segal, author of Digital Dragon: High Technology Enterprises in China, debate whether India will eclipse China.

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Adam SegalMost Recent

June 8, 2007

Adam Segal

If India does not see itself in a race with China (and I suspect it does), then it better wake up, because China is engaged in a race with India, as well as with Japan and the United States.

The competition in information and communication technologies is a great example of how the rivalry is playing itself out. As is well known, China’s technology success has been in hardware, India’s in software. The Chinese IT market is about 70 percent hardware, 12 percent software, and 17 percent services; the Indian market almost the reverse with 60 percent software, 20 percent hardware, and 17 percent services. Chinese companies have done well in domestic markets but, with the exception of Lenovo and Huawei, have not yet established themselves as true multinationals. Infosys, Wipro, and Tata, along with others, are true global players.

When I was in India, some of the CEOs I spoke with suggested the two economies were perfect complements. I responded that I doubted the Chinese wanted to complement any one’s economy, and that they would try to do everything on their own. And they are. Beijing is now trying to develop a globally competitive software industry through a combination of top-down initiatives, such as the State Council’s Document No. 47, which identifies a series of specific targets for the industry, and the Ministry of Science and Technology’s China Offshore Software Engineering Project as well as joint ventures with companies such as Tata Consultancy Services.

Competition and following one’s own development path are not mutually exclusive. To some extent, I would think India should welcome and exploit the challenge from China. The fear of falling farther behind should inspire Indian politicians to make difficult decisions about economic reform much as the rise of China and India has encouraged a debate in the United States about basic science, the fiscal deficit, the state of education, and other factors of competitiveness.

Clearly we are seeing a historical righting of the balance of influence in the world, away from Europe and North America, and toward Asia. China and India will be major poles in this new world. India, as a multi-ethnic, tolerant democracy and developing economy, can offer important leadership to this new world. But for India to fulfill this role, it will still need to build the traditional measures of hard power. It will be better for China, India, and the United States if Indian strengths do not remain invisible.  

Manjeet KripalaniJune 7, 2007

Manjeet N. Kripalani

Thankfully, Indians—like Americans—know exactly who the criminals in their politics are; an open society makes sure such information is not hidden. If after knowing their backgrounds, people still vote for them, then they deserve the government they get. But the choice is theirs to make. With China's closed society, the details of Chinese leadership from village to city are not available. Nor is there the redress available for those who abuse power, as there is in a democracy.

Fortunately, the notion of power in today's world is not confined to economic and military strength alone. Much of the world today—including developed nations like Japan, which forsook military power—value freedom, democracy and social equity. The current crisis in Pakistan over democracy vs. dictatorship confirms that yet again. China's strengths are visible, India 's strengths are invisible. Both have different pasts and presents, and we will see where the future leads them.

The truth is that India does not see itself in a race with China. India truly wants to chart its own course, and is willing to pay the price of slower economic growth. China, too, is charting its own more ambitious course. For now, from what is visible, the Chinese people seem willing to pay the price of freedom for economic might. Even if they are given political freedom, they may choose to have exactly the same government, the same system—but then it will be their choice.

India and China are the two giant experiments of our time. No other country has attempted to do what they are doing. These two ancient cultures dominated and changed world history in the past. The rise of the western, industrialized powers in the 19th and 20th centuries was a brief interruption. India and China will once again change the course of world history—for now India will do it though its soft power, and China through its hard power. Hopefully, they will learn from each other. Then Asia will regain its central global status.

Adam SegalJune 6, 2007

Adam Segal

With India, so much of the story seems to be about potential. With China, it is about potential disaster—another Tiananmen or an environmental collapse. Still, it is hard to escape from the idea that massive changes without institutional development are as much a threat to India as they are to China.

Take the youth bulge. Jobs have to be created for these increasingly educated young people. Manufacturing output increased a very healthy 11.6 percent in January 2007, but manufacturing as a share of GDP at about 17 percent, below the 25-30 percent medium-term goal set by the government. To create more jobs the government needs to deregulate labor markets, end the reservation of production to small-scale industries, invigorate agricultural growth, and increase investment in infrastructure.

I hope I am wrong but I suspect that politicians “closely connected to their constituencies’ needs” are as rare in India as they are in the rest of the world. According to the Public Affairs Center (an Indian NGO), almost a quarter of the 535 elected members of national parliament have criminal charges registered against them or pending in court. The Wall Street Journal reports that in Uttar Pradesh over half of the legislative assembly members face criminal charges. This has created a dynamic of corruption and public funds being misspent and mismanaged.

I would disagree with the impressions of the MP returned from Shanghai. China has not articulated a coherent alternative to India’s (but given Chinese concerns, primarily the United States’) multi-ethnic, liberal democracy. Communism is essentially dead. The “Beijing Consensus”—economic growth with no political liberalization and trade with no interference in internal affairs—has little inherent appeals except to dictators like Zimbabwe’s Robert Mugabe. China is establishing “Confucius Institutes” around the world, but I would guess that it will be difficult to make a centuries-old, highly hierarchical ethical code relevant for today.

But this may not matter since China is so clearly exerting its influence today through bilateral trade relations, an increasingly activist role in multilateral institutions, and growing military might. In a 2006 survey conducted by the Chicago Council on Global Affairs, Indians and Chinese both viewed their influence in the world today as second only to the United States. But when the same question was asked in different countries, India placed last in a list of nine countries (China also fell, but usually to about third).

The MP was wrong. China does not want to be the United States. It wants to be as powerful as the United States, and most of the world thinks it is moving down that road.

Manjeet KripalaniJune 5, 2007

Manjeet N. Kripalani

India ’s democratic institutions have survived the test of time. India’s great value is that it is the oldest receptacle of democratic values in Asia—since its inception sixty years ago. There may be caste and religious riots, only natural in a highly heterogeneous society where multi-lingual, multi-religious, multi-ethnic, multi-cultural elements wrestle for space. But these issues are resolved through the institutions of freedom and democracy.

China does not have those institutions or a vent for the frustrations of its society, which, like India’s, is going through a massive transition. It’s easier for China to pursue economic equity first. For now, the Chinese seem satisfied with that.

India is not. Indians have made the calculation that they will not sacrifice social equity for the erosion of their democratic strengths. China may have 350,000 NGOs (India officially has 1 million), but the bump in the road has yet to come. It is not clear how China will handle another Tiananmen Square.  

For sure, the Indian business elite admire China’s success and bemoan India’s plodding democratic process; the endless debate about economic reforms; the three-steps-back-one-step-forward, drunken-man’s-walk that is the Indian growth pattern. Business prefers predictability.

But Indian politicians, who are closely connected to their constituencies’ needs, take a different view. A few years ago, the chamber of commerce took a group of Indian parliamentarians to China to show them what the competition looked like. I asked one of them after he returned, “How was China? Did it make you think differently about India?” And he replied, “When I got out of the airport, I thought I’d stepped into America. Everywhere in China there were billboards of U.S. brands and U.S.-style skyscrapers. China wants to be America. We don’t want to be like anyone; we just want to be more of ourselves.”

Poor and illiterate they may be, but Indians have a strong sense of their own identity, history, and destiny. And the hard-won power of their vote wins over the power of running water and electricity at home. Of course, India’s poverty has not been removed, but reduced; Indians have better food, clothing, and shelter than before. Roads, water, and power are nowhere near being provided, but education has become the service most in demand in India. Already, over 90 percent of children are enrolled in primary schools. The number one expenditure item in every Indian household after food is education. In ten years, India will produce its first truly literate generation.

Watch out for it.

Adam SegalJune 4, 2007

Adam Segal

A few hours after I appeared in Mumbai on a panel on China and India, I met with a CEO of one of India’s most successful software companies. “Everyone is too polite to say it,” he told me, “but the race is over. The Chinese have won. We will do well, but we will not catch up.”

The numbers would appear to bear him out. Until the early 1990s, per capita income was about the same in the two countries. In 2005 China’s GDP was more than three times India’s, its per capita income more than twice India’s. Over $70 billion in foreign investment has flooded into China, less than $7 billion into India. China’s exports totaled $762 billion, 7.3 percent of global share, while India exported $95.1 billion. Even in the service sector, where India attracts the most attention, China held a larger global share of commercial services.

Beijing also has done a better job improving the material life of its citizens. Take just one example. In 1999, as part of the World Millennium Development Goals, the UN called for countries to halve the percentage of underweight children and reduce the death rate for children under 5 by more than one-third by the year 2015. China accomplished this goal last year. Over the same period of time, the share of children who are undernourished dropped by only six percent in India. 47 percent of children under 5 remain underweight.  

These in the long-run may be the wrong measures of “success”, overvaluing GDP over political freedom. Manjeet notes two strengths that do not show up in these ledgers: India’s youth and its democratic system. But these, for now, are measures of potential, not of outcome. China (until demographics catch it) also has a young population with a new mindset and energy for change, and its education system is expanding faster than India’s.  

Indian democracy faces the challenges of not only managing religious and caste tension, but also pushing economic liberalization further. The economic reforms that might help India’s poorest—changes to labor laws, the privatization of state industries, and reforms of fiscal policy—are the same ones that will inflict the most short-term pain on those at the bottom. With the voting rates of the lower classes and castes already high and rising, few governments at any level have the ability to inflict short term pain on voters.

Yes, China is still a one party state, and it probably will be for a long time. But something is happening on the ground—there are now, for example, over 350,000 NGOs—and it may be enough to push the inevitable political accounting further down the road.

Manjeet KripalaniJune 4, 2007

Manjeet N. Kripalani

India and China have been described as “non-identical twins.” The two countries have much in common: a proud, ancient culture with a central global role in the pre-colonial era, intellectual sophistication, and recently, poverty, and a large, young, hard-working population, which is nationalistic and has high aspirations.

Both nations want to reassert their historical roles, but have chosen different paths to achieve their goals. India’s path has been democratic, China’s authoritarian.

India’s model is that of bottom-up, demand-driven, grassroots-led change, without the help of foreign direct investment but with local entrepreneurial energy. Unlike China, which has grown on a manufacturing base, India’s lopsided, politically motivated policies have made its blue-collar labor uncompetitive. Consequently, India’s growing on the back of a high-end, high-tech services industry and entrepreneurial energy. 

Most important, India has chosen social equity over economic equity; choosing democracy and instituting universal franchise and affirmative action programs immediately upon independence from British rule in 1947. Those moves empowered the vast underprivileged in India, whose voices had been suppressed for centuries; through the ballot box, and through their elected representatives, they were heard on the national stage. Now many poor, lower caste Indians are state and national leaders. This political mobility provided social dignity—a choice they have made over economic parity. With the hard work done, India is now turning its attention to the painful task of economic equity.

China, on the other hand, is the model of elite-run, top down, foreign direct investment-driven, manufacturing and exports-led, supply-side growth. It chose economic equity over social and political equity. 

But India has done the hard work first—overcoming centuries of social injustice of the caste system, and becoming inclusive, whilst staying largely tolerant, pluralistic, and democratic. Economic growth will take off as a young, confident population releases its creative, entrepreneurial juices, less reliant on the state for jobs or assistance.

China’s economic miracle is admirable, yet its social and political record is not. China’s hard work will now start: teaching freedom of thought and action to a people who have lived with obedience for decades; teaching them to negotiate for their rights when the only way they know is authoritarian. How will the Communist party evolve to encourage debate from within and tolerate debate from without? How will the Chinese, accustomed to a world of black and white, navigate today’s shades of grey?

The answer is unclear. Perhaps it will be as hard for India to get its economy on a par with China’s as it will be for China to get its politics and society as integrated as India’s. Perhaps both nations, using divergent paths and models, will reach the same destination of giving their people a decent, dignified and prosperous life at the same time.

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