China Vs India - Growth Factor

India has not grown as fast as China, but it appears as if India might grow faster over the next decade. There are two key differences in the growth of these two nations. First, China has seen significant investment in infrastructure and FDI, while India's growth has been without any meaningful investment in infrastructure and FDI. Second, India's growth has emerged through an era of capital deficiency, while China's growth been the result of flinging increasing amounts of capital at it. In power, telecom, and to some extent roads/highways and ports, India appears to be addressing the issue of infrastructure. On FDI too, foreign ownership is now less of an issue except in a few sensitive sectors. As infrastructure expands, so will the India's growth. So far it was restricted to a handful of sectors such as IT and pharma, which were relatively less affected by lack of infrastructure. Thus, India now appears set for

CHINA VS INDIA- GROWTH FACTOR

multi sector growth. For example, new and large opportunities have emerged in textiles where India was thwarted because of quotas despite being the largest yarn producer of the world. Quotas have now been abolished. The auto sector could be another driver. Development costs in India are among the lowest in the world. India already has a large home base in two-wheelers with three of the world's top 10 manufacturers of the world. In passenger cars too, India is fast becoming an export centre. Though unlike the past decade which was led by services, the next 10 years may see India driven by industry.

In manufacturing india can accelerate its growth rate if its manufacturing sector makes a larger contribution. For this to happen, several policy changes have to be made. The two key ones, to my mind, are labor market reforms -- labor market regulations currently hobble manufacturing, while leaving services relatively unscathed -- and the facilitation of investment in infrastructure, particularly power and transport.