China may be the destination for short-term investors, but if you are in it for the long haul you might want to bet on India, according to an United States economic expert.
Ahead of President George Bush's visit to India this week, Clyde Prestowitz, president of the Economic Strategy Institute and a former counselor to the secretary of commerce in the Reagan administration has said that the President is traveling to India to enlist New Delhi as a major new ally that can serve as a counterweight to China and Iran.
"Such an alliance will represent a major shift in America's foreign-policy calculus that had for decades favoured Pakistan over India," Prestowitz wrote in the San Jose Mercury News on Monday.
Comparing China and India, Prestowitz said that although China is far ahead of India, with an economy twice as large and growing faster, it is vulnerable over the long-term.
The same lack of the rule of law and due process that allows it to quickly bulldoze homes for skyscrapers, for example, has also led to corruption, rising inequality and social unrest. Conversely, India's apparent weaknesses - a cumbersome democracy, lack of central planning and unrestrained population growth - can be long-term advantages, he wrote.
China's economic superpower ambition has flaws, including graft, waste and aging population. India, in contrast, enjoys many hidden, long-term advantages, the author of Three Billion New Capitalists: The Great Shift of Wealth and Power to the East said.
Although India's literacy rate is much lower than China's, its Indian Institutes of Technology rival MIT and are far better than such schools in China, Prestowitz wrote, citing estimates that only 10 per cent of Chinese engineers have the skills required to work in a global company, while the comparable number for India is 25 per cent.
Contrary to China, India's banking and financial institutions are well established and have long been lending on the basis of market-based analysis, which helps explain their more efficient use of capital, the expert said.
Even though India's democratic system can be cumbersome and slow, it is stable, which makes investment less risky than in an opaque, authoritarian environment, wrote Prestowitz. Among the other advantages India has is that the common language of Indians is English, which makes it easier for the country to fit into an international business system.
India's growth has been mostly a matter of government deregulation and getting out of the way of aggressive, private-industry entrepreneurs. As a result, India's growth has so far been based not on less expensive standard manufacturing as China but on developing innovative new services and high-tech products.
In the long term, that entrepreneurial culture is likely to have more staying power and productivity. India has its insularities and even hostilities toward business, a hangover from its socialist past, but the new development wave is changing these views quickly.
Finally, the still growing population of Indians with half its population under 25 years means that the country will have no problem paying for elders' future health care and pension costs, Prestowitz wrote.