India or China: The better growth story Both India and China has been the fastest growing

emerging countries for at least a decade or so. In particular Chinas growth has been phenomenal over last couple of decades, when the rates were often in double digit. Back in late 1940s, when both the Asian giants got freedom from colonial rule, their economy in term in per capita and even GDP were almost comparable with India having somewhat better figures. Although the story remained same for at least 2 decades to follow, but it began to change when China realized in late 1970s that the only way to grow was to open its economy and to attract fund from west. India was late to realize it and by the time India started to see globalization, China was already clocking double digit growth rate. Even today the GDP growth rate in real terms for China has been a couple of points higher than India. Should this necessarily mean that Chinese growth story is better than that of India? Lets us analyze. Demography plays an important role when it comes to sustaining growth in long term. Due to one child policy implemented in China almost two decades back, it has got a huge baggage of aging population. The dependency ratio has increased over the decade and it will only increase further when in 20 years from now, China will have an estimated 300 millions senior citizens. A major portion of senior citizens will not have children to rely upon. So Basically China will need to build an adequate health care system and pension scheme, which can easily consume a large portion of Chinas GDP. India on the other hand does not have to face this problem in near future as the population growth rate still above 2%. On the political front, we see that China has harshly repressed some major dissents in the past. Although in principal, the communist rule should bridge the gap between rich and poor. But the gap has only increased and it has reached to such a limit that there are frequents reports of protests in cities and villages. China till now has been managing to repress, but they may erupt and become uncontrollable especially if the economic growth stalls. India on the other hand has its own internal problems to tackle, but being a democratic country, the problems are probably not going to be as large as in case in China. So being a democratic country gives India a huge advantage over China in long run. Talking from economic point of view, it can be argued that one of the major reasons for China to see huge growth rate was its closeness to closeness to western countries and US in particular. This provided a huge market for Chinese goods. The lower labour cost, tightly controlled exchange rate were also some major factors for China to experience high growth. But with changing global political scenario, rising cost of domestic labour and rising pressure for make the Chinese currency free floating, China may be slowly losing these advantages. On the

other hand India has not been an export oriented country, so impacts, if any, on India will be minimal. Talking about financial systems, India has better developed financial system. Its major problem has been increasing budget deficit and lack of fiscal prudence. If India is able to manage its fiscal health, I see no reason why Indias growth story would not continue in long run. I find India better placed than China to grow in long run, only if it can manage its expenses by cutting down on government subsidies and its law makers dont derail it for the want of few votes.