Market briefing --- Bob (fast)
India & China
Harvard Business School---Khanna, Tarun---Professor / Academic
>> welcome back, i’m bob bowden. recapping the day on wall street, we begin with a look at the dow, s&p and nasdaq, all higher on the day, although all higher between 0% and 1% with the dow up .3% and the nasdaq up .8%. u.s. treasuries fell on the day, but were up for the week. india may have a new prime minister as early as saturday, manmohan singh. analysts say india’s new coalition government must spur economic growth and cut their budget deficit. singh inherited an economy expanding at its fastest pace in 15 years. analysts say the challenge is to broaden economic growth and raise income among the country’s poor. only a fraction of the country’s population pay taxes. for more on india, we bring in tarun khanna, an expert on india, a professor from harvard business school, joining us from boston. first, your reflections on the election, the victory and plurality of the congress party, what does this mean for the country?
>> the first thing to note is this is an amazing celebration of democracy in india. we’ve had 700 million people voting peacefully in an election with a surprise outcome and peaceful transition of power with the minority installed as the head of state and head of government and this is extraordinary and bodes well for the future of the country and economic reform.
>> can you characterize the existence or lack of existence of a middle class in india? to what extent is wealth distributed in.
>> the wealth and income distribution is very bad, as you know. that said, i think it’s% improving.a lot of the same market forces that have fared well in the cities are going to smaller cities, a million to two million people in size and down to the rural areas. it’s just that the process hasn’t had enough time to seep through and needs to go faster. >> what kinds of policies do you think the prime minister singh may introduce in india that may change fortunes moving for forward?
>> i think manmohan singh, as you know, has solid free market economic credentials and is a rock solid policymaker himself.% -i think the biggest mistake is to defer to the previous government and the right thing to do is involve the government in the distribution, that could be a colossal mistake. i think the path that manmohan singh put the country on in the past is the right path but it needs to be done more forcefully and you need to reinforce reform, instead the message of market forces to the rural areas instead of derailing them and bringing the government back in.
>> what’s it like for multinationals to move into india and i’d like to compare that to moving into china, both% -countries with a billion in population―in terms of the educational differences between the countries and the ease of doing business?
>> i think that’s a great question. the story is sector-dependent. if you look at sectors with hard infrastructure, by which i mean reliable sources of power, roads, transportation matter a lot, china is a better safe and you see this reflected in manufacturing activity, et cetera. on the other hand, when you see activity where r&d is important, if you look at biotech, advertising, the creative industries, software certainly, you see that india is leaps ahead of china and probably will be for quite some time and there’s a gray area where the two countries are in a horse rate like specialized auto manufacturing, for instance.
>> how would you compare the average wage of an indian worker to chinese worker?
>> shanghai’s wages are much higher than most if not all cities in india and the low end of the indian wages are lower than the chinese low end of the sector. if you’re in manufacturing, the wage effect is more than offset by the productivity of the chinese work force and if you’re in software, the productivity of the indian work force more than offsets the wages.
>> how fast is the indian economy growing right now?
>> not as high as 10% but i would guess 7% to 8%, which i think is a good, sustainable growth rate going forward.
>> and the greatest risks to the future of growth in india, you see where? are they political or geopolitical?
>> i don’t think there’s going to be sizable political risk and the reason is that there is broad, if not perfect consensus for market reform. there are a couple of lessening worries of opposers but by and large the government coming into power and the former one wants reform. the long-term risk of india is focused on primary education and primary healthcare, compromising the ability of the truly bottom end of the income spectrum from entering the mainstream economy and that’s a long-term risk india needs to get its act together for.
>> our thanks to tarun khanna, professor at harvard business school. and the
