What India must do to catch up with and possibly outpace China
The "India Everywhere" campaign of the Confederation of Indian Industry took this year's annual meeting of the World Economic Forum, in Davos, by storm. If public relations were the route to economic success, India would be a world-beater. Indians were indeed everywhere, while the Chinese were relatively invisible. Since Indian economic growth is now forecast at 8.1 per cent this fiscal year (to March 31 2006), confidence is running high. Yet confidence has an evil twin: complacency. It is far from certain that India's growth rate is now durably and decisively above the average of the past quarter of a century. It is equally far from certain that India will do better than China in exploiting its potential. Much reform is still needed. The greater the complacency, the greater is the risk of doing too little, too slowly.
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Hitherto, China has taken the lead. Over the past 25 years, its economic growth has averaged just under 10 per cent a year. According to Angus Maddison, the economic historian, Chinese gross domestic product per head, at purchasing power parity, rose almost twice as fast as India's.
Will this relative performance change? More important, might it change because of a surge in India's growth? Shankar Acharya, a former chief economic adviser to the Indian government, argues persuasively against this view, in the introduction to a forthcoming book. He suggests that medium-term growth is likely to remain about 6 per cent a year.*
This is certainly consistent with the trends (see chart). Not only has Indian growth averaged just under 6 per cent over the past 25 years, but a five-year moving average has deviated remarkably little from this level. While Indian growth has exceeded 7 per cent in the past three calendar years, this followed three years when it averaged just 4.7 per cent. Much of the recent growth surge has been cyclical rather than structural.
Why, then, might a reasonable analyst anticipate a surge in India? There are three broad reasons: first, Indian demography is relatively favourable; second, India has better institutions than China; third, India has more room to improve its policies and investment performance. These points have force. But they also describe potential, not performance.
According to United Nations forecasts, India's dependency ratio (the ratio of those above and below standard working age to those of working age) will indeed fall below China's, but only in 2030. Moreover, both countries will still retain the opportunity to improve the quality of the labour force and to shift workers out of agriculture.
Unfortunately, India has done a particularly poor job of absorbing its labour force into productive employment. Between 1993-94 and 1999-2000, for example, the economy grew 6.5 per cent a year and employment just 1 per cent. Crippled by restrictive labour regulation, employment in organised manufacturing has remained stagnant at about 6m, or 1.5 per cent of the labour force. The much-vaunted information technology sector employs just 1m - a drop in the Indian Ocean. Unused labour is not an advantage, but a terrible burden.
It is true, again, that India has a number of institutional advantages over China: a well-developed private sector; a relatively entrenched legal system; a stable democracy; and freedom of speech. The World Bank's governance indicators reflect some of these advantages, particularly a vastly superior score on "voice and accountability" (see chart). It also gives India a modestly better score on the control of corruption and the rule of law. But it gives a worse one on regulatory quality and government effectiveness. Of the latter there can be little doubt: China's ability to mobilise resources remains far greater than India's, as demonstrated in its vastly superior performance in provision of infrastructure.
This brings us to the third reason - the potential for policy improvement. India has a large opportunity to raise the investment rate, which remains well below Chinese levels even after the recent revisions to the latter's GDP (see chart). The difference in investment rates is the proximate cause of the difference in growth rates between the two economies.
Behind the huge gap in investment are significant and enduring Indian policy failures. Huge fiscal deficits are one example. Still more important have been the deep-seated obstacles - in the labour laws, the reservation of production to the small-sale sector and even in trade policy - to rapid expansion of labour-intensive production. That, in turn, helps explain the biggest discrepancy between Chinese and Indian growth: Chinese manufacturing grew at close to 12 per cent a year between 1990 and 2003, while India's grew at just 6.5 per cent, well below the 7.9 per cent achieved by India's services.
This pattern, suggests an illuminating working paper from staff of the International Monetary Fund, is connected to a long-standing bias towards a skill-intensive pattern of economic development.** Up to 1980 this bias generated a relatively small, and skill-intensive, manufacturing sector. Since then it has generated an exceptionally large, but also skill-intensive services sector. The share of services in employment was no less than 17 percentage points below that of comparable countries in 2000, even though its share in output was 4 percentage points higher. Both of these patterns were biased against mass employment and, to the extent that profitable opportunities were forgone, against growth itself. This must change if India is to thrive.
The improved performance of the Indian economy in the last quarter century is both a fact and an achievement. Yet it could be better still. It will not become better, however, without substantial further reform. As Mr Acharya points out, change must occur in five pivotal areas: deregulation of labour markets and an end to the reservation of production to the small-scale sector; revitalisation of agricultural growth; increased investment in infrastructure; elimination of fiscal deficits in the current budget; and, finally, across-the-board privatisation and further trade liberalisation.
Yes, all this will prove difficult. But it is also hugely important. India stands on the threshold of accelerated growth, but it will not cross it without a great deal of assistance.
*Essays on Macroeconomic Policy and Growth in India (Oxford University Press, forthcoming); **Kalpana Kochhar and others, India's Pattern of Development: What Happened, What Follows? January 2006, WP/06/22,
www.imf.org. 印度经济能够超越中国吗？
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印度无处不在”(India Everywhere)这场宣传风暴，由印度工业联合会(Confederation of Indian Industry)炒做，席卷了今年在达沃斯举行的世界经济论坛 (World Economic Forum)年会。如果公关是经济成功之道，印度将天下无敌。印度人确实无处不在，而中国人则相对不那么显眼。由于印度本财年(截至2006年3月31日)经济增长预测目前为8.1%，因此印度人信心高涨。但信心有一个邪恶的双胞胎：自满。印度目前的增长率能否持久、明确地高于过去25年的平均水平，还远无法肯定。印度在挖掘自身潜力方面能否超过中国，也同样远无法肯定。印度还需要进行大量改革。印度人越是自满，就越有可能做的太少、太慢。
迄今为止，中国一直领先。过去25年，中国的年均经济增长率接近10%。据经济史学家安格斯?麦迪森(Angus Maddison)表示，按照购买力平价计算，中国人均国内生产总值 (GDP)的增长速度几乎是印度的两倍。
这种相对表现会改变吗？更重要的是，它会不会因为印度经济增长的飙升而改变？在即将出版的一本书的序言中，印度政府前首席经济顾问尚卡尔?阿查里雅(Shankar Acharya)令人信服地驳斥了这一观点。他认为，印度的中期经济增长很可能维持在每年6% 左右。*
这确实与趋势相一致(见图)。印度不仅过去25年的平均经济增长率接近6%，而且其5年移动平均值也未显著偏离这一水平。虽然印度的经济增长在过去3年超过了7%，但在这之前的3年，印度的年均经济增长仅为4.7%。印度近年经济增长的飙升，很大程度上是因为景气循环，而非结构性原因。
那么，理智的分析师为什么要预期印度经济会突飞猛进呢？这有三个主要原因：第一，印度的人口状况相对有利；第二，印度的机制好过中国；第三，印度有更多空间改善其政策与投资表现。这些理由颇为有力。但它们还是在说潜力，而非实际表现。
根据联合国(UN)的预测，印度的人口负担率(低于或高于标准劳动年龄的人口与劳动年龄人口之比)，确实将降至中国的人口负担率之下，但到2030年才会发生。此外，两国仍有机会提高劳动力素质，并将劳动力从农业转移出来。
遗憾的是，在吸纳劳动力进入生产性就业方面，印度做得特别糟糕。例如，在1993至 1994年以及1999至2000年间，印度经济年增长率达6.5%，而就业增长仅1%。受限制性劳动法规的影响，有组织制造业的就业人口一直徘徊在600万左右，也就是占总劳动人口的1.5%。而大受吹捧的印度信息技术部门仅雇佣了100 万人，不过是沧海一粟。未被利用的劳动力不是优势，而是可怕的负担。
印度拥有诸多优于中国的制度优势，这也是事实。印度有发展完善的私人部门、相对成熟的法律制度、稳定的民主政治以及言论自由。世界银行(World Bank)的治理指标反映了其中部分优势，尤其是在“话语权和问责制”一项上，印度的得分要高很多(见图表)。在“防治腐败”与“ 法治”两项上，世界银行也给了印度稍高的评分。但在“监管质量”与 “政府效率”两项上，世行则给了印度较差的评分。政府效率这一项几乎勿庸置疑，中国调动资源的能力仍然远远超过印度，中国在建造基础设施上的卓越表现就是例证。
这使我们想到了第三个原因，即改善政策的潜力。印度大有机会提高投资率。即便在中国近期对其GDP进行修正之后，印度的投资率仍远低于中国(见图表)。投资率差距是造成两国经济增长差距的近因。
在巨大的投资差距背后，是印度政策长久以来的重大失败。庞大的财政赤字就是一例。更重要的原因是，存在于劳动法、保留小规模产业生产，甚至贸易政策中的深层次障碍，阻碍了劳动密集型生产的快速扩张。这既而有助于解释中印增长的最大差异：从1990年至2003 年，中国制造业以每年近12%的速度增长，而印度仅以6.5%的速度增长，远低于印度服务业 7.9%的增长速度。
国际货币基金组织(IMF)一份有启发意义的工作论文指出，这种模式与长期向技能密集型经济发展模式的倾斜相关。**到1980年，这种倾斜造就了相对较小的技能密集型制造业。此后，它还造就了异常庞大、但也是技能密集型的服务业。2000年，印度就业中服务业的比例，与可比国家相比要低17个百分点以上，尽管其产出比例要高出4个百分点。这两种模式都有不利于大规模就业的倾向，以至于会丧失有利可图的机会，影响经济增长本身。印度想要繁荣，就必须改变这一现象。
过去25年，印度经济表现的改善既是事实也是成就。不过，它还可以做得更好。但如果要变得更好，进一步进行实质性改革是少不了的。正如阿查里雅先生所指出，必须在5个关键领域做出变革：解除劳动力市场管制并结束保留小规模产业生产、重振农业增长、增加基础设施投入、消除经常预算中的财政赤字，最后是全面私有化及贸易进一步自由化。
是的，这些都会很难，但也极为重要。印度站在加速增长的门槛上，但假如没有大量支持，它是跨不过这道门槛的。
*《印度宏观经济政策与经济增长文集》 (Essays on Macroeconomic Policy and Growth in India)(牛津大学出版社，即将出版)；
**卡尔帕那?库哈(Kalpana Kochhar) 等人合著，《印度发展模式：过去与未来》 (India’s Pattern of Development: What Happened, What Follows?)2006年1月， WP/06/22，
www.imf.org。
