Raghav Bahl on the amazing race between India and China

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Q: In mid 2008 the Chinese central government announced a 4 trillion yuan stimulus package to spend its way out of recession. However the central leadership only committed to funding 1/3rd of the total package leaving the rest to local governments and banks. Circumventing the law, prohibiting such action most local government setup as many as 8,000 investment platforms to obtain bank loans. Most of these loans are liable to go bad. Can a country keep growing by wasting household savings?

A: I think the world setup a notice that they (a) this one bounced up quicker than it was expected to (b) it bounced off a higher level (c) the bounce back is steadier.

Q: Talking about the steady recovery India has made in the last decade or so and you talk about this in your book the romance the Western world has had with India starting around 1999. Its never been a full blown romance in that sense that they wooed us, they suited us and then they stepped back because of external reasons and internal reasons as well but has there now been a shift, the financial decision, the hedging instrument that you talk about India being has that now shifted to it being more strategic in nature?

A: I would think so and a lot of the reason for India not being that much on the agenda in the late 1990s and early 2000 was because India has always been a bit of a shy bride, we do not come out and talk and I believe that's a disadvantage for us. I believe that in today's world, India need to put itself out there, much more but you are right that. Now with the kind of post Lehman strength that India has shown, the world is saying yes, here is a country which we cannot lump with others, here is a country which possibly is an asset class by itself.

Q: Is it now being treated as a separate asset class?

A: I would think so if not immediately then I think a lot of people are saying lets look at this country a little bit more closely rather then lump it into either a Brazil, Russia, India and China (BRIC) economy or an emerging market economy.

Q: They want to discover as Stephen Roach calls India's dirty little secret?

A: That's right, which is written so brilliantly about that at the micro level. India seems to have all the strengths, much more entrepreneurial companies, companies which run on much better corporate governance standards. Even at the more fundamental level, companies which are privately owned are therefore more enterprise driven.

China for instance has done spectacular stuff but remember most of those companies are Chinese state-owned. I think in the top 100 Chinese companies just about ten are 'private' and even those are owned by members of the Communist Party. If you put the Communist Party and the government together, then all the top companies are owned by the Chinese government or the party. In that sense they do not have the kind of entrepreneurial savvy that Indian companies have. If you look at India the share of the government has shrunk dramatically.

In fact Chinese state companies have gone and acquired well run private companies and that's created a lot of resentment in China's burgeoning private sector. It is not that China doesn't have a private sector, it's got a very strong private sector, but it's not dominating their economy as the way it does in India.    

Q: You are talking about the entrepreneurial zeal that India has enough off but what about governance? That always weighs us down. While the debate can continue on whether China has managed to defy and neutralize democracy, what about governance in India? You talk about how India will need to fix its governance in order for it to win the amazing race but in that sense we haven't changed it very much there, have we? Yes and No?

A: India is always a yes and no, it is a stop and start country. Have we done a lot of things right? Yes we have. Have we done them right commensurate to the needs of this economy? I think a resounding no and I think in India we have gotten so used to incremental changes that when someone does something which is slightly non-incremental, we, you, I, the media, everybody applauds.

But you have to look at achievement, in relation to what could have been, not in relation to what we have come from because that is a backward way of looking at progress. So has India done a lot? Yes. But has India done what India's promise demanded? I would say a resounding no.