India Uncut

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Thursday, December 08, 2005

India ain't that far behind

Tim Harford brings my attention to a post by Johan Norberg, the author of "In Defense of Global Capitalism," about China and India. Norberg writes:
China has an advantage since it begun liberalising its economy 13 years before India. But China´s hidden weakness is the massive and often centrally planned investments, which are often less productive than the Indian investments. In the long run, that´s not going to work without more open competition, creativity and entrepreneurship. India´s hidden strength is that the country is already extremely entrepreneurial - but in the informal sector. An Indian friend mentions that most of the cars we see on the roads, and many computers in the offices, are assembled in small, informal factories, outside the law, to avoid the many regulations and taxes that still curbs the Indian economy.

Imagine what the Indians could do if all that energy was legalised. In that case the Chinese have good reasons to see them as serious competitors.
Bang on. In fact, I believe that India has been ideally placed to become a manufacturing superpower for a while now, instead of doing relatively well in services. Our strengths are ideally suited to labour-intensive manufacture (textiles, for example; link via Abhinay), but the impediments to industry and entrepreneurship placed by an oppressive government have held us back for decades.

Harford, in his excellent World Bank blog, thinks that India is, nevertheless, not too far behind China. He writes:
What are the barriers to doing business in India and China? Actually, they are still high in both countries. The Doing Business database ranks China a modest 91st on the overall ease of doing business, with India worse but not dramatically so at 116th. Looking in a little more detail, in China it's quicker to start a business, get goods from factory floor on board a container ship, and register property. But Indians - perhaps surprisingly - seem to have more flexible labour laws and fewer hassles with licences. [Link in original.]
That last statement takes me aback a bit; I don't know enough about China, but if their labour laws and licence requirements are worse than India, they must be pretty darn bad! Do check out the graph below, courtesy Tim's blog. And please comment!

Cross-posted on The Indian Economy Blog.
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