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India's current economic growth — averaging 8.5 percent annually over the past four years — appears sustainable, but the country can do even better by further opening its markets and improving its policies like that of China, writes Ambreen Aleem
It is well known that the world’s economic fault lines are rapidly shifting eastward. And strong economies are emerging throughout the world, yet it has been the Asian giants, China and India, that have occupied our attention by taking global markets by storm and creating an excitement about new economic possibilities. These possibilities are quickly turning into real development in China. This is not to say that China is no longer a poor country, but there have been signs of relative improvement in all strata of Chinese society. Data has shown strong wage growth throughout the country, the emergence and growth of a middle class with dispensable incomes and an improvement in economic and social indicators. Keeping its population size in mind, China has more people with access to the internet than any other county in the world. Though these indicators may seem inconsequential, but even with consideration to its 1.3 billion people, they suggest the emergence of China into an age of communication and information technology and can be used as a barometer of things to come. Despite its relatively comparable economic success, the wealth generated by India's growing economy has been slow to impact the dire situation of its poor and has in fact broadened its already gaping inequality. Over the past 15 years, India has significantly opened its markets to foreign competition, cut down government intervention in economic activities and liberalized policies to allow a bigger play for private capital. Still, many economists remain concerned that much of the growth is concentrated in areas like telecommunications, information technology and other services sectors — and that many Indians, especially in rural areas, have benefited little from the boom. And more than 300 million people in India still live on less than the equivalent of US$1 (€0.70) a day. The analysts have warned that India’s recent successes should not overshadow the multiple areas still in need of reform. Three issues in particular urgent attention. First, the government should direct its efforts towards encouraging productive labor. Service exports and the production of capital-intensive goods such as pharmaceuticals have been the primary beneficiaries of reforms, while unskilled and labor-intensive production has grown at average or below average rates. There is a particular need for agricultural and small-scale industry reform. As an example, the striking difference between China’s and India’s textile sector; China occupies 14 and 11% of US and EU textiles markets respectively, whereas India holds five and seven percent. Reform in other labor-intensive manufacturing industries, ranging from automobile production to toys, were also considered imperative for fostering higher levels of productive employment and economic growth. New reforms, moreover, must be accompanied by a precise and steadfast commitment to policy delivery. The government should spend equal energy on designing growth programs and ensuring their appropriate implementation. This entails strong connections with local organizations responsible for implementation, and concrete mechanisms for establishing accountability. While reforms in India are supposed to have been initiated in 1991, the doctrinaire socialist policy had begun to be diluted in the second innings of Indira Gandhi. The process of liberalization continued under her son Rajiv Gandhi, and more dramatically after 1991. The growth rate doubled from the previous Hindu rate, but still lagged that of China. The result has been that starting with more or less the same per capita incomes 25 years back, Chinese incomes today are double that of India's -- a result not only of faster GDP growth, but also of a lower population increase, thanks to the one-child policy. Significantly, however, a comparison of investments by China and India in their respective physical economic sectors over the past two decades would have made it very clear why China is surging ahead, and India is not. It must, however, be said that India's growth rate in the past few years, for which the Vajpayee government hardly deserves any credit, though highly inadequate, was better than most distressed economies of the world. Finally, it can be said that India faces a qualitatively different economic era ahead. In contrast to the past decade, the next era of growth will be primarily private-led. The core question. 
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