Roubini: India Will Beat China Hands Down

Discussion in 'Economy & Infrastructure' started by LETHALFORCE, Mar 31, 2010.

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  1. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    http://www.businessinsider.com/roubini-growth-is-accelerating-in-india-2010-3

    Roubini: India Will Beat China Hands Down


    Despite the fact that India's economy looks like pure chaos in comparison to China, whereby the government barely has the right statistics to make proper policy decisions, in the long-run it's probably the larger growth story.


    Don't underestimate the less-hyped BRIC, says Nouriel Roubini. all it needs is more investment capital to flourish:

    Bloomberg:

    “China has been a hare and India a tortoise but growth is accelerating in India,” Roubini said yesterday. “There is a massive need for both human and physical capital.”

    ...

    India requires “physical capital in the form of infrastructure that can be provided by both by public and private investments or private-public partnerships,” Roubini said. The South Asian nation also needs to invest in human capital, innovation and land reform and “maintain social stability,” he said.

    “China might be facing a greater challenge in maintaining its double-digit growth rate than India is facing in achieving a double-digit growth,” he said. Roubini favors the “more balanced economy of India” over China.

    India's economy could grow over 8% this year, which would be the fastest pace in two years, while China's grew 10.7% in Q4 of 2010.

    While it's not the most likely scenario, it is feasible that Indian growth cold overtake China's within the next few years should China slow and India maintain its current clip. So keep an eye on it.
     
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  3. badguy2000

    badguy2000 Respected Member Senior Member

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    good self-sensation is not always good to one's future.

    one day,India will grow faster than CHina. but that won't happen before my kid graduated from junior middle school. BTW, I am still not married.

    One day, India may catch up with CHina too, but that won't happen before my grandkid has his kid.
     
    Last edited: Mar 31, 2010
  4. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    you are the one dreaming of G2.
     
  5. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    Matter of fact is External problems had not & will not hamper India's growth so
    "A good Self-sensation" is never bad. >>>>>>

    What's your point??
     
    Last edited: Mar 31, 2010
  6. Oracle

    Oracle New Member

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    The main lingering issue is Infrastructure. If we take a look into out cities, we can see chaos all around. Let's compare this with China. When China needed to build a modern city, the Govt. there relocated people(sometimes compensating land owners with petty sum of money and sometimes forcefully) and worked it's way up the infrastructure development ladder. This unfortunately cannot be done in India.

    In cities like Noida, Bangalore etc, we see people flouting building norms of Municipalities while constructing houses. Municipality in every city has a set of rules which has to be adhered to while constructing a house. For e.g. we have to leave a part of land measuring from the boundary of the plot, around the house. This ensures that during rainy season, water from one house do not fall into the property of an adjacent house. This is also very important keeping fire safety in mind. So, we have houses that even share a comman wall, not the boundary wall. This has led to cities being viewed as concrete slums. This illegal flouting of rules of buildings being constructed needs to be addresses by the the Municipalities concerned and by the GoI. We also have another issue of Greener cities. Trees are axed to make way for building and apartments. Why not make a rule such as : for every plot measuing XX by XX feet, there should be YY feet of free space to plant trees in the plot(no of trees etc). This can solve our housing and environmental problem a little.

    Thirdly, the main urban population is concentrated at the heart of every city. People want to live and work inside the city, because the major part of entertainment and lifestyle is concentrated there. To overcome this, GoI needs to build small but futuristic cities, wherein all amenities of a modern city would be available, thereby population living and working in these areas would be balanced.

    Roads needs to be built connecting India with rural areas. Already there are many such projects, but lack of implementation and corruption is eating out all the sanctioned funds. We also need state of the art airports, high speed trains, metro rail, mono rail and a lot of other development plans.

    To sum it all up, PM Singh did say that India needs $1 Trillion in infrastructure spending in the next couple of years. A very ambitious project, but not impossible.

    In terms of Human Capital or innovation, the first thing that comes to mind is the IT sector. While most Indian MNCs are service providers, there are no major products being developed by them. This is true in the case of US MNCs too. But gradually there is a shift of ideas nowadays. Companies like Microsoft, Google, Yahoo etc are doing a lot of R&D at their R&D labs here in India. So, even when Indians are involved in say developing the next version of Windows in Microsoft's India R&D labs, the innovation goes unnoticed, because the base product was developed in US ages back. Service providers have matured over the years, and we may see a product from them in the coming years. Very much possible.

    The other cases of innovation in India are LCA, LCH, Arjun Tanks, Missiles etc. So definitely innovation is happening, however at a slower pace. GoI need to augment innovation by encouraging public-Pvt partnership and by funding them adequately.
     
  7. amoy

    amoy Senior Member Senior Member

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    China's focus is no longer on double-digit growth, but on quality of growth, and things such as medicare reform, social security network, and boosting domestic consumption... as u see recently lots of news on various provinces increasing minimum wages, and pensions.

    By the way Roubini's 'India will beat China hands down' sounds amusing. India shall have a far greater ambition than this... the 2 countries are hardly comparable. In my opinion China and India have very little in common, except large population, and long histories. We'd prefer to compare ourselves with Japan, Korea or Russia at ease.


    Good luck to India, which is not a tortoise at all, in contrast with its South Asian peers like Sri Lanka, Pakistan or Bangladesh.
     
    Last edited: Mar 31, 2010
  8. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Feel good article, largely.

    India will overtake China because of relative market saturation differences and rising wage cost differentials, particularly over the next quarter century as demographic imbalances begin to take shape. At present, China is a more favourable destination to outsource manufacturing to, because it has more of its infrastructure in place. But as India plans to invest over $1 trillion in infrastructure over the next 5-to-8 year period, including inviting foreign companies to participate inn road building, that competitive advantage is set to erode.

    Inherent differences in the way we consume once income levels cross a certain threshold are also important. The most striking factor of India's economic growth has been how financial prudishness has been converted to financial profligacy. Additionally, India is also becoming a larger net exporter of goods, evident in the fact that it jumped 3 places to become the 9th largest industrialized economy and took 4th place behind Japan in net auto exports this year. From corporate plans I analyzed over the next five year period, this trend doesn't look likely to slacken.

    There've been a spate of corporate honchos and economic intelligence houses making predictions of India beating China recently, including some chinese officials, whose opinions I discount, but let's not get our knickers in a twist before they're due.

    badguy, it'll happen sooner than you think. Start plannin for your grandchild now.
     
    Last edited: Mar 31, 2010
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  9. amoy

    amoy Senior Member Senior Member

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    the 1st time to hear of this - good job done of India. but for sure there are better benchmarks for India rather than China. Anyway China and India are too different in terms of cultural heritage, geopolitics, or development model...

    pls shed more light on 'market saturation' and demographic imbalances if referring to China.
    and rising wage cost - from my point of view it's natural while China's economy is gradually shifting from export oriented paradigm to a more domestic consumption dependent one
     
  10. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    Ohimalaya,

    China remains a success story in many ways than one and is a cause of inspiration for the many successes you have scored, mind you china is a not a benchmark but an inspiration on how best to turn the difficulties confronted with as opportunities to do better.

    Can you believe our former finance minister who is our present home minister once said that china by having a one party system helped them in quicker decision making than what was witnessed in India, which was a remark made more in awe but then he was also quick to add that Indian model is a more lasting and a durable solution just to avoid criticism to his first remark, so yes we certainly appreciate the good that you people have done including our policy makers.

    I am not going to dwell on the problems faced by India which has been adequately highlighted, but yes there will come a time when India will out score the Chinese growth figures and rage has made a very important point but what will also be a consideration will be the base on which India will grow and on what china will grow, how soon, I am not sure but we have made a strong start on the infrastructure front with the planning commission suggesting that we are well on track to nearly meet our set target of 500b usd investment in the infra sector for the current 5year plan which ends in 2012, this when global recession was looming large and when in the previous years in the distant past was a mere 4% of the gdp annually (500b usd makes it as 7-8% of gdp), and with a set target of 1t usd for the next 5year plan (2012-17), with the eventual aim to raise the spending to 12% of gdp.

    You talked about the quality of growth and social security security net, and here I will like to highlight a lot of measures where the GoI has worked on pushing a holistic growth with a huge number of social programs which address the cause of social security, and by taming an evil like inflation which to an extent addresses the quality of growth being pursued, though having said that these measures remain largely inadequate, might sound true on face value but are largely false in their intent when looked deep inside (as is said devil is in the details) and still are able to only address a smaller section of society, and all this remains a big cause of concern.

    Mate a Bangladesh or a sri lanka or a Pakistan have never been benchmarks for us to out do, out smart and this is where china comes into picture and the ambition of outdoing the Chinese because in the end the real race to the top will just be between our two nations, with the rest doing their bit but more or less watching on what our two countries will be doing but even if India were to do the catching part most of the time, I wont be complaining since which ever way India and Indian would be improving for the better.
     
  11. Rage

    Rage DFI TEAM Stars and Ambassadors

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    The following threads should be of some use:

    http://www.defenceforum.in/forum/sh...th-in-top-10-largest-industrialized-economies
    http://www.defenceforum.in/forum/showthread.php?6713-Indian-Automotive-News

    And the following news reports:

    http://business.rediff.com/report/2010/mar/04/top-10-industrial-manufacturers-in-the-world.htm
    http://www.qatarliving.com/node/941329
    http://www.business-in-asia.com/countries/automotive_industry_india.html
    http://www.khaleejtimes.com/biz/ins.../March/business_March324.xml&section=business


    China is presently the best benchmark for India's manufacturing expansion in the course of its economic liberalization. There are several lessons we can learn, including those on environmental degradation.


    The theory of economics is simple. As wage-cost spirals increase because of high aggregate demand, companies seek other, cheaper manufacturing destinations to offshore their production. In classical macroeconomics, this is called the rather crude 'horse and sparrow' effect. A modern analogy in intra-national supply side economics is the "trickle down effect", whereby the benefits of fiscal injections or tax-cuts trickle down to the poorest via increased consumer spending. This sort of 'diffusion' is a consequence of companies seeking low-cost, high growth markets (and ever lower-cost, higher growth markets) given the liquidity of capital and reasonable projections of future growth. The key here is 'relatve saturation' [China's markets for most consumer products already having experienced a significant number of high-growth years] and not (absolute) saturation.

    Demographic variables: China is an aging society. Please don't tell me you never knew that. India is set to witness an explosion in the 20-40 year working age category in the next 20 years, even as China scrambles now to remedy the less fortuitous effects of its one-child policy. The profusion of cheap labour, greater capital investment and a higher marginal propensity to spend will ensure that India becomes the next low-cost manufacturing destination after China. It is simply the natural course of economics, as India will be replaced by another, low-cost manufacturing destination in the future.
     
  12. badguy2000

    badguy2000 Respected Member Senior Member

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    According to the example of S.korea and Taiwan,

    China's economy will keep growing 8%+ until its nominal per capital GDP surpasses 10K USD,. At that time, China will have almost finished industrialization as a whole and China's GDP will surpass USA's . I do think that it is to happen in about 2015.


    After CHina's nominal per capital GDP surpass 10K USD, CHina's growth will slow down and may be 5%-8% for another 10-20 years,until CHina's per nomonal GDP completely catchs up with mature industriialzed economies like USA , EU and Japan.


    the closer to mature industrialzied economies CHina's per capital nominal GDP is, the slower CHina's economy will grow.///////
     
  13. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Ofcourse, you state nothing but the economically obvious. Part of that phenomenon I called relative 'market saturation'.

    India's economy is set to grow incrementally higher over the next two decades, particularly with the fiscal injection of over a trillion $ in the next five-eight year period.

    Your assessments for China overtaking the 10,000 nominal USD threshold are rather farcical, given the fact that China barely has a nominal GDP per-capita of $4,000, and an average PPP per-capita of $6,000.

    The last seven years have seen per-capita incomes more than double in India, and largely as a consequence of the most stellar 4 years of economic growth since 2005. We are merely beginning that journey which you undertook in earnest in the late '90's.

    As a consequence, yes, India will overtake China in nominal aggregate GDP growth rates far sooner than you think, and 'most certainly far sooner than you will become a 'granddad'.

    Thank you for unequivocally corroborating my statements.
     
  14. badguy2000

    badguy2000 Respected Member Senior Member

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    well, it took CHIna 20 years to increase its per captial nominal GDP from 300USD to 1000 USD(1980-2001).but it took CHina only 6 years(2001-2006) to double its per capital nominal GDP from 1000USD to 2000 USD .

    Furthermore, it took CHina only 3 years (2006-2009) to double its per nominal GDP form 2000 USD to 4000 USD.

    Here we can see a accelerated growth .

    The same accelerating course also happened to Japan, S.korea and Taiwan. all they spent 2 about 2 decades to finish their first double of per capital nominal GDP (300USD-1000USD) while spending only several years to increase their GDP from 4000USD to 10000USD.
     
  15. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    BG,

    why are you trying to evade the important part of currency depreciation between 1980-2001, and then appreciation between 2001-06, and further during the period 2006-09?

    is the PRC ready to appreciate its currency further as the world community expects it to?

    if yes, are you guys ready to do away with the export based economy that you guys have and are very proud of the MiC, that too when a google just recently walked out? in case you are going to do it rest assured there will be a huge impact with the cost of your exports going up with few buyers for MiC for they will have many cheaper and quality alternatives.

    as for your claim of 10,000usd per capita happening by 2015, i think its an exaggeration but yes this could happen by fag end of this decade provided you guys do not fiddle with your currency, you would do good to recall that since late 2008 you all chinese have been shouting that you have taken over japan's nominal gdp, a feet yet to be achieved.

    coming to the nominal gdp part, again i seriously doubt you guys will appreciate your currency much and till the time you are not doing it surpassing the US's nominal gdp this decade will again remain a dream, the possible time period id 2022-25, but yes if you guys do appreciate your currency lets say by the fag end of this decade then quite possible that you could surpass the US.
     
  16. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Wrong again. You've forgotten the lessons on fiscal revaluations I've taught you.

    Perhaps a refresher course would do you good. Browse through the thread for a revision on the frequency of China's fiscal revaluations post-2002 and their impact on per-capita incomes.

    Japan and Korea's acceleration in GDP per capita was achieved via a rapid increase in Total Factor Productivity growth, possible only because their populations were small and (concomitantly) due to a massive infusion of technology as substitute for labor processes. They also created internalized labor markets, that bound firms to workers and workers to firms, thereby giving workers a strong incentive to flexibly adapt to new technology. The moment the CCP tries to evince such a phenomenon, it will lose China's competitive edge and drastically reduce employment, putting in jeopardy one of its stated goals for national social stability and a concrete pillar upon which it premises its claims to sovereign legitimacy. The fact that there is a large, undeveloped, low-cost, massive youth demographic labour pool next door will only expedite the process at which manufacturing is outsourced.

    Korea's per capita income actually declined significantly in the late '90's as a consequence of spiraling workers' wages, an incidence to which you yourself have alluded to as occurring in China.

    The law of diminishing marginal returns is always and absolute. It is mitigated, only to a certain extent, via rapid technological suffusion and factor substitution in economic production for labour: an option not open to high-demographic, low-cost regimes such as India and China.

    South Korea and Japan's sustained per capita GDP growths have required significant economic structural changes. South Korea's per-capita incomes were actually forecast to plunge this year to $15,000, because they have not undertaken those structural reforms in adequacy. For such a small polity, that yet moved fast toward restructuring in comparison to other countries, you can imagine the consequences of not doing so for a large polity, and the erosion in comparative advantage it will entail in terms of manufacturing, production outsourcing, etc.
     
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  17. badguy2000

    badguy2000 Respected Member Senior Member

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    5 factors can influence the change of per capital nominal GDP

    1. real GDP growth

    2.inflation

    3.exchange rate

    4.revaluation of nominal GDP data

    5. population increase.

    the change of per capital nomonal GDP is a balance of the 5 factors and real growth is just one of the five factors.
    iiiiiiiiiiiiiiiiiiii
     
  18. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    yes true!

    1. that is to take a dip, you will do well to take a look at what rage has pointed out at, loads of basic economics gyan there.
    2. are you ready for high-end inflation, and with that the coming of free run of over heating and numerous bubble that get formed which when burst have a crippling effect on the economy? now with the single party rule that is what cant be stopped, i agree for they can take their people for a ride with no end to it. all the best for double digit inflation figures if you so like them, doom is near if you like to sustain like that.
    3. exchange rate. please try appreciating it, and see the end result. so is the prc ready for a big upturn in unemployment, and hardly any market left for their exports, so what happens to your dream of MiC, and oh the industrialization that you are so found of?
    4. yes that happens, but are all the figures released by the prc to be relied upon? heck you have not gone through reports on how well you guys cook up your figures, or have you? guess what, your godowns inventory level is increasing with no buyers but yes that gives a healthy picture of your manufacturing sector, but is that the ground reality, figures just tell one side of the story.
    5. well that is the only saving grace, isnt it, because every where else on the previous 4 accounts there was nothing really going well for you. but then did you read what rage pointed out or was understanding economics a little too tough?
     
  19. Rage

    Rage DFI TEAM Stars and Ambassadors

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    1. Real output / production is a function primarily of Aggregate Demand. You are an export-oriented economy. Read on:

    2. Inflation occurs typically as a result of three things: money supply through the easing of credit; aggregate demand-pull or cost-pull, alternatively the price-wage spiral; and rational expectations. For our purposes, demand/cost-pull will suffice: you already know how that impacts relative wages, investment, employment, and in the following run, consumer demand, real per-capita incomes and economic growth.

    3. An exchange rate appreciation inflates nominal GDP, but are you not looking at the other side of the picture? It also erodes competitive strengths in low-wage, low-cost manufacturing and depresses temporal foreign demand. Refer to point 1. of this paragraph again.

    4. Precisely. Need I say any more?

    5. Population increase, but more importantly increase in the demographic substratum that is a working age category. China is an ageing society, and a rapidly aging one at that, or haven't you heard?
     
  20. amoy

    amoy Senior Member Senior Member

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    while thanking u for your enlightenment, just add some of my 'frontline' observation, fragmental though
    Having a long history of centralized system (over 2 thousand years+) China tried many ways of development since collapse of the last Dynasty and founding of Repulic of China (ROC 1912)... firstly multi-party system coming with numerous warlords, then one-party dictatorship (Nationalist Party or KMT), anti-Jap war (13 years altogether started ahead of WW2), then now CCP path.... all kinds of experiments before coming to status quo..... I can't be sure if yours is a 'more lasting and durable' solution. But good for u so long as it answers your concerns.

    It's also argued that 'cheap labor' or low manufacturing cost doesn't help with the demand in the long run esp. when China endeavours to shift to stimulating domestic consumption thus gradually erodes off as a 'competitive edge'. We don't want to be 'cheap' any longer.

    No, far from even 'relative' saturation, just think about only %% of households own a car ... and the rural areas lagging behind, the backward West...
    By the way S. Korea 7th economy in the world with GDP equivalent to India's, is still growing though at a much slower pace. How comes China is 'saturated' with such a vast domestic market while far from the peak?

    don't take one-child policy at its face value - only in urban areas is it strictly implemented and nowadays we in cities tend to delay birth, or have 1 or even 0 kid due to various pressure and changed mindset. but higher birth rate in rural areas and for ethnic minority who're not bound by one-child policy. aging problem isn't yet that serious in the decades to come.
    India needs to have the CAPACITY to provide the emerging young population with sufficient eduction and medicare and... to enable them to be 'eligible' workforce and future consumers. How does India cope with the challenge i.e. inadequate resources allocated to them?

    India is simply another pattern or a different way. There seems no ground for 'who'll beat whom'.
     
  21. Rage

    Rage DFI TEAM Stars and Ambassadors

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    You are an export-oriented economy. Your years of stellar growth have accrued from low-cost, mass-scale manufacturing for primarily export markets. That was, and still remains, your comparative advantage. As fundamental (in your case, manufacturing) wages increase, as they are doing now due to 'relative saturation' of the labour market, so do prices and relative prices of other commodities. Higher commodity prices, in and of themselves, contribute to the phenomenon of 'cost-push inflation'. On the other hand, rising wages contribute to increased domestic consumption and aggregate demand, contributing to what is in economic jargon, called 'demand-pull inflation'. Inflationary propensities, in turn, fuel speculation of future rational inflationary expectancies. What results as a consequence is a continuous "feedback loop", in which wage hikes due to inflation cause companies to raise prices, and those rising prices lead to demand for further wage increases, perpetuating the cycle. This is a rather simplistic, albeit empirically rigorous model. Its effects can be mitigated via monetary policy: a) through government procurement of bonds, raising the interest rate, which via the interest parity condition or the Fischer effect in high-arbitrage financial instrument markets such as China, or India, will lower the exchange rate and appreciate the value of your national currency, in turn eroding into your comparative low-price advantage; or b) wage/price controls, which are always temporal in nature and used only in exiguous circumstances because they cause distortions in unemployment, particularly when demand is high: in either case, it involves a payoff between a) an erosion in comparative advantage via high-costs and dearer (and consequently, lower) nominal exports, and b) high (real)-wage regimes that attempt to rely on domestic consumption, but spurn foreign investment because of higher factor costs and lower aggregate product prices.

    Hence, the natural economic progression of liquid investment capital seeking alternative, lower-cost manufacturing destinations. Comprenez?

    Do you understand the meaning of the term 'relative'? What do you understand by it?

    As an analogy, read up on the consideration of relative prices. When it dawns upon you that your entire argument is premised upon 'absoloute saturation', you will understand what I'm talking about.

    My argument is not and never was in the context of 'absoloute saturation'.

    Your example of 'South Korea 7th economy in the world with GDP equivalent to India's, growing at a slower pace' is indeed a validation of 'relative saturation' and its impact upon growth rates.

    I assure you, pâtron, I do not. Your argument is digressing from the economic into the anthropological. My assertion that China's population is rapidly ageing, as indeed it is, is based upon studies of China's population pyramid vis-à-vis its Indian counterpart, which you can avail of here:

    [​IMG]

    [​IMG]

    http://www.nationmaster.com/country/ch/Age_distribution
    http://www.nationmaster.com/country/in/Age_distribution

    Two glaring factors you've obviously overlooked: China's 'ethnic minorities', not bound by its one-child policy, comprise 8% of its population. Prefectural and sub-prefectural relaxations of the legislation are indeed a remedial measure for the "less fortuitous consequences of the one-child policy".

    Investment attraction via a low-wage regime is exactly one of those measures towards building CAPACITY to provide our urban young generation with the means to sustain a decent livelihood and acquire basic services. As is the $ 1 trillion fiscal injection in infrastructure I've been harping on, which includes not just roads and bridges, but civic hospitals and rural schools as well.

    Reforms in the education sector have gathered apace in recent years. Literacy now stands at 81%,measured via stratified 'gallup'-type polls, vis-à-vis 67% in 2001. The most recent and proclaimed of these being the near-total opening up of the domestic education sector to foreign players, hundreds of which have already existed in India since 2001. The institution of the DPEP (the District Primary Education Programme) which has opened 160000 regular and 84000 alternative education schools since 1994, and has also evinced a 50% increase in enrollment of girls, has also been a critical factor. Education has now been made a fundamental right, which means people denying children the right to education may now be criminally prosecuted, and on a suo motu, suo sponté and class-action basis. You won't believe how many NGO's are gearing up their legal services to take advantage of the act.

    India's stratified, progressive sectoral-liberalization approach to economic development means it has already laid much of the tertiary groundwork required to cater to middle-income audiences. Private, burgeoning healthcare already exists, so much so that we are providing health care to foreigners: a phenomenon piquantly known as 'medical tourism'. Inherent qualities for healthcare provision already exist, we produce the highest number of doctors in the world and rank consistently in the top ten states for most other medicare professionals, who presently leave for greener pastures in the United States, Canada, Australia and the U.K. because the percentage of the demographic that can afford their services has been so low. Obviously, as incomes increase, this disparity will be mitigated. India's public healthcare system is in urgent need of reform, but the private and semi-private/partial state-funded sectors are capable of shouldering a bulk of the burden.

    You seem to have misunderstood the context of the phrase 'beat hands down': it applies purely to the prospects for medium-term economic growth rates for the two countries, and nothing else. Qualitative evaluations, though necessarily important, are precluded.
     
    Last edited: Apr 1, 2010
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