Previous

Page - 18

Can India Learn, Replicate and Benefit from China's experience?

The country for which the Chinese experience is most relevant is India. Both are highly populous and, by developing-country standards, large economies. They began their development process approximately at the same time and stressed self-reliance.
Both relied increasingly heavily on import substitution policies and ended-up with a highly capital intensive production structure. China changed course in 1979 while India continued (with modest liberalization) on the old course. In 1991, in many ways, India stood where China stood in 1979. The trade-to-GDP ratio was the same as China's in 1979. Import and investment controls were rampant and the domestic currency was overvalued.

For emulating the Chinese success, following points, which are relevant, could be implemented in India: -

• First, creating a liberal and flexible economic environment along the lines of SEZs in China would stimulate greater foreign investment. The country can begin with a small number of cities - e.g., Bombay, Bangalore, Cochin and Madras - and, as in China, local governments may be given full authority to approve foreign investment up to a certain limit. Most important, rules of entry and exit in the zones can be made more flexible. Because these zones will be introduced in limited areas with a high growth potential, political consensus may be easier, even if this requires new legislation. Eventual success in the open zones may open the way for political consensus on a wider scale. Currently, India does have export processing zones. But the geographical area over which such zones operate is far too limited to allow for the full play of liberal policies and make them focal points of investment activity.

• Second, provision of infrastructure facilities through active participation of local authorities in the reform process is critical. In the fast growing provinces in China, local authorities - especially mayors of the cities - have been deeply involved in the process of development. They try to ensure that investors get speedy clearance with respect to land use, supply of electricity, water and other facilities. In India, so far, it seems that the enthusiasm for reforms has not filtered to state governments and the center may well have to take a lead in this regard, offering both carrot and stick. All incentives and reforms at the central level can be rendered ineffective if the state and local authorities, which must provide land, power, communications facilities, and environmental clearance, do not cooperate. There is an urgent need to study carefully how such bottlenecks can be removed.

Next

* Contributed by -
Syam Krishna V. K. ,
B.Tech. (Prod. Engg.), Kerala University,
MBA 2007, DOMS, IIT Madras.