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• Fifth, it is important to note that China was welcoming of foreign investment for both domestic and foreign markets. Most of the incentives - tax holidays, lower fees on land use, flexibility in the employment of labor, etc. - were available to all foreign investors. For export-oriented joint ventures, some extra incentives were provided. The lesson here is that fears of tariff-jumping type of foreign investment should not lead to erection of barriers.
  Instead, if the regime is to be tilted in favor of export-oriented foreign investments, it should be done through positive incentives. Imposition of barriers to foreign investment will only add noise to signals of openness that India has been sending.

• A final point concerns the importance of a "Hong Kong" connection. In India's case, there are no geographic neighbors that are as economically dynamic as Hong Kong or Taiwan, Province of China. But through cultural ties, the most India can do is to attract investments from Indians in Hong Kong and Non Resident Indians (NRIs) elsewhere in the world. While this is obviously worth doing, India has to rely on a more diversified base of foreign investors. It may be argued that to meet the East Asian challenge, investors in the United States and Europe will be increasingly looking for sources of cheap labor. With its vast pool of cheap unskilled to middle-level skilled labor, India clearly fulfills this requirement. Moreover, India's economic and political institutions are also familiar to western investors. What are needed are more open policies, transparency, and infrastructure. If this can be accomplished, India may well become the primary export base for the United States and European Community in the 21st century.

Despite these similarities, even in India's case, lessons from China are limited. In addition to the obvious differences in political systems, which lead to very different political-economy processes in the two countries, there are 3 reasons for this: -

• First, the Chinese approach has been highly interventionist. This approach can be successful - as it has been in China and elsewhere in East Asia - provided the government can implement "right" interventions judiciously. India's experience during the last four decades in this respect has not been encouraging.

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