Can economic model of India rival China's?

THE BALTIMORE SUN

DAVOS, Switzerland -- The stars of the World Economic Forum at Davos 2006 were the world's new economic giants, India and China, with more than 2 billion people between them. A raft of panels discussed the emergence of China and India. But a constant subtext of the discussions was one of the most fascinating questions to emerge from the forum: Is China's top-down model of economic development better for business? Or can India's messy democracy provide an alternative model for growth?

So far, China is growing faster than India, attracts 10 times the foreign direct investment and has proved far more successful at building infrastructure to get goods to market. This month, China became the world's fourth-largest economy, passing Britain. But the confidence of young, dynamic Indian high-tech whiz kids is infectious.

At a glitzy cocktail party at the Belvedere Hotel, elegant saris were visible among the business suits, the spicy canapM-is were garnished with mint and yogurt, and the logo of the host firm, an Indian high-tech leader, Infosys Technologies Ltd., proclaimed: "Powered by intellect, driven by values."

About 150 Indian businessmen, journalists, government ministers and top state officials swept into Davos, along with a massive promotion campaign proclaiming: "India - the world's fastest-growing market democracy."

Only a decade ago, India retained a socialist mindset, and businessman was a dirty word. Economic reforms got going only in 1991 and didn't take off until the last few years. Even today, the tens of millions who staff India's high-tech industries and outsourcing firms live only hours away from impoverished villagers. India still suffers from widespread illiteracy, bad roads and an infuriating bureaucracy.

But the Indian attitude toward entrepreneurship has changed (perhaps in part because of the success of China's capitalist model). And India's democratic openness and rule of law have encouraged a wave of technological innovation that China still lacks.

"There is a degree of freedom that creates aspirations," says Anand Mahindra. This Harvard MBA returned home and now is vice chairman of a family firm, Mahindra & Mahindra Ltd., that produces automobiles and farm equipment, among other items. Independent thinking also produces better managers.

Although it receives fewer foreign and investment funds, India uses capital more productively, I was told by Massachusetts Institute of Technology professor Huang Yasheng at Davos. Maybe that productivity results from managers and local officials not being protected from scrutiny the way they often are in China. India's democracy is a check on corrupt government officials.

"Previously, people argued that China did well economically and India politically," says Mr. Huang. "But I argue that there are economic advantages of having good governance. It will help India overcome caste and lack of basic education of the work force."

And democracy keeps voter pressure on government officials to eliminate barriers that prevent Indians from making further economic progress. Infosys President Nandan Nilekani says the Indian public will press officials to eliminate the bureaucratic barriers that block small entrepreneurs and that keep their children from getting an education.

Maybe it's the crush of visible talent at the Infosys party that makes me want to believe democratic India can do as well as China. The issue really isn't which model is better. Rather, one hopes that India can prove that messy democracies are no obstacle to creating prosperity in a developing country. When you talk to Indian entrepreneurs, this is easy to believe.

Trudy Rubin is a columnist for The Philadelphia Inquirer. Her column usually appears Tuesdays and Fridays in The Sun. Her e-mail is trubin@phillynews.com.

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