The China-India comparison is central to the Asia debate.

Itis also of great

importance to the rest of the world. In the end,it may not be an either/or
consideration. While the Chineseeconomy has outperformed India by a wide
margin over thepast ! years, there are no guarantees that past
performanceis indicative of what lies ahead. "ach of these
dynamiceconomies is now at a critical #uncture in its developmentchallenge $
facing the choice of whether to stay the course oralter the strategy. The
outcome of these choices hasprofound implications $ not #ust for the %&' of
the world(spopulation residing in China and India but also for the futureof Asia
and the broader global economy.
)lobal interest in India and China, the two Asian giants, is more than mere
curiosity. *ever before
have such large economies with combined population of +., billion grown so
fast for so long
-World .an/, +&&0a1. 2or the last two decades, both India and China have
grown at twice the
global rate. If this trend continues for ne3t few decades, with their vast labor
supply, favorable
demographics, and aspirations for reaching the developed world per capita
income and
consumption standards, these economies can be e3pected to have a
signi4cant impact on the
world economy. A large number of studies on China and India focus on
comparing sources of
economic growth, poverty reduction and ine5uality issues, political
structures, policy and
institutional reform processes, trade, or foreign direct investment policies in
these two economies.
Infrastructure, with its critical input in this spectacular performance, remains
in the bac/ground.
This paper aims to contribute to the ongoing comparative analyses of these
two economies in
infrastructure development.
Though China and India began economic liberali6ation almost at the same
time in the late 70&s
and early 8&s, China today with its 9+.+ trillion dollar economy stands much
taller than India.
:ince 77&, China has posted an average rate of growth of &', one of the
highest in modern
history -see Table 1. China is also remar/ably open;e3ports and imports
together account for
almost three fourths of China(s economy, a share that signi4cantly e3ceeds
that of other newly
industriali6ed economies.+
Although India has made signi4cant progress in recent years, its share
of global trade has been relatively small compared to that of China, partly
due to its average tari<
rates which remain relatively high.
In the early 78&s, China was among the poorest nations in the world, with
more than =&' of its
population, or over =,% million people, living on less than 9 a day. .y 77&,
China reduced
poverty to less than ,,' and, by +&&,, to ,.%'. This was possible because
of very high growth
rates fueled by trade openness ->ollar et. al., +&&1. India(s achievements on
growth and poverty
during the same period have been steady but relatively modest;the overall
population living on
less than 9 day declined from !%.%' in 78& to %+.' and ,&.0',
respectively, in 77& and
+&&,. The total number of poor, however, remains high at over ,+! million.
To some e3tent,
India(s overall performance was negatively in?uenced by the initial
development model that
emphasi6ed import substitution and self-reliance, which was one of the
contributing factors to its
lac/ of trade openness for most of the period since independence
INFRASTRUCTRE IN CHINA AND INDIAAN OVERVIEW
)iven the di<erent level of importance given to infrastructure development in
China and India,
overall outcomes are very di<erent today even though in the early 4fties and
si3ties both countries
had fairly similar levels of infrastructure assets and services. 2or e3ample,
China(s electricity output
at 0., billion /Wh in 7!+ compares well with India(s power output of =.,
billion /Wh in 7!&-!.
The Indian road networ/ in 7!&s was e3tensive at %&&,&&& /ms compared to
about one third that
in China. In both countries, about %&' of roads were paved then. India(s
railway networ/ at
!,,&&& /ms was more than double that of China at +,,&&& /ms. India and
China had similar
numbers of telephone subscribers. Table + below presents annual compound
growth rates for
basic infrastructure access for three periods, 7!&-78&, 78&-77&, and
77&-+&&!, indicating
the signi4cant growth achieved by China in the last +! years. India was not
able to continue
higher levels of growth achieved in earlier years of planning.
Infrastructure Investment Environment
Though most Indian planning documents have continued to emphasi6e the
importance of
infrastructure, until very recently, they did not embrace the Chinese single-
minded goal of
infrastructure development, anticipating future demand and building ahead
of time. India(s
development model, which began with a balance between growth and
distribution in the early
4fties, was changed in mid-course with a greater emphasis on redistribution
during the critical
period of growth.
A number of pro-poor programs were introduced which reduced overall 4scal
space for infrastructure development.
@verall availability of resources for infrastructure sectors was also in?uenced
by the
macroeconomic environment in these countries -see Table ,1. China with its
high economic
growth rates and higher savings rates was able to allocate much larger
resources for investments
in general. In the 78&, China saved ,!' of )>A whereas India(s savings rate
was less than half at
!.!'. This combined, with higher 4scal de4cits in India, meant that it was
not always possible to invest in infrastructure. It is very hard to get consistent
time series data on infrastructure
investments across Asian countries. According to the World >evelopment
Beport on Infrastructure,
developing countries, on average, invested %' of )>A on infrastructure
-World .an/, 77%1. "ast
Asia steadily increased its level of investments, both in absolute and relative
terms, from ,.=' in
the 70&s to %.=' in 78&s, and to !.,' in 77,. After the Asian 4nancial
crisis in the late 77&s,
infrastructure investments collapsed in many of the a<ected countries.
Infrastructure investments
in India slowed down after reaching a pea/ level of !.!' of )>A in the early
77&s -see 2igure 1.
The gap between infrastructure investments between China and India is
widening not only as
share of )>A, but also in absolute levels given that India(s )>A is only one
third that of China.


%&
C C@B)A* :TA*D"E
C@B)A* :TA*D"E B":"ABCFGune +&&=India and ChinaH *ew Tigers of Asia $
Aart II
Infrastructure >e4ciencies
Infrastructure Is Iey to a :trong )rowth Cycle
India(s Infrastructure :pending Is @ne-:eventh of China(s
We believe that the single most important macro constraint onthe Indian
economy, limiting its average growth rate, is thelow spending on
infrastructure. We estimate India is currentlyspending a miniscule amount
compared to its needs. @uranalysis reveals that China is spending seven
times as muchas India on infrastructure -e3cluding real estate1 in
absoluteterms. In +&&!, total capital spending on electricity, railways,roads,
airports, seaports and telecoms was J:9+& billion inChina -7.&' of )>A1
compared with J:9+8 billion in India-,.=' of )>A1. We believe that India
needs a national planto increase infrastructure spending to 0-8' of )>A,
from anestimated ,.=' of )>A in +&&!, to push the economy onto asustained
growth path of 8-7' a year.
)laring >e4ciencies in Infrastructure
"3cept for telecoms, the cost of most infrastructure services is!&-&&'
higher in India than in China. 2or instance, averageelectricity costs for
manufacturing in India are roughly doublethose in China. Bailway transport
costs in India are threetimes those in ChinaK :imilarly, the average cost of
freightpayments as a percentage of imports is about &' in Indiaversus
around !' in developed countries and an overallglobal average of ='. Figh
costs aside, the lac/ of basicinfrastructure facilities is impeding the eLciency
of production.The gap is evident in almost all areas of infrastructureH
roads,airports, seaports, railways, electricity and industrialclusters/estates
-:"Ms1.
Infrastructure Is Ke for !o" Creation
India(s strengths of a huge s/illed and semi-s/illed wor/ force,entrepreneurial
e3pertise and natural resources are currentlybeing inade5uately utili6ed
because of lac/ of infrastructure.The J* estimates that India will be the
largest contributor tothe additional wor/ing-age population globally over the
ne3t4ve years, accounting for +,' of the worldwide increase. Wethin/
infrastructure is, in many ways, the /ey to unloc/ingunderutili6ed manpower.
"Lcient and low-cost infrastructureis the /ey facilitator of globali6ation and
labor arbitrage. Indiahas been able to ma/e ma#or inroads into software
servicesIT-enabled business process outsourcing e3ports -IT":1because of the
availability of high-5uality telecom facilities,the infrastructure bac/bone for
these e3ports, at a reasonable.
#an C$a%%en&es to 'i& Infrastructure (us$ N.
The comple3ity around infrastructure development is unli/elyto be resolved
5uic/ly. The biggest hurdle is the politicalenvironment. This is evident from
the trend in governmentcapital e3penditure, which has been cut signi4cantly
since theemergence of coalition government in the mid-77&s.Thepulls and
pushes of government coalitions have inhibited achange in spending mi3.
Dac/ of political will to wor/ towardinfrastructure spending that is oriented to
longer paybac/periods is an overriding generic worry.
In addition to this systemic concern, there are severalchallenges to achieving
the re5uired steep increase ininfrastructure.
2irst
, we believe that the current state of thegovernment balance sheet allows
little scope for a ma#or risein infrastructure spending from public resources.
Aublic debtto )>A is at 8+' and the annual consolidated 4scal
de4cit-including o<-budget subsidies1 is close to &' of )>A.
:econd
, over the years, the ability of the governmentadministrative machinery to
handle large infrastructurepro#ects eLciently has wea/ened
Third,
political interference has resulted in a large gapbetween user charges and
the costs of operating infrastructureutilities. @ften the government covers the
subsidy gap byoverburdening the paying customer $ mostly industrial
users.In many cases, the gap in collection is due not #ust tolegitimate
subsidi6ation but also to widespread theft. This is acritical problem,
considering that a substantial proportion o4nfrastructure utilities is owned by
the government orgovernment-owned entities.
2ourth
,
poor private participation is also a hurdle to improvingeLciency. We believe
that, for many infrastructure sectors-such as electricity1O the only way to
ensure signi4cantimprovements in service is privati6ation. The
electricitydistribution networ/ is currently owned more than 7&' by
thegovernment or government-owned entities. Fowever,e3tensive
privati6ation of public utilities is li/ely to be diLcult to achieve
And *ew "3ecution :tyles Are "volving
The government is wor/ing to provide some impetus toinfrastructure by
bringing in new styles of e3ecution. It ispushing the public/private partnership
route in various sectorsincluding roads, airports and electricity. We believe
that theroad development program by the *ational Fighway Authorityof India
-*FAI1 to build the golden 5uadrilateral -)P1 roadnetwor/ connecting four
ma#or metros is a good e3ample."3ecution of this pro#ect has involved the
private sector,whereby contracts have been awarded to private players
atagreed terms. The *FAI operates largely as an independentsupervisory
authority. Although the *FAI is facing hurdles inensuring completion of these
pro#ects on time because ofdelays in land ac5uisition, removal of
encroachments andenvironmental issues, overall progress under this
structurehas been much better than that achieved in the traditional styles.
)a"or (ro*uctivit Is )o+er in In*ia t$an in C$ina
)a"or )a+s in C$ina Are #ore Accommo*ative