A tale of two growth poles

Last July, Montek Singh Ahluwalia, India’s Planning Commission Deputy Chairman, conceded that growth was not a “God given right.” A few days later, a giant blackout left 700 million Indians without electricity and brought vast swaths of India to a standstill.

It was yet another illustration of the government’s apparent inability to meet the nation’s increasing appetite for energy and appears consistent with the findings of World Economic Forum’s Executive Opinion Survey 2012, which concluded that lack of infrastructure, even more than corruption and bureaucracy, was the single most problematic factor for doing business in India.

This infrastructure challenge is not unique to India; in fact, it exemplifies the adaptation imperative faced by all fast-growing economies, particularly in Asia. Development brings about huge benefits, but also creates new needs, challenges, responsibilities, and expectations. Countries therefore can never rest. The recently-released Global Competitiveness Report 2012-2013 (GCR) shows that a number of Asian countries are now facing the consequences of inaction and complacency which could lead to falls in competitiveness in the future.

Nevertheless, India remains a classic case study. Until recently, double-digit growth seemed within reach; its vibrant private sector, positive demographic trends, knack for innovation and emerging class of successful corporate giants promised to carry the country to new heights. Today, the target appears unrealistic hence Mr Ahluwalia’s warning that achieving 8-percent growth in coming years would require “major efforts.”

What happened? The GCR reveals that some of the most pressing issues have been left unaddressed. In addition to infrastructure, low education standards, burdensome bureaucracy, deep-rooted and widespread corruption, abysmal public deficits, distortive and costly subsidies, stalled land reforms and growing inequalities have prevented the country from fulfilling its ambitions.

The government’s inability to tackle these issues decisively means India has now lost 10 spots in the Global Competitiveness Index since 2010. It now ranks 59th among 144 economies, 30 places behind China.

Unlike India, China has managed to put in place the basic foundation of its competitiveness. In the past 20 years, hundreds of millions of Chinese exited extreme poverty, the country climbed the development ladder and became the factory of the world. But China – which is now twice as rich as India – cannot rest either.

The GCR highlights some of China’s own challenges in maintaining its growth momentum. Competition remains weak, if not inexistent; state-owned enterprises still enjoy preferential treatment; access to credit by private SMEs is very difficult as the financial sector remains largely under-developed; “connections” still play a critical role in the success – or failure –of a business venture; bribery is a method of choice – or a necessity –“to get things done”; and many barriers to entry, especially for foreign investors, prevail.

China must address all these critical issues and at thesame time it must bolster its foundations. In 2010, thousands of vehicles came to a halt on China’s Highway 101, forming what became known as the ‘Great Chinese Gridlock’, a traffic jam that stretched over 100 kilometers and lasted for 10 days. Decades of massive investments in infrastructure unable to cope with the 40 percent annual growth in traffic the highway had been experiencing.

This week, those travelling from Jakarta, Bombay, Dhaka, Beijing, or Bangkok – all notoriously congested Asian cities – to attend the Forum’s Annual Meeting of the New Champions in Tianjin, China, could well spend several hours stuck in traffic on their way to the airport. This at least will give them ample time to reflect upon the dangers of complacency, inaction, and failure to adapt.

Author: Thierry Geiger is economist and associate director at the World Economic Forum. He leads the competitiveness practice for Asia and is a co-author of Global Competitiveness Report.

Pictured: Workers dismantle a decommissioned ship at the Alang shipyard, about 260 km (162 miles) west from the western Indian city of Ahmedabad. REUTERS/Amit Dave