Can Tiger attack Dragon?

There are scores of articles in every major newspaper and every major magazine comparing India with China on various economic progress indicators. There are even books written about Tiger of India pitted against Dragon of China. To those who base their opinions on such reports, articles and books, it looks as though India is posing a strong completion to China, when in fact every measurable economic indicator suggests that China is clearly leading India on all fronts. Moreover the gap between these two countries is only widening with each passing year. And yet, many Indian commentators continue to complacently believe that India has some edge somewhere when in fact none exists.




The tone of these reports and analysis comparing India with China suggest that India is actually inching towards China. That is not the case. In reality China is leaving behind India by a bigger margin every year. It is becoming tougher and tougher for India to catch up. In the last few years, Chinese have built the biggest dam on the planet, built the longest bridges, built the fastest cities, built their own planes, submarines, ships, magnetic trains, and even the highest railways while India continued to lay another layer of asphalt on its decrepit roads after each rainfall.
India is not even showing a promise of catching up. None of its policies suggest this. None of its initiatives give a glimmer of hope. Even the Indian industry is not thinking big. It is still content to play a small game.



Is English really India’s edge?


Indian commentators continue to tell us that all this China-leading-India comments are based in myth, because Indians have English which Chinese don’t have.
Is English really India’s edge? Only when India looks at itself as servicing the West using its BPOs then yes, English gives India the edge. However, if the competitor is bent on actually creating its own technology product industry to take on the West, does English still matter?

When was the last time a Japanese car company could not sell its cars because the makers were not good at English? When was the last time someone in Europe balked at buying a Sony Walkman because its makers couldn’t speak English? When it comes to China, how come their lack of good English not stop Huawei from becoming world #2 in telecom equipment? How come it did not stop Lenovo, Haier and ZTE from becoming leading global brands? Just to give a perspective to Indian readers – 2 telecom equipment companies of China, Huawei and ZTE put together made USD 30 Billion in 2008 while the entire IT-ITES industry of India put together made USD 58 Billion in 2008-09.

China is changing the rules of the games. It is taking on the West where the West has dominated so far, bringing the fight closer to the technology leaders, while India has conveniently told itself that it will not even play this game.
Indians are in self-denial. They foolishly believe everything Thomas Friedman tells them, and they are happy serving their European and American masters setting up BPOs, KPOs, LPOs, software services, helping them do their things in a cheap and cost-effective way, while Chinese are poised to take on these European and American masters head on. It’s as though the Chinese have completely overthrown their colonial inferiority complex.

For many years now, Indians gloated over the characterization that India is good at software services while China is good at manufacturing. This was a convenient characterization that only Indians believed because the books were written in English which only Indians could understand. Chinese blissfully unaware of what Friedman said were not constrained by this characterization and hence clearly violated all hierarchies.

Indians limited themselves to serving the West. When they looked in the mirror, they said, “I am an Indian. I am good at services. I should just stick to it”. That India is only good at software services became a cultural phenomenon with every major industry bigwig repeating it on various forums. Even Indian government fell into this trap where all incentives and subsidies were geared only to promote the software services companies. Go to a hardware park in India and compare it with a software park in India, you will recognize the step-motherly treatment meted out to the hardware companies.

India made no attempts at taking on China in manufacturing. Nor did they attempt to take on the West to go up the value chain to actually deliver technology and products. The Flat World theories told them that they can just concentrate on what they were good at, that is Software Services, KPOs, BPOs and LPOs, giving up on manufacturing forever thereby handing over the race on a silver platter to China, and giving up on technology products thereby continuing to serve the West.

China not only won the race in manufacturing and consolidated its position, it is now entering the technology product space, the domain held closely by the European, American and Japanese technology leaders. What more, it has started to beat these leaders at their own game. Huawei has recently won the contract to supply 3G equipment in Norway, the bastion of Nokia. While India made feeble attempts with C-DOT and ITI who are not even able to sell into BSNL, China has launched not one but two major telecom companies – Huawei and ZTE, that not only sells within their countries, they sell to BSNL also.

CK Prahlad in his closing comments at Nasscom Summit of February 2009 advised that Indian companies should foster more startups because they are the ones which bring vibrancy to the economy. His advice comes late, and even when it comes, it falls on deaf ears.

Infosys, TCS and Wipro, the giants of Indian software services which Thomas Friedman lauds, did not do much to sponsor or promote startups in India (barring few exceptions).

Their presence in India did not help any startup, except that many ex-employees went out and started companies on their own without any support or encouragement from these parent companies.

Meanwhile, China has launched extensive nationwide program to promote entrepreneurship in China. I was told that even a district head, equivalent to Indian District Collector, could invest up to half a million US dollars to a company that sets up shop in his district. Writing about China, a report says:
An analysis of documenting the tremendous growth of the Chinese entrepreneurial and cultural initiatives since the demise of Communist leader Mao Zedong reveals that this accounts for the Chinese economy’s double digit growth in the last couple of decades. [1]

It is clear to some countries that startups are essential for the growth in economy. Not so, thinks India. Indian has never believed in startups. They don’t think they add up to anything. The government is obsessed with giants because they look at them as employment provider – therefore the bigger the employer the better it is. Not a single major initiative has been taken in the last few years to promote startups in India. While the government boasts of loans to SMEs, when startups actually approach the banks, they feign ignorance of any such initiative.

All initiatives and decision making bodies in India are headed by people who have been good software services and therefore there is not a single policy that actually aids home grown brands, products and technologies. STPI still thinks that software is exported only as floppy, ftp or a CD. If you put that software in telecom equipment, a mobile handset, or a DVD player, then it does not recognize it as software and hence are not given the incentives. If Apple existed in India, there is not category for recognizing it. The prevailing mood is clear – you serve a foreign master you get the incentives; you try to become a master you don’t get any incentives.

Also, there are not many places a startup can raise funds in India. That’s why most startups continue to be family-owned or family-backed. First generation entrepreneurs find it impossible to raise money. The number of VC firms in India is limited while the government funds are small. Most government funds are small and therefore their mandate does not allow them to fund big ideas, while the miniscule few bigger size funds do not fund loss-making companies – which completely rules out startups.

China, on the other hand, is actively promoting startups through various forums and incentives. Though it is a communist country it hosts millions of entrepreneurs and VC firms which is aiding its economy.

China currently has over 200 million entrepreneurs and it houses 200 venture capital firms. The country accounts for 24.6% of the total entrepreneurship activities across the world, far ahead of Indian at 13.9% and the US at 14%, according to a survey by Global Entrepreneurship Monitor.

About 116 Chinese companies are listed on NASDAQ, as against 2568 US firms, Israel’s 63, and a handful from India, says the study. [1]
China is even popularizing entrepreneurship as a cultural attitude with various initiatives including TV programs.

…a Chinese reality TV show “Win in China” has received applications for entrepreneurial ventures from over 1,20,000 aspirants. Of these, 108 were chosen for prize money and working capital of $5 Million. [1]
Indians don’t know what to do. They are confused. They don’t know if they are socialist or capitalist. The reality is that they are clueless – they are neither capitalist nor socialist. China is both socialist and capitalist playing these two cards really well. The only floating hope for Indians has been their mastery of English. And the following observation should submerge that hope as well.

To give competition to India and other cost-effective English speaking countries like the Philippines, millions of Chinese students are learning English systematically. “China will become the largest English speaking geography in the world by the end of this year”, Compton added. [1]
What’s your opinion?
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How US Can Prevent the Next Crisis?

Even as efforts to recover from the current crisis go forward, the United States should launch new policies to avoid large external deficits, balance the budget, and adapt to a global currency system less centered on the dollar. Although it will take a number of years to fully implement these measures, they should be initiated promptly both to bolster confidence in the recovery and to build the foundation for a sustainable U.S. economy over the long haul. This is not just an economic imperative but a foreign policy and national security one as well.



A first step is to recognize the dangers of standing pat. For example, the United States' trade and current account deficits have declined sharply over the last three years, but absent new policy action, they are likely to start climbing again, rising to record levels and far beyond. Or take the dollar. Its role as the dominant international currency has made it much easier for the United States to finance, and thus run up, large trade and current account deficits with the rest of the world over the past 30 years. These huge inflows of foreign capital, however, turned out to be an important cause of the current economic crisis, because they contributed to the low interest rates, excessive liquidity, and loose monetary policies that -- in combination with lax financial supervision -- brought on the overleveraging and underpricing of risk that produced the meltdown.

It has long been known that large external deficits pose substantial risks to the U.S. economy because foreign investors might at some point refuse to finance these deficits on terms compatible with U.S. prosperity. Any sudden stop in lending to the United States would drive the dollar down, push inflation and interest rates up, and perhaps bring on a hard landing for the United States -- and the world economy at large. But it is now evident that it can be equally or even more damaging if foreign investors do finance large U.S. deficits for prolonged periods.

U.S. policymakers, therefore, must recognize that large external deficits, the dominance of the dollar, and the large capital inflows that necessarily accompany deficits and currency dominance are no longer in the United States' national interest. Washington should welcome initiatives put forward over the past year by China and others to begin a serious discussion of reforming the international monetary system.
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The Baltic Blues

The patient emerges from intensive care, hurls the medicine at the doctors and bites his blood donor. That may be an unfair characterisation of the recent news from crisis-stricken Latvia, but it is pretty much how outsiders see it. The prime minister, Valdis Dombrovskis, is refusing to make the spending cuts mandated by international lenders and has floated a new law that would partially expropriate foreign banks’ loan books.

It would be worrying enough if the European Union’s weakest economy defaults, devalues or implodes. But what scares outsiders more is the effect of Latvia’s latest wobble on other ex-communist economies, which until this week seemed to be surviving the financial crisis with less trouble than some had feared.


In recent weeks, the news from Latvia had seemed mildly encouraging, after a year during which the country has been kept afloat thanks to an $11.1 billion international bail-out. The breakneck decline has slowed: the economy is expected to contract by 17.5% this year, but by only 3% in 2010 and to return to growth in 2011, according to a forecast by SEB, a Swedish bank (and big lender to Latvia). The current account, which showed a yawning deficit of 1.42 billion lats ($3 billion) in the first seven months of last year has been transformed to show a 581m lats surplus in the same period of 2009.

The main outstanding issue is next year’s budget deficit. International lenders had softened the target to a mere 8.5% of GDP; the government still had to push through spending cuts of 500m lats to meet this.

But this week Mr Dombrovskis startled outsiders by saying that cuts of only 225m lats would be necessary. He has pencilled in a further 100m lats in better tax revenues—counting, apparently, on a faster economic recovery than anyone expects. The hesitation has brought stern warnings. Sweden’s finance minister, Anders Borg, said outsiders’ patience was “limited”—his country is due to provide SKr10 billion ($1.45 billion) in a loan tranche in early 2010. The EU’s monetary affairs commissioner, Joaquín Almunia, has publicly rebuked the government too. Mr Dombrovskis has now backtracked, saying that if the cuts are necessary, they will be made.

But doubts remain. Mr Dombrovskis lacks the authority to push tough measures through parliament and his public wobble could be seen as an attempt to summon up another burst of international pressure on the government to do the right thing. If so, it is risky.

The same could be said about another of Mr Dombrovskis’s moves—calling for a draft law that would restructure domestic liabilities of foreign banks. Lenders would be liable only for the collateral value of their loan (eg, a house bought with a mortgage) rather than the whole amount. Banks would also be unable to evict defaulters from their homes without rehousing them. A fall in property prices of over 50% has sent Latvia’s private-sector debts to foreigners ballooning. They will need restructuring eventually. But this proposal looks unworkable, clumsy and damaging. Shares in Nordic banks, which have been the biggest private-sector lenders to Latvia, dipped on the news.

If Latvia fails, with a strike by international lenders prompting a debt crisis or a bank run, the spotlight then turns to the neighbouring Baltic states of Estonia and Lithuania. They are not in the same political mess, but both have also pegged their currencies to the euro and are facing huge and painful adjustments. Some wonder if the EU might accelerate its recognition of Estonia’s impressive progress in sorting out public finances by giving it early approval of its plans to join the euro in 2011. But where would that leave Lithuania, which is nowhere near balancing its books and borrowing expensively from private lenders instead of turning to the IMF?

An even bigger question involves the future co-operation between the IMF and EU. They worked together closely during the emergency rescue of Latvia in December. Now ties are strained: the IMF thinks Latvia should devalue its currency. EU officials are determined that it should not, for fear of the wider effect on ex-communist countries that are trying to join the euro zone. That has led the EU to squeeze the IMF into accepting softer conditions on Latvia than it would have wished for. For all those involved, in Brussels, Washington, DC, and Riga, patience is running out.
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Redefining the Global System

From Europe to Turkey, world leaders are coming together this week for a slew of global summits. There is much for these world leaders to discuss: the global financial infrastructure is now up for debate, the jihadist war continues to rage in South Asia, the Russians are locked into intractable negotiations with the Americans over the boundaries of the former Soviet sphere of influence, and the Turks are returning to their great power past.

These summits are not just about photo-ops and handshakes. Taken together, this array of diplomatic meetings constitute the greatest density of decision points in the modern world since the summits that brought about the end of the Cold War. This is a time when the true colors of nation-states come out, as each fights for their political, economic and security interests behind a thin veneer of global cooperation.

With geopolitical boundaries being redrawn across the world, We have a responsibility to penetrate the media glitz and read through the lines of diluted joint statements and press conferences to explain to our readers the core issues at stake for each player involved. Through our extensive coverage in this week’s Global Summit series, our intent has been to do just that.

Midway through the bilateral summits, we have yet to see any major surprises deviating from our assessments. In the lead-up to the G-20 summit in London, the Americans and the Germans will be at the core of the debate over how to restructure the global financial system. The Americans, the British and the Japanese believe stimulus is the way to go to put the global economy back on track, while Germany, the economic heavyweight of Europe, prefers instead to export its way out of the recession. This is not a debate that will be resolved by the end of this summit (if at all), leaving G-20 members and the struggling economies watching from the outside with the impression that they have little choice but to fend for themselves in this severe economic environment.

The Americans do not just disagree with the Europeans on economics — in spite of Europe’s enthusiasm for U.S. President Barack Obama, the EU members at the summit made clear their unwillingness to make any meaningful contributions to the U.S. war effort in Afghanistan beyond a few aid packages. With the Western coalition in Afghanistan looking more and more like a one-man show, the Americans are branching out of their post-World War II system of alliance in search of new strategic partners. The United States has found one such partner in Turkey, where Obama will be wrapping up his visit on April 6-7. This will demonstrate to allies and adversaries alike that Washington embraces a greater Turkish role in global affairs that stretch from the Islamic World to the Russian periphery.

The summits thus far have given the Russians plenty to chew on. Russian President Dmitri Medvedev came to the G-20 ready to negotiate with Obama on a slew of issues that revolve around a core Russian imperative of consolidating power in the former Soviet periphery. A look at the joint statement and press conferences from the Obama-Medvedev meetings might leave one with the impression that the Americans and the Russians are ready to cooperate, but in reality, all they could really boast about was a commitment to restart talks on nuclear disarmament, leaving a host of outstanding critical issues in limbo. It is quite apparent that the United States has its hands full, but Obama still let the Russians know that he does not intend sit back and allow Moscow to have its way with Eurasia. The Russians now have a better idea of Obama’s boundaries in these negotiations, but their priorities have not changed; Moscow still has ways of grabbing Washington’s attention.

It has been a roller coaster ride thus far, with still more to come. Before Obama makes his way to Turkey, he still has to touch base with his NATO allies in Prague. With the Russians ready to play hardball and the balance of the Eurasian landmass still in flux, these meetings will be anything but bland.

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