Why India continues to lag far behind China in industrial progress?

Why is it that, notwithstanding the fact that India has a far more dynamic private sector as compared to China, India is lagging well behind China in industrial development? The answer is provided in the following article of T N Ninan in his weekend ruminations published in BUSINESS STANDARD of April 6, 2008.

Here are two key passages from the short article:

**Corruption in the states has reached levels that (most) politicians at the Centre can only dream of. One businessman talked of the chief minister of a state demanding Rs 500 crore from a problem-ridden industry, as the price for fixing its problems. Another businessman from another state talked of the state’s rulers asking for 30 per cent of the cost of any project as the political contribution that would have to be made. A third businessman had his factory shut for several months under some environmental rule because he did not pay the sum demanded of him. These are numbers that we have not heard before in similar contexts, and they suggest rapacity on a previously unthinkable scale — to the point where doing business becomes impossible.

**The universal opinion these days is that the state that is most friendly to investors, in terms of rapid clearances, and where politicians do not make any financial demands on businessmen, is Gujarat. It is no surprise, then, that Gujarat is doing very well when it comes to fresh investment. Another state that is doing well in attracting big, headline-hitting projects is Orissa, which too has an administration and a chief minister that have clean reputations. Maharashtra, which has always been a magnet for investment despite its high cost structure, is a third example of a place where politicians are not focused on making enormous sums of money from businessmen; they might control sugar cooperatives or get into land and extortion rackets, but these do not come in the way of industrial investment. In comparison with these examples, take a look at some of the poorest states in the Hindi heartland and the reputation for corruption that their politicians have (one hesitates to be more specific), and the point becomes obvious. Even when investment takes place in some of these states, as in the mining sector, the benefits don’t go to the local people and it is the politicians who have made money on the mining licences or environmental clearances that have to be given. Yet, many of this latter category of states are rich in natural resources of various kinds, and are also attractive markets in many ways because of the size of their populations. If someone were to do a domestic equivalent of Transparency International’s Corruption Perception Index, and match that to investment numbers in states, that might confirm the hypothesis.

On March 5, 2008, I had showcased Harvard Business School Professor Tarun Khanna’s exhaustively researched book "Billions of Entrepreneurs: How China and India are Reshaping their Futures - and Yours."

A key point made be him on the nature of corruption in China and India reads as follows:

There is rampant corruption in both countries, but the corrupt in China are demanding a piece of something new that is being created ..... whereas India’s corrupt are content to help themselves without any real contribution.

It’s clear that India will start doing better than China the day rapacious corruption of the type currently prevalent at the highest political level in the various states of India (excluding Gujarat, Orissa and Maharashtra) is eliminated.

What would be the most effective approach toward this end? Starting powerful incorruptible NGOs backed by citizen power?

Please post your observations and comments .



http://www.business-standard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=319106

BUSINESS STANDARD, APRIL 6, 2008

T N Ninan / New Delhi April 05, 2008

Rich man, poor state

WEEKEND RUMINATIONS

Having listened over the past fortnight to stories from businessmen about the demands being made on them by politicians in different states, it is obvious that corruption in the states has reached levels that (most) politicians at the Centre can only dream of. One businessman talked of the chief minister of a state demanding Rs 500 crore from a problem-ridden industry, as the price for fixing its problems. Another businessman from another state talked of the state’s rulers asking for 30 per cent of the cost of any project as the political contribution that would have to be made. A third businessman had his factory shut for several months under some environmental rule because he did not pay the sum demanded of him. These are numbers that we have not heard before in similar contexts, and they suggest rapacity on a previously unthinkable scale — to the point where doing business becomes impossible. The explanation for the new scale of money-making seems to be that politicians have begun reading about the billions being made by businessmen, especially through stock market wealth, and they feel that they had not been getting their “fair” share in the past. The consciousness of the stock market is borne out by the story from a businessman who said that demands are also being made for a significant shareholding in any company that is being set up!

Looking at the pattern of such demands and the states where they are at a peak, the thought that crops up is whether there is any correlation between the wealth of politicians and the states that they run —negative, not positive correlation. In other words, the richer the politicians, the poorer the state. The logic for that is simple: the more rapacious the politicians in a state are, the more investment flees to more hospitable climes. And in cases where the investment cannot go anywhere else (as in the mining or agro-based industries), the investment takes place in such a fashion that the local people get little benefit while the politician makes a fat packet.

For instance, the universal opinion these days is that the state that is most friendly to investors, in terms of rapid clearances, and where politicians do not make any financial demands on businessmen, is Gujarat. It is no surprise, then, that Gujarat is doing very well when it comes to fresh investment. Another state that is doing well in attracting big, headline-hitting projects is Orissa, which too has an administration and a chief minister that have clean reputations. Maharashtra, which has always been a magnet for investment despite its high cost structure, is a third example of a place where politicians are not focused on making enormous sums of money from businessmen; they might control sugar cooperatives or get into land and extortion rackets, but these do not come in the way of industrial investment. In comparison with these examples, take a look at some of the poorest states in the Hindi heartland and the reputation for corruption that their politicians have (one hesitates to be more specific), and the point becomes obvious. Even when investment takes place in some of these states, as in the mining sector, the benefits don’t go to the local people and it is the politicians who have made money on the mining licences or environmental clearances that have to be given. Yet, many of this latter category of states are rich in natural resources of various kinds, and are also attractive markets in many ways because of the size of their populations. If someone were to do a domestic equivalent of Transparency International’s Corruption Perception Index, and match that to investment numbers in states, that might confirm the hypothesis.

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