What is the role of government in the economies of China and India? For insights, check out a video by Tarun Khanna, a Harvard Business School professor on McKinsey’s web site.
Khanna notes that both economies are success stories built “on massive amounts of talent that their systems have been grinding out for decades.”
But there are clear differences between Communist China and democratic India.
In China, the role of the Communist government is pervasive “yet the government is an entrepreneur in China” instead of necessarily being an obstacle. One cannot avoid dealing with the Chinese government if one wants to do business there, so adopting an inclusive attitude is essential. Government actually helps share wealth and productivity especially in coastal and southern areas.
India, by contrast, tends to have a government that gets in the way of private business, forcing the private sector to spent a lot of time “circumventing government restriction.” Some recent good news, however, is that the Indian government is ceasing to see itself “as the sole driver of growth,” perhaps signalling a new flexibility.
Regarding foreign investment, the common view is that “China is open and India is closed,” Khanna says.This is true to some extent but Khanna warns that China is more open to “the General Electrics and Siemens” than perhaps other firms. This isn’t necessarily so in India.
Interesting points these days when the emphasis seems to be only on the weakness of the U.S. economy.
