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India Outsmarts ChinaAuthor(s): Diana FarrellSource: Foreign Policy, No. 152 (Jan. - Feb., 2006), pp. 30-31Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/25461988 .

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t I ~~P R I M4 EI IN U M4 B E R SI

India Outsmarts China

T r a he economic race between China and India is changing the way the world does business. By 2050,

it is estimated that these two Asian heavyweights will account for nearly half the world's gross

domestic product, up from just 6 percent today. But whose model is better, China's low-cost

factories or India's low-cost financiers? For all the benefits of China's swift rise, India's brain power will finally

give it the tools to catch up. I By Diana Farrell

____10,000 Gross Domestic Product per capita (in U.S. dollars) m ~ ~~10 ,0 0 0

-- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - -

0 China 0

8O India o

2000 --g 0 o -0o 0 ? O

0-~000 2O 0 T---- ---'--------------1----*----'-------- ----- ---7----*----1- -----1---------1---- ----1----v---1--- --E

1990 1995 2000 2005 2010 2015

Reaping the Benefits

China's explosive growth has delivered new prosperity to millions of its citizens, whereas India's advance

has been more gradual. In China, massive public-works projects and a strong manufacturing sector

have so far been a successful recipe for jobs, making its population nearly twice as rich as India's.

Creature Comforts Urban Households Owning Goods

120%-- t _China's wealth has brought the trappings of .

100% -_ ------------------------------------- ------ middle-class life to a new generation of z

_ _ China I di urbanites. The average Chinese city dweller <

800% - - - -

owns a television or two,doeslaundrywith ,

the help of a washing machine, and stays <

connected with a mobile phone. India, lack- , AR%01 _ ing China's knack for producing cheap con

: _ ^ !

~~~~~~~~~~~~~~~sumer goods, is still playing catch-up.

Co;Tlevsor Washing Mhobie Aonirinn Automobilel Diana Farrell is director of the McKinsey ? t

Global Institute. ?00

30 FOREIGN POLICY

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At Your Service 25 SectorGrowth* 2 5 % ---

- - - - - - --- -- -- -- -- -- ----

Manufacturing is not a stable source of job growth-not

even in China, which has already shed 15 million manu- 20%

facturing jobs in the past decade. That's why India's econ

omy, half of which is made up of service-sector companies,

is growing smarter. Indian businesses plying advice in 15% -

medicine, technology, and finance will continue to grow

steadily over the next decade, while China's vaunted man- 10%- ------

ufacturing and construction booms will wane.

5% -T - - -- - ------------

0% - - 1981-2003 2003-2015

--------------- 0 0 10%

8 % -- - -- - 0 0:

_E_ 6/o ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-- - - --- -- --- - - --- -- -----

4% - ------

i _He,c _ _ I t: /O .~~~~~~~~~~~2 ---T------------- - - -f +

1981-2003 2003-2015

*Compound annual growth rate

Qualified Young Professi.onals in 2008 < 0: : ::; :, ' , , .~------ i Th,e Right S:tuff tc , , T - ..

India is not only producing more young pro

fessionals, it is producing better qualified

9- : .ca ,5 s India ones, too. According to a survey of local

recruiters, only 10 percent of China's engi Zm C

., neers have the skills necessary to work in a

multinational corporation, compared to 25 LLI :: ?w tX zpercent of engineers in India. By 2008,

E 0 : 5s?B: , D: 0; 11;_India's total pool of qualified graduates will

be more than twice as large as China's. If

India's universities continue to churn out

16 AN top-notch talent, its younger, cheaper, and

'a -i?s S 0 0 49 larger professional workforce could help India

?|? tx iJ

__L__-----k- edge out its neighbor to the east. 0 200 000 400,000 600,000 800,000 1,000,000

x 0 ILC

JANUARY I FEBRUARY 2006 31

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