CHINA - INDIA DISPUTES

China Looms Large in India's Election
Call it the Giant-Next-Door complex. While the world worries about India and China eating its lunch, India, for its part, keeps a wary eye on China. For India it's a decades-old habit, this anxious concern about its larger, more prosperous neighbor. India came out on the losing side of a border war in the 1960s between the two Asian giants, and many Indians have question- ned Chinese motives ever since. Just in the past year, New Delhi has clashed with Beijing over trade issues, banning Chinese toy imports amid allegations of tainted chemicals, and fretted publicly over China's overt support of India's archrival, Pakistan. The Chinese, for their part, have
continued to challenge Indian ownership of the northeastern Indian state of Arunachal Pradesh, which the Chinese refer to as South Tibet. In another border dispute, China claims the Siachen glacier, which makes up almost one-third of the
disputed state of Kashmir, which Pakistan also claims. Beijing has also repeated protests about India's providing sanctuary to the Dalai Lama.

With India's month long national elections wrapping up on May 16, China is again figuring prominently in the national conversation. Indian Prime Minister Manmohan Singh has repeatedly said (during the release of the Congress Party's election manifesto) that "with the right set of reforms and the right political party, India can do even better than China." After the Chinese Foreign Ministry in April referred to Nepal and Sri Lanka as "friendly neighbors of China" that Beijing wants to help "maintain their sovereignty," India's Home Minister, P. Chidambaram, issued a furious response, speaking in the press conference that "China is fishing in troubled waters." This wasn't the first time Chidambaram had targeted China. Last
year, while lobbying members of Parliament to support a controversial nuclear-power deal with the U.S., he raised the Chinese bogeyman. "I don't want to be envious of China," he told his colleagues, arguing the deal would allow India to erase its electricity shortfalls and catch up with China's economy.

Info Tech Rivalry
Opposition leader L.K. Advani, of the Bharatiya Janata Party, also sees the advantages of playing the China card and regularly blames Congress for holding back India's growth, pointing to how much better the Chinese have done. Advani promises to do more for the one sector in which India has an undeniable lead over China—the IT industry. "If China can beat the world in the Physical infrastructure, India can beat the world in IT infrastructure," he wrote in a manifesto that detailed plans to enhance rural access to IT services. Advani, 81, told in an election rally on May 3 that his party had advocated back in the 1960s the need for India to develop nuclear weapons to match China's. India lost a short war with China in 1965 but defeated Pakistan in three separate wars. "The same victory could have happened in case
of China, had India had an atom bomb," he said, according to the Press Trust of India. India's China fixation is part insecurity, part blindness, says Razeen Sally, a professor at the London School of Economics who has written extensively about India. While the world lumps India and China together, he argues, the countries are worlds apart. "If you look at the hard numbers, China is not only ahead of India, but it has also been widening" the gap, Sally
says. "On every big measure you look at—living standards, international trade, foreign investments, infrastructure, the business climate, trading procedures, all the way to carbon emissions—you see not just that China is further ahead from India, but the gap has grown."
China entered the 1980s with many of the same problems that plagued India. Both had a
large, impoverished rural population, few exports, and a weak currency. But in the years since then, China has expanded its economy to approximately three times that of India's, to $3.42 trillion, in 2008. Only the U.S., Japan, and Germany are larger. China exports about 10 times as many goods as India, spends six times as much on infrastructure, and has a lower percentage of its population living in poverty. "The challenges are very similar: basically the ability to move hundreds of millions out of subsistence agriculture to non-agriculture jobs,
and to sustain that for a long time," says Subir Gokarn, Asia Pacific Chief Economist for Standard & Poor's, which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP). "India has not had the same success in translating growth into non-agricultural
employment."

Towering Chinese Economic Clout

The two countries' response to the global recession shows how India's slower rate of growth puts it at a disadvantage to China. Both countries announced big fiscal stimulus packages last year, but China's was more than 10 times larger than India's—$568 billion compared with India's $50 billion. Even that relatively small amount put India's budget deficit at more than 10% of gross domestic product and prompted a scolding from ratings agencies that
downgraded the outlook on Indian government debt. Beijing received no such reprimand.
China's stimulus package was infrastructure-focused, but India's was more along the lines of tax breaks.

Politicians from Singh's government argue that, despite the less ambitious focus of India's plan, the stimulus nonetheless has proved effective. India's banks are lending again, some economic activity is picking up, and India's benchmark Sensex stock index is up 26% for the year, after falling 52% in 2008. Members of the opposition still call for India to take a page
from Beijing's playbook and start spending a lot more on infrastructure projects. India's infrastructure needs for the next five years are estimated at more than $500 billion, which includes roads, airports, railroads, and power projects. In India government has to come out at
the forefront," says Arun Jaitley, the BJP General Secretary. "Whether through a public-private partnership model or just through public spending, you have to prime up the economy
through infrastructure spending."

Economists say India needs to make further reforms, though, if the country hopes to close the gap with China. "The aspiration to do things the way the Chinese do is a realistic one, not a fantasy" says Gokarn. "But there are certain kinds of investments that you have to make in
your infrastructure, in your labor markets, and in other areas. Only that will allow this transition to happen."