'India need not emulate China'

India need not emulate China when it comes to infrastructure development. India's growth is more productivity oriented and crucial for a sustained growth for a country than the investment model adopted by China, says, Yasheng Huang, associate professor of International Management, US-based MIT Sloan School of Management.

Talking about 'Policy Framework and Development Strategies: India and China, a presentation organised by the Confederation of Indian Industries, southern region, Huang said western economists and analysts only saw the hard infrastructure in terms of sophiscated airports, ports, huge buildings in China.

In terms of macro economic indicators such as gross domestic product, FDI, development of roads, ports and airports, China had overtaken India.

But in terms of microeconomic parameters such as return on capital, development of domestic entrepreneurship and corporate governance, India is ahead of China, which is more essential for long term growth, he added.

Huang pointed out that macroeconomic performances depend on microeconomic foundations. If China boasts of huge infrastructure, it has been a result of enormous resources and capital being spent on them, which meant diverting of resources from rural and primary education.

FDI is the result of growth and not the cause for China's growth

"FDI goes to the country where there is growth and therefore it is actually an effect of economic growth and not the cause," he said.

In China, the FDI inflows have been detrimental to domestic companies. Chinese banks preferred to lend to foreign players having an equity investment in local company compared to pure Chinese firms.

In an article "Can India Overtake China", co-authored with Tarun Khanna in 2003, Huang had argued that India encouraged domestic players to compete with international companies. India has attracted much less FDI than China.

This reflects the confidence international investors have in China's prospects and their scepticism about India's commitment to free market reforms.

In this process, India has managed to spawn a number of companies that now compete internationally with the best that Europe and the US have to offer.

The article further explained that in 2002, the Forbes 200, an annual ranking of the world's best small companies, included 13 Indian firms but only four from mainland China.

India has been following a productivity led growth compared to China which was investment oriented like Latin American economies which have been highly dependent on exports.

Should Mumbai be like Shangai? On this, Huang urged the Indian government has to balance needs between infrastructure and long run needs of education. China did not strike a balance between social and economic needs which has resulted in large income inequality, he added.