Demographics

The biggest reason India has more long-term growth potential is simply that its population is younger and is growing more quickly than China's. Currently, China has 300 million more people than India.

But because of its very low birth rate, largely due to the one-child policy, China's population is expected to peak at around 1.45 billion by 2030.

India's population is expected to increase by 350 million by 2030, more new people than the US, Western Europe, and China combined. India will have 200 million more people than China by midcentury.

What's more, China's population is aging rapidly. As a result, the number of working-age Chinese is projected to peak in 2020 and start declining steadily thereafter, while India's workforce will keep growing for at least four more decades.

However, India's fertility rate also is declining, meaning future families will have fewer children to support and more to spend on consumption.

Development experts call this combination of a growing workforce and declining fertility a 'demographic dividend,' which helped power explosive economic growth in East Asia's Tiger economies from the 1960s through the early 1990s.

Capital Efficiency

The big driver of China's economic growth has been massive investment, equal to 40% to 45% of gross domestic product a year, an extraordinarily high rate on world standards—and twice the percentage of India's.

In 2004, investment in China was equal to half of its $1.5 trillion in GDP. In that context, China's 9.5% growth rate that year shouldn't be too surprising.

India, however, gets much more bang for the rupee. It has achieved 6% average growth with an investment rate half that of China's, around 22% to 23% a year.

Image: Chinese students rallying for their country wave flags during the Olympic torch relay in Seoul on April 27, 2008. | Photograph: Kim Jae-Hwan/AFP/Getty Images