A tale of two systems -India-China - TCA Srinivasa Raghavan

A tale of two systems -India-China

India-China comparisons don’t make sense. The two countries are chalk and cheese By TCA Srinivasa Raghavan

Updated - September 14, 2026 .

While China has a lot of hugely subsidised economic competition., India has a lot of hugely subsidised political competition

While China has a lot of hugely subsidised economic competition., India has a lot of hugely subsidised political competition  

Another BRICS summit is over. China with its trade surpluses was clearly the overwhelming big daddy. It accounts for over 60 per cent of intra-BRICS trade and investment. Russia with its oil ran a close second. India trailed far behind with nine tail-enders.

Many people in India are full of admiration for China’s economic success, like they were for Pakistan in the 1980s. But Pakistan went phut because it didn’t have the political systems and institutions to sustain growth. China has the same problem. From 1950 to 1980 we admired and copied the USSR which also went phut in 1990.

That’s why I always ask people who admire China if they would like to swap our political system and institutions with China’s. No answer is forthcoming.

But let’s leave aside the politics and sociology and examine the India-China comparisons from a purely economic lens. The starting point has to be the acknowledgement that neoclassical economics is founded on the idea of political liberties, which China doesn’t permit. But we have a surfeit of these liberties.

Chinese GDP, meanwhile, is $20 trillion. Ours is not even five. So the question has to be whether the absence of such liberties facilitates rapid growth in industrial output.

In China it does, but in the USSR it didn’t. The West also didn’t have full political liberties — of the sort we have had since 1950 — till about 50 years ago. You can check this out.

Capital or labour

There can be no doubt whatsoever that political liberties and rapid economic growth are inversely related. When you expand one, the other contracts. The more you have of the former the slower will the latter be. Look at East Asia after 1990.

There are no exceptions to this rule because growth depends on giving primacy to capital. Strange as it may sound, this is Marx 101. And it’s not just China, all the ‘Asian Tigers’ were like that. This has been said by several Nobel winning economists as well.

Unconstrained optimisation means capital flows into China and flows out of India. Period. Our emphasis on liberties means capital gets short shrift.

All our laws favour labour because we are a rights-based society. And when we try to correct the imbalance, as in 1991 or 2006 or 2019, there is protest. Just look at the number of trades unions and NGOs jumping up and down all the time and laying siege to the Supreme Court.

It must be asked why liberals object to a politically hard state, which is what we need for ever increasing investment and industrial output. You can’t have one without the other. It doesn’t work like that.

Also, when was the last time anyone compared Indian agricultural performance with China’s? India achieved food self-sufficiency in the 1970s, so much so that the massive drought of 1979 went unnoticed by the world. China is nowhere near it.

In fact, food is one of China’s biggest vulnerabilities alongside energy. It has enough of neither. All the world has to do is to reduce food and energy exports to China by 10 or 15 per cent and we will see how the paper tiger roars. India is quite safe that way.

We also have absolutely no idea of the efficiency of its capital use. The fact that the government’s first priority is employment, Chinese industry is hugely subsidised. That has created what economists call a moral hazard problem: there is very little incentive to save on capital. Few people realise it but China has made the same mistakes as the old Soviet Union where efficiency is concerned.

Apple or orange?

The point I am making is that when you compare two entirely different systems of governance you shouldn’t just look at one part and draw large conclusions. The correct questions to ask must be about systemic stability: which countries have stable systems and which are resting on a pin?

If Chinese political stability is ensured by massive force and widespread denial of political rights, Indian economic stability is ensured by suppressing economic freedoms. Which is preferable?

What would happen if China allowed even a fraction of Indian political rights and India allowed a small degree of Chinese economic freedom? Neither is going to happen.

China has a lot of hugely subsidised economic competition. We have a lot of hugely subsidised political competition. You can choose between them.

That’s why we should stop admiring what we don’t have and start boasting about what we do and keep expanding those things. China has the economic brawn but not the political brain. And that is going to be its biggest long term liability.

Published on September 14, 2026