Wednesday, December 21, 2005

Speech by Minister Mentor Lee Kuan Yew at The 37th Jawaharlal Nehru Memorial Lecture

Very interesting and informative speech by Lee Kuan Yew at The 37th Jawaharlal Nehru Memorial Lecture, where he talks in detail about the histories of India and China, and compares various aspects of their development in the last 50 years. Here are a few excerpts:

Forbes Asia recently reported … Indian R&D centers of American technology firms are reported to file more patents than Bell Labs. This year, India announced more than 1,300 applications for drug patents, second only to the US and 25 percent more than Germany, way ahead of the UK and Japan.

India has a superior private sector companies. China has the more efficient and decisive administrative system. China has invested heavily in infrastructure. India underinvested infrastructure is woefully inadequate. India has a stronger banking system and capital markets than China. India has stronger institutions, in particular, a well developed legal system which should provide a better environment for the creation and protection of Intellectual Property. But a judicial backlog of an estimated 26 million cases drags down the system.

But India cannot grow into a major economy on services alone. Since the industrial revolution, no country has become a major economy without becoming an industrial power.

IT is less than 2% of India's GDP. While services have grown rapidly, the bulk of the growth is from service sectors where wages and productivity are low. Business services, which include software and IT-enabled services, account for only 0.3% of GDP. Only manufacturing can mop up India’s vast pool of unemployed, narrow the urban-rural divide and reduce poverty. Professor Panagariya concluded:

"The right strategy for India is to walk on two legs: traditional labour intensive industry and modern IT. Both legs need strengthening through further reforms ...."

The average cost of electricity for manufacturing in India is about double that in China; railway transport costs in India are three times those in China. China has spent over eight times as much as India on its infrastructure. Three years ago, China's total capital spending on electricity, construction, transportation, telecommunications and real estate was US$260 billion or more than 20 percent of its GDP as compared to US$31 billion or 8 percent of India’s GDP.

If there are budgetary constraints, the answer is to privatise these infrastructure projects. There are well-established construction companies, Japanese, Korean and others, that have done many such infrastructure projects on franchise terms.

One area where India has done well is its telecommunications infrastructure. This has been a critical factor for India’s IT success. India needs to aggressively privatize infrastructure development and open it to foreign investment.

The World Bank has also done its own study. It found that in India it can take a decade to close a business through insolvency proceedings. It also found, among other things, that official fees amount to almost 13 percent of a property transaction in
India as against just over 3 percent in China.

A factor worth noting: India gets a much better economic return for the investment it makes in its economy because India’s private sector capital efficiency is high. If India opens up fully to FDIs, the results will be profitable for the investor and add considerable employment and added GDP growth for India. With jobs there will be a trickle down of wealth to millions of Indian workers, as there has been in East Asia.

Read full text of this speech at .


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