India boasts key advantages over China and with a step-up in foreign investment, lawyers believe the country can overtake its Asian rival
Britain was not the only place to see firework displays on 5 November this year. Amid the festivities surrounding Diwali there was further reason to cheer in India, as the country launched a mission to Mars on the back of its expedition to the Moon in 2011.
The lift-off at the Satish Dawan Space Centre in Sriharikota represented not just a boost to the country’s space programme but also a significant stride in lifting India above rival China. If the mission proves successful – with the craft hopefully reaching Mars in September 2014 – India will be just the fourth country to reach the Red Planet, and the first in Asia.
But the race between the world’s two largest countries is far from a thrilling contest, with India trailing China in growth, manufacturing and infrastructure.
India’s growth rate has been plummeting since February 2011, at which point its growth eclipsed China’s. At that time India’s GDP growth was 9.94 per cent, compared with China’s 9.72 per cent. India’s growth rate is now around 4 per cent – half that of China. Although its GDP is expected to expand by 5 per cent next year, hopes of significant growth are now seen as optimistic.
“It’s been difficult – and it’s going to get more difficult,” says Economic Laws Practice (ELP) managing partner Rohan Shah. “We’re not seeing any significant transactions, nor are we receiving enough foreign or fresh domestic investment.”
The M&A market is still slow and far from providing the main bulk of work in the country.
Manufacturing has also declined, increasing the gap between the world’s top two centres of production. China has surged into the top spot. According to the HSBC Purchasing Managers Index (PMI), activity in India’s manufacturing sector fell for a third successive month in October. However, it was not all gloom, as foreign orders rose for the first time since July.
As for the work keeping firms busy, Hermant Sahai Associates managing partner Hermant Sahai says: “It’s a mixed bag. The Islamic finance market is not doing as well as litigation or infrastructure. Infrastructure is doing well due to the government’s desire for more projects.”
Prime minster Manmohan Singh is pushing ahead with several delayed infrastructure projects. The Mumbai Trans Harbour Link Project is a 22km sea link between Nhava and Sewri, connecting Mumbai with the likes of Goa, while the Mumbai Elevated Rail Corridor Project is a 60km route between Churchgate and Viar. Both projects have faced many hurdles, such as finding sources of funding.
Despite Singh’s desire to develop India’s infrastructure, this is another area in which China is storming ahead.
For example, Shah says China is constructing many more kilometres of road every day than India.
This sums up any country’s attempt to compete with China – it seems impossible to keep up with that jurisdiction’s rate of progress.
A key way that India can push ahead its growth is through foreign investment, an area that has been on a sticky wicket for some time.
“Foreign investment is important for the growth of the country and its legal market,” says Singh & Associates senior partner Vijay Singh. “India has to reform and listen to the demands of investors.”
The message is clear – foreign investment is increasingly important and India, like any other emerging economy, needs to get on the bandwagon.
The country has traditionally been closed to foreign investment to protect local businesses but has been opening up in the past few years in a number of areas. For example, Japanese investment has been seen in Chennai, which has a large automotive sector. Firms such as ELP have been keen to grasp the opportunity, with that firm opening offices in Chennai and Bangalore in the past four months.
Factors drawing in investment include a strengthening consumer market and a weakening currency.
The young country
Whether or not the outcome of the elections has a big impact on India achieving its goal of overtaking China, the general mood among lawyers is still confident.
Asked whether India can overtake China, Luthra & Luthra managing partner Rajiv Luthra replies: “Of course.”
He explains: “China started its liberalisation in the 1970s, whereas India began the process in the 1990s. India is a teenager, while China is middle-aged. China will have an older population by the time it’s rich, while India is a younger market. That’s a huge advantage.”
Around two-thirds of India’s population are under 35 and, by 2018, every fourth person entering the world job market will be Indian. In comparison, the Chinese population is ageing. According to recent reports, by 2050 more than a quarter of the Chinese population will be over 65.
Another significant advantage that India has over China is language. As a result of its colonial past English is widely spoken across India – particularly in the professional services sector.
“Every lawyer in India speaks English and court proceedings are in English,” says Jhunjhunwala.
Jhunjhunwala also points to the increasing popularity of the ‘China plus one’ strategy for investors in Asia. The idea is that by backing two countries rather than just China alone, the financial risk will be reduced. He is not alone in believing that India will benefit.
“China will lose and other Asian countries such as India will gain,” says Jhunjhunwala.
Although the economic gap between the two has widened in the past five years, the predictions of a few years ago that India will overtake China in 2020 may yet come to pass.
But before looking too far ahead, India must deal with issues it faces right now.
“We see strong prospects for India, but right now there are challenges and it’s going to take time to get better,” concludes Shah.