India must boost infrastructure spending and reform its labor market as China has done if it wants its economy to grow as fast as that of its Asian neighbor, participants at the Asian Development Bank's (ADB) annual meeting in Spain said on Saturday.
“The Chinese manufacturing success story has a lot to do with a physical infrastructure that is better,” said economist Bibek Debroy, who has studied both economies, of New Delhi-based think tank Centre for Policy Research.
In 2005 Indian spending on infrastructure was equivalent to 5.9 percent of its GDP compared to 14.6 percent for China, India’s Infrastructure Development Finance Co chief executive Rajiv Lall said.
But just over half of the funding for China’s infrastructure projects came from state-owned enterprises, a model which he said could not be copied by India.
“China has a very peculiar and unorthodox institutional arrangement,” he said.
Debroy said China has also benefited from reforms of its labor market carried out in the mid-1990s which allowed for the greater use of contract workers.
“China has a very flexible labor market, India’s labor market is very rigid,” said Debroy, who prepared a study comparing China and India’s labor markets for the ADB. “Labor market reforms in India are very often talked about, but are rarely implemented.”
China’s economy grew 11.9 percent last year, compared to growth of 9.4 percent for India that year, Standard & Poor’s data showed.
While India attracted a record US$24.6 billion in foreign direct investment in the fiscal year to March 31, China captured US$74.7 billion of foreign investment last year.