For the present smart young Indian entrepreneurs as well as rulers of India, China has become a benchmark. During the recent debate on trust vote, Chidambaram made a forceful reference to China: “I do not envy China, I wish to emulate China. About 80 per cent of China’s electricity is from fossil fuels, mainly coal and about 18 per cent is hydropower. China’s nuclear power contributes only 2 per cent. A country with barely 2 per cent of its electricity coming from nuclear power wishes to increase capacity to at least 50,000 MWs by 2020 and then a further three to four fold increase to 120,000 to 160,000 MW by 2030. Why should not India do the same?

However, many in West have started betting on India. Perhaps, it is mainly because India is growing in spite of it being the largest and quite disruptive democracy of the world.

Vivek Wadhwa, Fellow at the Labor and Work life Program at Harvard Law School, and also executive in residence at the Pratt School of Engineering at Duke University, has recently given an interview to India Knowledge@Wharton at the recent Wharton India Economic Forum in Philadelphia: His views are as follows:

“Increasingly R&D is shifting overseas – to India, China and all over the world. No matter what the U.S. does, it cannot stop the fact that India is rising rapidly. China is trying very hard to rise and catch up with India, but our research is showing that they are having lots and lots of problems because you can’t mandate innovation. That’s what the Chinese are learning the hard way.”

“India’s education system is really weak. The fact is that they are graduating only 800 to 900 PhDs a year in engineering, 30,000 – 35,000 real master’s degrees a year in engineering.”

Vivek Wadhwa explains Harvard International Review ” How the Disciple Became the Guru” produced in collaboration with the Kauffman Foundation. He provides the reason for India excelling in R&D.

“There were serious issues with the quality of engineering education in China and India. Yet India is racing ahead to become a global hub for advanced R&D in several industries. In trying to understand how India is achieving this feat, we learned that the Indian private sector has found a way to overcome deficiencies in its education system through innovative programs of workforce training and development. These have transformed workers with a weak educational foundation into R&D specialists.”

“In India, you go to companies like Satyam, Infosys and so on. They mandate that you must receive 100 to 200 hours of training every year of your career. So basically, Indians at the top level receive more training than Americans receive ….”
“Despite its low rates of postgraduate science and engineering graduation, India is rapidly becoming a global hub for R&D, with a momentum and scale similar to those it accomplished in IT services.”

“In the aerospace industry, Indian companies are designing the interiors of luxury jets, in-flight entertainment systems, collision-control / navigation-control systems, fuel-inverting controls, and other key components of jetliners for American and European corporations. In pharmaceuticals, Indian scientists are discovering drugs and performing clinical research for nearly all of the largest multinational drug companies. In the automotive industry, Indian engineers are helping to design bodies, dashboards, and power trains for Detroit vehicle manufacturers – and soon may develop entirely outsourced passenger cars. In telecom and computer networking, Indians are developing next-generation solutions for tomorrow’s intelligent cities. Indian companies are also developing innovative solutions for the Indian marketplace, such as the $2,500 car produced by Tata.”

“Despite its advantages in engineering-graduation rates, massive investments in infrastructure, and massive economic subsidies, China does not in fact appear to be moving at the same pace as India in R&D outsourcing. Foreign multinationals were driving an overwhelming proportion of R&D and innovation in China and that most of this R&D is targeted at developing products for the local Chinese market. There are some exceptions, but Chinese industry appears to be excelling in imitation rather than in innovation.”

“Increasingly returnees have been driving innovation in China, and they did in India, but India has become self-sustaining in terms of innovation. It’s really built a domestic capability to do what it needs and it’s not dependent on returnees any more.”

William Nobrega , president and founder of The Conrad Group, a global professional-services firm that focuses on emerging markets and technologies and the author of Riding the Indian Tiger: Understanding India the World’s Fastest Growing Market, published by John Wiley & Sons explains ‘Why India Will Beat China’ in Business Week recently:

An entrenched and vibrant democracy will ultimately drive India to outperform China socially and economically. India’s democracy would seem to be chaotic at the surface. But if you look deeper you will quickly see why the tortoise will win this race. Nobrega emphasizes on the India’s advantages with its right of property and rule of law.

“As India becomes urbanized many families will choose to sell or borrow against their land so that they can start businesses, buy apartments, or provide education opportunities for their children. This transition will facilitate the sale of land holdings by an estimated 30 million farmers and 170 million other individuals indirectly tied to the agricultural sector. The sale of these holdings is expected to generate more than $1 trillion in capital by 2025. This capital will have a multiplier effect on the Indian economy that could exceed $3 trillion. China, by contrast, has no rural property rights. Additionally they have no right to borrow against their lease. More than 200,000 hectares of rural land are taken from rural residents every year with little or no compensation in China.”

“The rule of law creates predictability and stability that allows entrepreneurial behavior to flourish. This is clearly evident in India, with more than 6,000 companies listed in the stock exchanges, compared to approximately 2,000 in China. More telling is the fact that of the 6,000 listed companies in India only approximately 100 are state-owned. This stands in stark contrast to China, where more than 1,200 of the 2,000 companies listed on the exchanges are state-owned. More than 100 Indian companies that completed initial public offerings as midcap companies now have a market capitalization of over $1 billion. Companies such as Jet Airways, Bharti Tele-Ventures, Infosys Technologies, Reliance Communications, Tata Motors (which just acquired Jaguar), Wipro Technologies, and Hindalco Industries are becoming multinational competitors with globally recognized brands. China also has numerous companies that have a market capitalization of over $1 billion, but the majority of these are state-owned behemoths recognized by their sheer size and not their nimbleness.150 of the top global multinationals now have research and development bases in India. Additionally the U.S. Food & Drug Administration has certified more companies in India then in any other country outside the U.S., a testament to the innovation that free markets and the rule of law foster.”

“India’s democracy is far from perfect, but it is also quite young, and as incomes rise and the populace becomes more informed we can expect that India’s government institutions will become more responsive and transparent.”

‘And what about the hare? Consider this fact: A recent survey found that of the 20,000 richest men in China, more than 95% were directly related to Communist party officials.”

I wish after winning the vote of confidence, Man Mohan Singh takes up the bills to decontrol the education sector that can face the global competition only with private investment and to allow foreign universities to tie up and invest in setting up campuses in India. What is there to be afraid of?