Why India-China Comparisons Miss The Point

China rivalry obscure more than it enlightens. Welcome to Benchmark, a show about the global economy. I'm Annual Moss, columnists at Bloomberg Opinion in New York, and I'm Scott Landman and economics editor with Bloomberg News in Washington. A more interesting way of looking at India today might be to compare it to America in the late nineteenth and early twenty centuries. That was the era of the so called

robber barons of tycoons like Rockefeller and Morgan. And today in India we have tycoons that have a kind of a similar profile in their society. Dan tell us a little bit about our guests. Our guest is James Crabtree, an associate professor at the Lee Kuan New School of Public Policy in Singapore. He's a former Financial Times journalist who's just published The Billionaire Raj, a journey through India's new guilded age. James, congratulations on the book, Thanks for

joining us, Thanks for having me. How different our India and China? And what, if anything does the shorthand link between the two, miss I think that you're starting premise in your introduction is the right one, which is, these are two very different economies. China's is state dominated. India's, although it has a healthy state sector, is predominantly private sector. Um China has a strong government that is capable of doing things India, with the best wood in the world,

does not. And most crucially, China began its liberalization process a good ten years before India, maybe twenty years depending on how you count it, and so China is a much much larger economy. This plays out in the way that people misread these two Asian giants, or one Asian giant and one Asian giant in waiting. If you look at an issue like the size and the middle class, people look at them as if they're the same. But

the Chinese middle class is vast. The number of online shoppers in China now is greater than the number of online shoppers in the entire of the rest of the world combined. The Indian middle class is stupid tiny. I mean, maybe eighty million people out of population at one point three billion would classify as the sort of middle class customer that that you know, your listeners would imagine someone who has a petrol driven vehicle and some savings in

the bank and a higher education. So they're very, very different economies, and so it's often not that helpful to take a kind of crude comparison between the two of them. James, let's talk about how that plays into your book, you know, thinking about the government's role in the economies of China and India. China had the state sponsored economy for some decades after the Communist Revolution. Subsequently, in the late nineteen seventies started to step away, which allowed the flourishing of

the kind the economy that you see today. Can you tell us about India and how the government plays a role in India's economy and how that has either helped or held back and how that set the stage for the rise of the billionaire class that you talk about in your book. So India and China have been through a similar stage in their economic development, or China has

been through. In India is going through this early stage of industrialization, which comes with a number of other things, massive urbanization, the development of the middle class um and big infrastructure development and its infrastructure, which I think is the most instructive comparison, because China has been through the largest infrastructure investment in human history, and it was predominantly

driven and even directed by the states. So the government decided what should be built, and the people who are building it were largely state back companies, not necessarily wholly stay owned, but they were controlled by the state. India in the two thousands went through a similar infrastructure boom, and typically we view India as having fairly hopeless infrastructure. But actually if you go to the major Indian cities now and you go to their airports, they're not the

airports that you think. They are. World class airports in almost every case. Now every big Indian city has a has a world class airport, and the most they opened in the last five to ten years and almost all of these were put in by big private sector conglomerates run by tycoons. The same is true of the steel mills and the iron ore mills, and the ports on the coast, and the and the toll roads between the cities.

And that is where the comparison with America and the Gilded Age sort of bears out, because these have both been countries where the risk taking and industrial development has predominantly been taken on by the private sector. Now in the Indian case, it is funded by public sector banks. And you know, the government plays an important role because you can't get land to build a road or or a steel mill without the government say so. But it's really been the private sector that has taken the lead.

And I think it's probably fair to say that the investment that went into India in the two thousands was probably the largest private sector investment in history since America built its railways. So you know, you're you're talking about a very substantial role for the private sector. In the US, there's a strong perception that China's government and its companies are one that the state that is a communist party,

has co opted business in pursuit of national goals. Listening to you speak, I wonder whether the reverse is true in India. Companies have co opted the state. It's a very nice way of putting it. I think that definitely was true in the middle of the two thousands. So take take a step back. India became independent from Britain in seven and then for forty years shut itself off from the rest of the world and developed a socialist

planned economy. Your listeners may be familiar with the phrase the Hindu rate of growth, the sense that India was a basket case that couldn't really grow more than four or five It opened up and began to liberalize, but it was really in the two thousands when things really kicked off, and that was when India began to grow it around eight percent a year, and you also got a wave of corruption handles, many of them to do

with infrastructure investment or extractive industries or rent seeking. And it was at that moment that the point you make appeared to be true, where it really looked as if the large tycoons had just got the government in their pocket. They were bribing left, right and center, and that was when you had a big public reaction against grand corruption India in its pre liberalization time, We've always had corruption,

but it was pretty small bore stuff. You know, you had to play a bribe to a policeman, you had to pay a bribe to get your driving license, your marriage certificate. It was only after liberalization. And this also happened in different ways in China and Russia too. But as the economy grew, the value of corruption grew with it, and so suddenly you had this grand not rather than retail corruption, you had a wholesale corruption. That has tapered

off a little bit. So into India's people elected Randramodi, the current Prime Minister, won an overwhelming landslide. That was partly because he stood as a pro growth, pro business candidate, but he was also staunchly anti corruption. And so this sense that the tycoons have the Indian government in their pocket has tapered off a little bit. But I think it's certainly true to say that if you look at

it the other way around, which is China. China's government is very strategic in the way that it directs investment, and presently, for instance, is trying to roll out it's China Plan to develop world class advanced manufacturing in areas like robotics and aeronautic manufacturing. India is much less good at that at sort of the state directing industry strategically and enabling it so that you get the kind of

injuries industries you need to develop. Why don't you tell us a little bit about one of the main figures in your book, Mukesh Ambani, one of the wealthiest men in India. Who is he? Is there anybody in the United States that might be an equivalent to like Jeff Bezos or you know, how how did he amass not just his wealth but the power. You have some pretty interesting ecdotes in your book where people don't even want to talk about him. He just has so much hidden

power behind the scenes. There's an Indian newspaper editor called Shaker Gupta. He's one of the pre eminent columnists in India. On Twitter earlier this week he sent me a little message saying, you know, you're quite brave to have written this book. And partially what he means is that people in India a bit careful writing about the big business people. Not because like Russia, you're going to end up dead

in a ditch. But these people, they have a lot of power they remember, and so people are somewhat cautious about about writing about them. I mean, I had left the country son, since I'm somewhat protected, and Ambani is the most sort of famous I suppose of these examples. So let's start from the beginning. The American edition of my book on its front cover has a picture of

his house, which is called Antilia. It is a a hundred and seventy meter residential skyscraper that towers over downtown Mumbai. It's a family home for Sambani, his wife and his three chill Droun and you know, it's large enough to be a gigantic hotel. It has all sorts of luxurious a coutoment from an indoor put football pitch and swimming pools and all the things you'd expect, hanging gardens, roof terraces, and people call it the billion dollar Home. Nobody really

knows how much it actually cost to build. But there's this sense that this is really the icon of what I have called India's New Gilded Age, because it's one of the most visible buildings in Mumbai, which is the financial capital and the richest city in India. But it's still a city where something about half the residents live in slums and in a country where GDP per capital is about sevent d dollars. Muka Schambanni who is he?

It's quite difficult to compare him to an American capitalist because he runs, as many Asian tycoons do, a very distributed conglomerate. So he inherited it from his father, and his father started out in plastics and moved into petro chemicals and oil refining. Muk Shambani has recently he spent an enormous amount of money thirty billion dollars launching a fourth generation mobile telephone business. But he has his fingers

in all sorts of pies. He has media, hotels, bits and bobs of financial services, all sorts of things, and it's a very distributed business. Oil and gas it's a big business. So they do energy exploration. And he's not just the richest man in India and his personal fortune is forty billion dollars, so he's the richest man in Asia according to the most recent Forbes list. The reason why he's so feared partly is the legacy of his father,

who was India's pre eminent tycoon before him. And had a reputation for you know, knowing how to work the system to to make money. Is a ferociously competitive and his son has inherited some of that as well. Chambani is known as a ferocious competitor who will spend whatever money and you know, indulge in whatever tactic is necessary to get what he wants. And his investment in what's

called reliance Geo. This new Greenfield mobile telephone network is an example of a quite tycoon like venture in the sense that no sensible board of a Western style company would have green lit spending thirty billion dollars to build a new fourth generation mobile outfit in India, which is an incredibly competitive mobile that mobile market in which almost none of the companies make any profits because it's so competitive, And yet he sank more money into one company than

all of the rest of the Indian telecom companies had spent collectively since liberalization. I mean, it was just a it's an insanely ambitious venture. And in the book, so I suppose I have to say I sort of admire that. I mean, what's the point of being a tycoon if you can't take these ridiculous big bets that's sort of the point of building a railway between New York and Los Angeles, or you know, these huge, bold, visionary things.

The problem in India traditionally has been that you can take a lot of risk as a tycoon, but you don't take any of the downside of that risk because as you have great control over the banks, you don't have to pay back your debts. It's it's almost unheard of for Indians to go bust. So the tycoons have a lot of power. So tell us a little bit about your background. You were the ft bureau chief in Mumbai. Did that mean you were the head of all FT

reporters in India. No, the South Asian Bureau chief sits in Delhi. So typically that's how it works. The Ft obviously is a much smaller operation than the giants of Broomberg. So we had a couple of people in Mumbai and a couple of people in Delhi, and so I was in charge of writing about banks and finance, heavy industry, tech, telecoms, cricket, Bollywood, whole range of fun stuff. But it was we'll get to cricket in a second. If it was, it was from the beginning of the right from the start that

I got there. I arrived in twenty eleven. That was the period of these corruption scandals, and so I sort of arrived on the on the turn, as it were, the moment when the real boom years were just beginning to peter out. And what then happened, which was, uh, you know, the tide went out and you began to see who was still less standing, as it were, and so a number of these conglomerates, it turned out to have taken on far too much risk and got themselves

into big trouble. And this has been a theme of the Indian economy ever since. Then. You have what's called the twin balance sheet problem, where there's far too much debt in the corporate center and much too much bad loans in the banking system. And so India has been struggling to come to terms with the sort of the after effects of the boom in the mid two thousands. And did you ask to go to India or were you assigned? Now I've desperately wanted to go. I've been

to India before. You know, India's a fascinating country. It's a wonderful place to be a journalist. It's very open. If you compare South Asia, which is chaotic, to East Asia, which is very well organized. But but South Asia is very open society. Indians love to talk. If you go in there, particularly if you work for a top tier media organization like Bloomberg or the Wall Street Journal or the Ft, get great access. People will talk to you.

The Indian elite it's quite Western in its orientation. They send their kids to American universities, their own houses in London, they care, they get their capital from Western capital markets. None of this is really true in China. That's not to say that the Chinese are for the kids going to university in the US. That's true. But and that's not to say that China's elite is insular. It isn't.

But the Indian elite is particularly concerned with what is said about it and is very well networked into the global financial sectors London and New York. And that means you get a peculiar insight into what's going on. And I also think that typically when outsiders like us right about India, we tend to do it from Delhi. The typical book written by a foreigner about about India tends

to look at Indian politics. And so although I've often joked that it's not as if the world was crying out for another book written about India by a white British journalist, I think mine is at least a little bit different because it was written from Mumbai, and it's written through the lens of business, and that's what I was interested in. I never was that interested as a

journalist in writing about MidCap companies in London. But what captured my imagination was the sheer risk taking that has to go on in India at this stage in its development. And I think if you were a journalist in America and eight and you're watching Cornelius Vanderbilt or Jay Gould or the true robber Barons, then these are exciting people. If you were either Tarbell, yeah, exactly, if you're a

muck breaker, these are exciting people. And they're exciting partly because of the boldness of their their capitalism, but also because of the way they're bending the rules. And so there's this this sort of very enchanting combination of risk taking of a sort that are more established Western PLC

simply is not allowed to do. Maybe if you cover somebody like Elon Musk you could say that you have buccaneering tycoons of of a sort of similar quality who are who are doing things that are simply the sort of thing you wouldn't normally get on on Wall Street, or it's not stretched across the entire our economy the way someone like Muskies. Right, Well, I suppose that's true, But anyway, that was that was what that was what

captured my imagination about India. This combination of risk taking and rule bending, I thought was just a fantastic story. Is the State of the Billionaire raj as we like to It's a great title for the book. By the way, Uh do you see that going on for a long time? And we talked a bit about at first we've alluded to the guilded age, you know, that era in the United States, and you just have this massive inequality in India. Obviously these you know, a billionaire like on body who's

building his own billion dollar home. You know, often the politics from from the outside, it seems to be kind of paralyzed and not really going anywhere. Is this state of affairs of India's economy? Inequality? Is that likely to persist for a long time? Or you know, do you see this kind of working its way through the system that you know there might be a way to equalize

that in the economy somehow. That's a great question. I mean, I think for India it has to be that this should be a passing phase and not a permanent condition, because if it's a permanent condition, that's problematic for a for a whole range of reasons. Countries that start off very very unequal tend to stay that way, like Brazil or South Africa, and that stores up problems for later. It's much more difficult to reverse these trends, and very

unequal countries come with particular challenges. However, there's nothing particularly unusual about what's going on in India at the moment. We've talked about the American guilded age, and I think if you were sitting where we are now in New York as a media organization in eight and you looked at the United States, you could very well say, you know, this is an absolutely hopeless country. It's politicians are completely venal,

it's tycoons are corrupt, its politics is disorganized. The no and that this is going to become a great superpower looks rather fanciful. And yet over the next twenty or thirty years you had a range of things that happened. The middle class began to assert more control over politics. You had the development of different types of institutions, You had anti corruption campaigns. There a whole range of things which meant that you know, twenty or thirty years later,

things look rather different. The thing that has to happen, however, I in the billionaire rage, I say, has these three characteristics the rise of the super rich and the inequality that came with it, endemic chrony capitalism, and then a boom and bust investment model. And I think it's difficult to see India moving quickly from its current position. It's

not really a poor country anymore. It's a sort of lower middle income country through the ranks of middle income status to become, you know, a rich country by some time in the second half of this century, unless it fixes these three problems. And we we've seen countries do this. I mean that the successful developing economies of East Asia have all managed to do this, but they did it in a particular way. They were more egalitarian than India

is now. Crucially, they also had a different economic model because they were better at export focused manufacturing and India is not very good at that. So that's another part of the puzzle. But I think if India is going to develop successfully, it needs to act pretty quickly to try and find a way of bringing this extreme inequality under control. Cricket, let's talk about that. How has the game developed in India and what role does it play

in trying to understand the modern Indian economy. I'll just back up a bit for some listeners. The game's ancestral home is England. In the late nineties seventies, thanks largely to changes initiated by an Australian businessman called Carrie Packer, Australia became the financial driver of the game. Has that now shifted to India? And what does that tell us? So cricket is a fascinating example and I think fits absolutely squarely within the book. So there's a chapter in

the book on cricket. I used to cover cricket not as a sport but as the business of sports, and cricket is very, very lucrative in India. And yeah, I mean not absolutely no question that the idea that anyone other than India controls the finances of world cricket is now fanciful and has been for probably ten or fifteen years, but the gap just gets bigger and bigger. But cricket is interesting for a different reason, which is there are very few examples of industries in which India is the

world leader. There will be over time, as with China, as India grows to become the It's already the third largest economy by by PPP. But you know, as it becomes bigger and bigger and bigger, there will be many areas that India comes to dominate, but at the moment there are very few, and cricket is definitely one. And you see, that's sort of the good and the bad of the Indian economy being reflected in the way that cricket is now run. So the good, all of that

money has actually improved cricket a great deal. Cricket used to be a rather, you know, sort of tired, uninteresting game. People like you and me might have liked it, but it was compared to football or basketball, it's certainly lacked a bit of razzle dazzle. And India basically by pushing a short term, more vibrant, more television friendly form of the game. Pumping it up with money has turned cricket on its head, but actually made it much more palatable.

That's certainly true domestically in India, where you know, you have built lots of great stadiums and that sort of thing. But the dark side has come that actually the same story that you had in mining or telecoms was true in cricket as well. You have questionable government standards, corruption scandals, chrony capitalism in which you had effectively the same kind of collusion between the politicians who ran the game and

the business people who sponsored the game. And so cricket has become an example of the new India writ large, it's more vibrant, but it's also more corrupt. Let's talk about those politics for a moment. Prime Minister Moody was elected in He was widely viewed as a business can to person who is going to bring a very different kind of administration to India, and yet governing is always

tougher than it looks. How is his government doing and how has the relationship with the billionaire class in India evolved under Moody. On the surface, I think Moody has done reasonably well India's headline growth rate is strong. It's the world's fastest growing major economy and has been for many of the last four years. It sort of goes back and forth with China depending on how much juice

the Chinese are putting into their economy. The mega corruption scandals have stopped, and they've introduced some broadly sensible reforms, particularly goods and services tax of value added tax. The fiscal situation is broadly under control. So that's all pretty positive. But I think that the criticism of Modi would be that while he's been a good administrator of the Indian economy, he hasn't been a very radical reformer of the Indian economy. And you can look at that across a whole range

of areas. So we've mentioned already the twin balance sheet problem, one of the huge the fact that India has had almost a lost decade of industrial investment because it's companies have too much debt and its banks have lots of bad loans. He hasn't fixed that big underlying structural problems, changes to how you get a hold of land, how the tax system works, a bunch of these structural economic reforms.

He hasn't really managed to push through, and so I think in a sense there were people who had much higher hopes for what he would be able to achieve. What has struck you about Americans views towards Asia generally and India in particular. Well, I have a self interest in saying this, but I think everybody needs to spend a lot more time thinking about India than they do.

Now I have a book to promote. So you might say, well, he would say that anyway, But I think it's clear that in the U S and to some degree ever else, we we view Asia through the prism of China, and I think actually there is a case to say that India is more important China. China is clearly the path is almost set now it is degenerating into a kind of neo Leninist autocracy. India is much more in play

for the kind of country that it will become. And we we in the West, we who believe in free markets and the power of business, have a great self interest in India becoming a middle income parliamentary democracy with a broadly secular culture and liberal rights. That is probably the path that India will take. But you know who can tell it's It's the great swing state of the twenty one century at a time in which the die

looks increasingly cast between the West and China. And therefore I think I think people probably pay a little bit too little attention to India and could probably pay pay a little more. The term Indo Pacific has proliferated here in the US the past couple of years. What does that mean to you? Well, the Indo Pacific, which is often called the free and open Indoor Pacific, is a is a new attempt to justify the current status quo, the American led global order. This is sometimes called the

rules based global order. The Indo Pacific as a particular term became more prominent when President Trump went to Asia at the end of last year. And it's instead of talking about the Asia Pacific, which is the way that the people normally talk about that region, it's been enlarged to call it the Indo Pacific, with the specific aim of basically bringing India together with the US, Japan, and Australia to some degree as the sort of friends. Broadly

speaking of the US, is this thing called the Quad. Yeah, that's the Quad, which is part of the notion of the free and open Indo Pacific. But it's basically an attempt to try and balance Asia against the rise of China and to try and draw India more firmly into this. They don't want to say anti Chinese, but I mean,

you could call it what it is. I mean, it's certainly the reason why people are coming up with this is that all of these countries are worried about the rise of China and what that will then mean to the system of rules in Asia. However, this is happening at a time in which America, in theory, is the architect of the free and open indoor Pacific. But then of course President Trump is going around destroying large arts of that order that in a sense of America is

claiming to protect. And so it's very complicated situations for countries like India to some degree in Japan, South Korea that they all quite like the status quo, but the country that is meant to be leading the status quo is also undermining it. And so it's a very complicated situation in Asia at the moment in which people are pretty confused about American leadership. Well, we almost got through

an entire episode without mentioning President Donald Trump. So I think we're just going to have to end it right there. My apologies, all right, James Crabtree, Arthur of the Billionaire RAJ, thank you very much for joining us on Benchmark. Thank you. Benchmark will be back next week. Until then, you can find us on the Bloomberg terminal, Bloomberg dot com or Bloomberg App, and podcast destinations such as Apple Podcasts, Spotify,

or wherever you listen. We love it if you took the time to rate and review the show so more listeners can find us. You can follow O me at Moss Underscore Echo, I'm at scott Landman, and our guest is at at James Crabtree. Benchmark is produced by Tofa Foreheads. The head of Bloomberg Podcasts is Francesca Lead. Thanks for listening. To see you next time.