Comparing the Indian and Chinese governments

This article appeared in Business Standard on July 18, 2007. The complete article is an interesting read. It compares the perception about Indian & Chinese governments (governance indicators) as viewed by outsiders. On almost all the measures India's performance has increased between 1996 to 2005. This increase reflects the perception that India has become better governed over the last 10 years and is borne by the fact that FDI is increasing.

There is considerable interest in India on the subject of how to increase government effectiveness, and how to improve governance. The World Bank has released an update on their cross-country governance measurement effort led by Kaufmann, Kraay and Mastruzzi. To a significant extent, these numbers are drawn from surveys. They reflect some mixture of both perception and reality. A comparison of India and China in this data is revealing.

Measure	India-1996	India-2005	China-1996	China-2005
Voice and accountability	52.2	58.2	4.6	4.8
Political stability	14.9	22.1	34.6	33.2
Government effectiveness	50.7	54.0	66.8	55.5
Regulatory quality	44.4	48.3	54.1	46.3
Rule of law	61.0	57.1	48.1	45.2
Control of corruption	40.3	52.9	56.3	37.9
Simple average	43.9	48.8	44.1	37.2

The table shows percentiles for each of the six measures, for both India and China for 1996 and 2005. For example, a value of "61" means that the country was ahead of 61% of the countries of the world.

India has improved significantly on all dimensions other than `Rule of law'. The Chinese score was flat or worsened on all the measures. The most important difference which leaps out of the table, of course, is the strength of India on `Voice and accountability', where the Chinese Communist Party tolerates none.

Traditionally, there has been a sense that Chinese government effectiveness was superior to that of India. That was certainly how surveys saw things in 1996: China was at 66.8 while India was at 50.7. By 2005, perceptions had shifted - India had moved slightly to 54 and China had dropped sharply to 55.5. A closer look at this time-series shows that India achieved a high of 57.8 in 2003, and has dropped after that.

Did governance in India improve significantly between 1996 and 2005? In many areas of economic governance, looking back at India of 1996 suggests that far-reaching changes have taken place. In 1996, telecom was dominated by the DOT. There was no NHDP. The growth of private ports or airports had not happened. NSE and BSE had begun electronic trading but there was `badla' and equity derivatives trading was banned, and there was no NSDL. The capital controls were much worse. The fiscal problem was alive and well: there was no FRBM and the 12th finance commission had not yet blocked the growth of deficits at the state level. The reforms of tax policy and tax administration, which have finally got India into a phase of high growth of tax revenues, had not yet begun. Tariffs were high, and the surge of manufacturing competitiveness had yet to come about. There was no New Pension System.

Economic governance in India in 2005 is, of course, deeply flawed; but there is an unmistakable sense of progress when compared with 1996. However, the most important foundation of governance is law and order and the judiciary. In that area, it looks like India has made little progress between 1996 and 2005.