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Wednesday, February 28, 2007

China's radio-controlled pigeons

Chinese scientists have successfully implanted electrodes in the brain of a pigeon to guide the bird's flight by remote control, state media said.

Xinhua News Agency said scientists at the Robot Engineering Technology Research Center at Shandong University of Science and Technology in eastern China used micro electrodes to command the bird to fly right or left, and up or down.

The implants stimulated different areas of the pigeon's brain according to electronic signals sent by the scientists via computer, mirroring natural signals generated by the brain, Xinhua quoted chief scientist Su Xuecheng as saying.

It was the first such successful experiment on a pigeon in the world, said Su, who conducted a similar successful experiment on mice in 2005.

China's CCTV also covered this story in its news program. The following is the video clip. Please click to start.

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Tuesday, February 27, 2007

Oscar Winner "The Departed" is Just a Remaking of Hong Kong Movies "Infernal Affairs"

The mob saga "The Departed" won Best Picture at the Academy Awards this year. But Hong Kong movie maker has different words. (Source)

Alan Mak, co-writer and co-director of the 2002 Hong Kong movie Infernal Affairs, said he was "disappointed" when he saw The Departed after Warner Brothers bought the remake rights to the film for 1.75 million US dollars in 2003, the Post reported.

The Hollywood version had "not gone far enough" in offering a different version from the original, Mak said. "It stuck so close to the original it looked like they are just making Infernal Affairs again," he told the newspaper.

"Somewhere along the way I heard they wanted to position The Departed as a film that was only inspired by our story, rather than an adaptation ... I would have hoped some new elements were being introduced to it."

However, he added: "I'm happy of course because it is like Infernal Affairs winning an Oscar."


Indian Tajik Airbase is Ready?

The "India Tajik air base" was reported again by Indian's indianexpress. The title is Tajik air base is ready, gives India its first footprint in strategic Central Asia.

The report says that:
Conceived in 2002 under the NDA regime, the Ayni air base allows India rapid response to any emerging threat from the volatile Afghanistan-Pakistan arc including a terrorist hijacking like the IC-814. It also gives New Delhi a limited yet significant capability to inject special forces into a hostile theatre as and when the situation demands.

The other aspect is India’s role in the energy security calculus in the region with prospects of Central Asian natural gas reaching the subcontinent and negotiations with energy-rich countries like Kazakhstan and Turkmenistan. Energy security is now a major concern with the Strategic Policy Group under Cabinet Secretary discussing the issue with the service chiefs, Home, Defence and Foreign Secretaries on February 7.

Lets talk about the geopilitics of Tajikistan first.

In geography, Tajikistan is a mountainous landlocked country in Central Asia. It borders Afghanistan to the south, Uzbekistan to the west, Kyrgyzstan to the north, and China to the east. India does not share any border with Tajikistan at all.

Politically, Tajikistan is a member of Shanghai Cooperation Organization (SCO), an intergovernmental organization which was founded on June 14, 2001 by leaders of the China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. The aim of the organization is the copperation on security, economy and culture.

Indian media have been bragging this air base for a long time, The base had been "ready" once in 2004 in Indian media . Ridiculously, As Indian newspapers continue to speculate that the country will secure a military base in Tajikistan, Officials in Tajikistan immediately denied the reports. A defence ministry source told NBCentralAsia that the Indian military has been providing training and technical assistance to the Tajik army for some years, but there is no agreement to set up an airbase. (Source)

No matter the "Indian airbase in Tajikistan" is real or not. But the Indian's bragging shows that India has no sense of diplomacy.

First of all, Tajikistan belongs to several regional security groupings including the Collective Security Treaty Organisation and the Shanghai Cooperation Organisation, and it would need the approval of other member states - Russia, other former Soviet states, and China – which would be unlikely to give their assent to an Indian military presence in the region. Nor would the idea be favoured by the United States, which is currently promising to invest substantial funds in Tajikistan. (See the above link)

The second, If the airbase is true, it would be viewed as a very unfriendly act by Pakistan, an India's rival. Tajikistan also would run into the risk of becoming embroiled in the confrontation between these two countries.

The third, India does not border with Tajikistan. Does Pakistan or China allow India's fighters to fly over to Tajikistan? furthermore, It could be difficult for India to provide logistic support to the Indian airbase if it is true. This will limit the airbase's scale and capability. In other words, the airbase serves India nothing.

The fourth, the airbase is not Tajikistan's interest either. India is hostile to both Pakistan and China. Tajikistan has much closer relationships with China than with India geographically, politically and economically. Today, India's political influence is largely limited south Asia. Even in the south Asia, India has bad relationships with almost all of its neighbours. India's experience in the 13th South Asian Association for Regional Cooperation (SAARC) summit proved that India's influence in south Asia is limited.

The Indian airbase in Tajikistan could be Indian's bragging and hype of a big power again.

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Friday, February 23, 2007

China's Shipbuilding Industry is on the Fast Path

Accoring to the report from Xinhua China's ship export volume surged 74 percent to 8.11 billion U.S. dollars in 2006. Two leading Chinese shipbuilders, Dalian Shipbuilding Industry Co Ltd and Shanghai Waigaoqiao Shipbuilding Co Ltd, became world top-10 shipbuilders.

Chinese shipbuilders produced 14.52 million deadweight tons last year, nearly 20 percent of the world's total, compared to only 6 percent of the global market in 2000. More important, Their profitability has also improved. The industry's total profits doubled last year to reach a record high of 9.6 billion yuan, more than the combined profits of the previous five years.

Types of made-in-China ships have developed from conventional bulk carriers and crude oil tankers into high value and sophisticated vessels, such as very large crude carriers (VLCCs), liquefied natural gas carriers and high-speed containerships.

My another blog has some details about the orders Chinese companies received last year.

Chosun, a S Korean media, said that Chinese shipbuilders received orders of 1.4 million CGT in January, 2007, almost half of the world total order volume of 2.8 million CGT.

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Wednesday, February 21, 2007

China Runs Fast in the Innovation. Applications to PCT Increased 56.8% in 2006

This is the lasted report from The World Intellectual Property Organization (WIPO) Patent Cooperation Treaty (PCT).

The patent application fillings from China jumped 56.8% to 3910 in 2006. China had the highest growth rate among the top 20 countries in the list. The increase made China No. 8 source of patent applcations in 2006, dislodging Switzerland and Sweden.

The numbers of application from 2002 to 2006 from China were 1,018, 1,295, 1,706, 2,493, 3,910. The fast growth trend is obvious. With increasing investment on R&D since late 1990s, China can keep the trend without doubt.

China's Huawei was 13th on the top 20 list worldwide in 2006, up 24 places from 2005.

According to the same report, another Asian giant country India made 627 applcations in 2006, decreased 7.66% from 2005. The numbers of application from 2003 to 2006 from India were 764, 724, 679, 627.

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Monday, February 19, 2007

India surpasses China as key bio-technology leader in Asia?

This report said that India surpassed China for the first time in the number of hectares planted with genetically-modified crops, mainly cottons.

Can we say that India is a bio-tech leader in Gene-modification research as cliamed by Indian and some western medias ? No way! Those medias apparantly missed up a technology user and a technology researcher.

India may be a bigger user of the bt cotton than China. But almost all of the bt-cotton seeds came from Monsanto, a US comoany.

But fot China, it is a different story. Biocentury Transgene Technology Co Ltd (BTC) and Monsanto, through a joint venture offered Bt technology. BTC, which got the technology from the Chinese Academy of Agricultural Sciences (CAAS) that developed the indigenous technology, sold it to more than 30 private and provincial seed companies (Source). BTC here is a Chinese tech company.

China's mastering of the bt-cotton technology determined that Monsanto can only sell seeds in China at much lower price than in India. Monsato charges Rs 900 per 450 gms of Bt cotton seed in India, but as little as Rs 40 for the same quantity in China. Why? China can make it, but India cannot. (Source)

Is India still a key bio-technology leader in Asia? You can get the answer now.

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Chinese respect both Chairman Mao and Deng Xiaoping as great leaders

Today's China is different than what China was in Chairman Mao's era. But Chinese remember him as one of the great leaders who laied down the solid foundation for China's development, and achived national security Chinese had been struggling for more than 100 years after the Opium war.

Before the reform, China had a complete industrial system. In 1978, China made almost 40 million tons of iron & steel (Almost what India produced last year), China could make tanks, fighters, SSNs (India has it on papers), n-bombs, H-bombs, recoverable satellite (India made it recently).... All of these were and are the guarantees of today's national security.

In 1978, China produced similar amount of grains as what India can do today. But China has less arable and and had much less population back then. China's research success on the hybrid-rice in 1974 pushes China's rice production to higher point now. China constructed majority part of the agricultural irrigation system that serves China very well currently. China built similar length of railways in the two 30 years before and after the reform. China's literate rated was more than 80% before the reform, better than India is. Chinese lifespan expectancy was increased from 35 to 68.

It was Chairman Mao and his colleagues who worked hard to improve the relationships with outside. US President Nixon's vist to China is a milestone in Sino-US diplomatic history.

Chaiman Mao was a great leader who could correct his own mistakes. That's why China stopped the Great Leap in 3 years and stopped chaoes of cultural revolution in 3 years. China actually shifted emphasis to economical development after 1970.
China's average economical growth rate was more than 7% during 1949-1978. China achived such a feat even China had to put a lot of resources into the building of the national security.

When Chairman Mao died, China had the national security. That's why Deng Xiaoping could do more in improving people's living standard. China's success in the 30 years after the reform is well known by all the people.

Chairman Mao died 30 years ago. But he is still remembered by Chinese as the founder and a great leader of the new China even his enemies use all the possible propaganda machinese to denounce him. millions of Chinese go to Shaoshan, a small village, nestled in the pine-dotted hills of Hunan Province, and memorial halls or museums all around the country to show their respect to the great man. This was what happened last year for 30th Anniversary of Chairman Mao's Death.

This year, it is the 10th Anniversary of Chairman Mao's Death. More than 33,000 Internet users in China have sent virtual flowers to an online memorial for leader Deng Xiaoping, who died 10 years ago Monday. (source)

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Sunday, February 18, 2007

When Airlines add routes to China, they cancel flights to India

Air Canada's confirmed on Friday it would discontinue direct flight between Toronto and New Delhi from early May. This is the only direct air link between India and Canada.

On the contrary to the cancallation, Air Canada announced it would add a second daily flight to Beijing from Vancouver and increase the regularity of its Toronto-Shanghai route for a total of five daily flights between the two countries. (Source)

In US, United Airlines won its bid to begin non-stop service from Washington, DC to Beijing, China. The anual value of the route is estimated of US$200 million. (Source).

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Friday, February 09, 2007

India the Superpower? Think again

This article was copied from CNN money.

By Cait Murphy, Fortune assistant managing editor
February 9 2007: 6:29 AM EST

NEW YORK (Fortune) -- Plug in the words "India" and "superpower" into an Internet search engine and it's happy to oblige - with 1.3 million hits. I confess that I did not check each one, but I suspect that almost all of these entries date from the last couple of years.

This is understandable. For the first time ever, India has posted four straight years of 8 percent growth; since it cracked open its economy in 1991, it has averaged growth of 6 percent a year - not in the same league as China, but twice the derisory "Hindu rate of growth" that had marked the first 45 years of independence.

India has gone nuclear, and even gotten the United States to accept that status. Its movies are crossing over to become international hits. The recent $11.3 billion takeover of Corus by Mumbai-based Tata Steel, was the biggest acquisition ever by an Indian firm.

No wonder the idea of India as the next superpower is fast becoming conventional wisdom. "Our Time is Now," asserts The Times of India. And in an October survey by the Chicago Council on World Affairs, Indians said they saw their country as the second most influential in the world.

Sorry: India is not a superpower, and in fact, that is probably the wrong ambition for it, anyway. Why? Let me answer in the form of some statistics.

-47 percent of Indian children under the age of five are either malnourished or stunted.

-The adult literacy rate is 61 percent (behind Rwanda and barely ahead of Sudan). Even this is probably overstated, as people are deemed literate who can do little more than sign their name.

-Only 10 percent of the entire Indian labor force works in the formal economy; of these fewer than half are in the private sector.

-The enrollment of six-to-15-year-olds in school has actually declined in the last year. About 40 million children who are supposed to be in school are not.

-About a fifth of the population is chronically hungry; about half of the world's hungry live in India.

-More than a quarter of the India population lives on less than a dollar a day.

-India has more people with HIV than any other country.

(Sources: UNDP, Unicef, World Food Program; Edward Luce). You get the idea.

The 2006 UN Human Development Report, which ranks countries according to a variety of measures of human health and welfare, placed India 126th out of 177 countries. India was only a few places ahead of rival Pakistan (134th) and hapless Cambodia (129) and behind such not-about-to-be-superpowers as Equatorial Guinea (120), and Tajikistan (122).

As these and other numbers suggest, Indian triumphalism (a notable 126,000 hits on Google) is not only premature, it is misguided. Yes, growth has been brisk, and of course growth is necessary to make a dent in poverty. But as Edward Luce, author of the excellent, "In Spite of the Gods: The Strange Rise of Modern India," noted in a recent talk, poverty in India is not falling nearly as fast as its brisk rate of growth might anticipate.

The reason for this is that Indian growth has been capital-intensive, driven by the growth in high-value services such as IT. This is a good thing, but what it does not do is create stable and reasonably paid employment for not particularly skilled people -and this matters a lot, considering eight to 10 million Indians enter the labor force every year. Luce estimates that there are 7 million Indians working in the formal manufacturing sector in India -and 100 million in China.

To look at it another way, the 1 million Indians working in IT account for less than one-half of one percent of the entire working population. This helps build reserves (and national confidence, and tax revenues) but is not the poverty buster that labor-intensive development is. As Prime Minister Singh told Luce, "Our biggest single problem is the lack of jobs for ordinary people."

The problem with India's self-proclaimed (and wildly premature) declaration of superpower status is that it reflects a complacency about both its present - which for many people is dire, as above - and its future. Eight percent growth for four years is wonderful, but as the saying goes, past performance is no guarantee of future results. And India is not doing what it needs to in order to sustain this momentum.

Consider the postwar history of East and Southeast Asia. The comparison is appropriate because India started at about the same point, and has watched just about every country in the region get ahead of it on the economic curve. All these places developed by being relatively open to trade; by investing in primary and secondary education; and by building pretty decent infrastructure (not only roads and ports, but health clinics and water supplies). India has begun to embrace one leg of this triangle - freer trade.

Even here, though, many of the worst features of the swadeshi ("self-reliance") era remain intact, including an unreformed state banking sector; labor regulations that actively discourage hiring; abstruse land laws (and consequent lack of land titles); misshapen subsidies that hurt the poor; and corruption that is broad, deep, and ubiquitous. Nothing useful is being done about any of this.

As for the other two legs of this development triangle - education and infrastructure - these are still badly broken. About a third of teachers fail to show up on any given day (and, of course, are unsackable); the supply of both water and power is expensive and unreliable.

These facts of life too often go unremarked in the current euphoria about the state of the nation. "We no longer discuss the future of India," Commerce Minister Kamal Nath told the Financial Times in a typical comment. "The future is India." Hubris, of course, is the stuff of politics everywhere. But the future will not belong to India unless it takes action to embrace it, and that means more than high-profile vanity projects like putting a man on the moon or building the world箂 tallest tower. It means showing that the world's largest democracy can deliver real progress to the hundreds of millions who have never used the phone, much less the Internet. And in important ways, that just isn't happening.

India has many reasons to be proud, but considering it remains a world leader in hunger, stunting and HIV, its waxing self-satisfaction seems sadly beside the point.

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Wednesday, February 07, 2007

Chery comes second in China's January car sales list

Chinese domestic automaker Chery became the second largest in China's market in January, overtaking two Sino-German joint ventures as reported by Xinhua News.

Chery sold 37,207 vehicles in the month, second only to Shanghai General Motors who sold 40,570 units in the same period.

This is the first time the Anhui-based company, which develops and produces cars with homegrown brands, has achieved the second highest monthly car sales in China.

Chery was China's seventh largest automaker and fourth largest producer of sedans last year, with sales of 302,500 vehicles, including 272,400 sedan cars.

The company plans to double its exports this year, encouraged by last year's exports of 50,000 vehicles.

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Monday, February 05, 2007

China produces the strongest gas transmission pipeline steel

According to this news, Shanghai Baosteel has produced X120, the world's strongest gas transmission pipeline steel.

Only three other companies in the world -- Nippon Steel, Sumitomo Metals and Germany's Europipe -- have the technology to produce this kind of steel.

The first batch of steel has been sent to pipeline makers for trial production, officials with the company said.

X120 (X is a pipe strength symbol) is the world's strongest gas transmission pipeline steel, and is 50 percent stronger than X80, the steel is mainly used in today's gas transmission pipelines.

X120's resistance to low temperatures and to collapse means that it performs well in cold regions and in deep-water offshore areas, where gas fields are usually found, sources said.

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China shipbuilding industry increasingly competitive

China's shipbuilding industry continued to grow rapidly in 2006, with the number of orders growing significantly and international competitiveness improving. China remains the third largest shipbuilder in the world behind the Republic of Korea and Japan, and the gap is narrowing. China's two largest shipbuilding companies - China State Shipbuilding Corporation (CSSC) and China Shipbuilding Industry Corporation (CSIC) - both made rapid development. CSSC completed 103 ships with a total carrying capacity of 6.02 million tons, 50 percent of the national total and the third largest of any single company in the world. It quadrupled its total profit from 2005. One of its subsidiaries - Shanghai Waigaoqiao Shipbuilding Corporation, has built ships with a tonnage capacity surpassing three million, holding its place as China's largest single dockyard.

CSSC received orders for ships with a combined carrying capacity of 22.18 million tons last year, exceeding the national total of 17.21 million tons in 2005, with the contract value exceeding 100 billion yuan. Currently, the CSSC have new orders for ships with a combined carrying capacity of over 30 million tons at a contract amount of over 150 billion yuan. It took the second largest number of orders of any single company in the world last year.

The large, modern shipbuilding bases at Changjiang and Zhujiang Ports, both key projects of the State, are undergoing rapid construction. The Shanghai Changxing Shipbuilding Base, still under construction, has already received orders for ships capable of carrying over 7 million tons. Guangzhou Longxue base has already accepted an order for four 300,000-ton-class Very Large Crude Carrier (VLCC) ships. After construction of the two bases is completed in 2008, CSSC's shipbuilding capacity will double, and it will then become a contender for the world's largest shipbuilding group.

CSIC's main business income reached 62.2 billion yuan and it received orders for ships with a combined carrying capacity of 6.2 million tons, surpassing the targets set at the beginning of last year. Now they have orders for ships with a combined carrying capacity of 14.25 million tons, with a contract value of 120.5 billion yuan.

Source of the news

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The Economist: India on fire

Feb 1st 2007 | DELHI
From The Economist print edition

India's growth rate is close to China's; but signs of overheating suggest that this pace cannot be sustained.

THE economy is sizzling and foreign businessmen and investors are swarming to Bangalore and Mumbai to grab a piece of the action. India's year-on-year growth rate could well hit double figures at some point in 2007, and the country may even grow faster than China for at least one quarter. But things are so hot there is a big problem: India's current pace of expansion may not be sustainable.

On the face of it, the figures are compelling. India's real GDP grew by 9.2% in the year to last September (the latest numbers available). Over the past four years it has clocked up an average annual pace of more than 8%, compared with around 6% in the 1980s and 1990s—and a measly 3.5% during the three decades before 1980, when highly interventionist policies shackled the economy (see chart 1). India seems to be reaping the rewards of reforms that were made in the early 1990s. These massively lowered barriers to trade and liberalised capital markets. As a result, total trade in goods and services has leapt to 45% of GDP, from 17% in 1990.

Economic growth is likely to remain strong this year, driven by booming investment and consumption. The government's five-year plan to 2011-12 has an ambitious target of 9% average annual growth. Most Indian economists expect at least 8% over the next five years. Some, such as Surjit Bhalla, of Oxus Investments, think even 10% is feasible, thanks to a surge in investment.

Optimism is abundant. Indian businessmen were the most upbeat among 32 countries surveyed recently by Grant Thornton, a London-based accounting firm: 97% of the respondents were bullish about the future. Indians are rightly proud of the huge global success of firms such as Infosys, or of Tata Steel's £5.8 billion ($11.3 billion) acquisition of Britain's Corus this week. They point to new mobile-phone subscriptions, which are running at a higher monthly rate than in China, as evidence of their economy's vigour and modernity. But look again. Perhaps the only thing really growing faster in India than China is hype.

Recent visitors to Delhi were greeted by a poster campaign by the Times of India announcing “India poised”. But poised for what? The economy is displaying alarming symptoms of overheating. This implies that demand is outpacing supply and hence the pace of growth is unsustainable. Despite lower oil prices, wholesale-price inflation has risen to 6%, which is above the 5.5% upper limit set by the Reserve Bank of India (RBI). India does not have a single rate of consumer-price inflation, but the crude average of the rates for industrial, non-manual and agricultural workers is above 7%. Capacity utilisation is higher than at any time in the past decade and severe skill shortages have caused wages to rocket.

The RBI is also concerned about a credit boom. Bank lending to firms and households has expanded by 30% over the past year. Lending on commercial property is up by 84% and home mortgages by 32%. Asset prices look bubbly. After rising more than fourfold over the past four years, India's stockmarket is one of the emerging world's most expensive, with a price-earnings ratio of more than 20. House prices in many big cities have more than doubled over the past two years.

Against this sweltering background, the RBI's interest-rate decision on January 31st looked timid. It raised its overnight lending rate by a quarter-point to 7.5%, but left the reverse repo rate (which it uses to drain excess liquidity from the banking system) unchanged at 6%. Over the past couple of years interest rates have risen by less than the rate of inflation, so they have fallen in real terms.

The inflation numbers probably understate the degree of overheating. When demand outpaces supply in an open economy it is more likely to show up in a current-account deficit than in inflation. India's deficit widened to more than 3% of GDP in the three months to September—a huge swing from a surplus of almost 4% in the first half of 2004. And the true gap between domestic demand and supply is even bigger. Yaga Venugopal Reddy, the RBI'S governor, recently drew attention to how India's current-account deficit is larger once you exclude the money sent home by Indians abroad. These remittances do not reflect domestic demand or supply, but are more like a capital inflow. Excluding workers' remittances, India's deficit is running close to 5% of GDP (see chart 2)—larger than the equivalent deficit during India's balance-of-payments crisis in the early 1990s.

Keeping up with demand

The risk of a financial crisis is slight, because India has the cushion of $180 billion of foreign-exchange reserves, which is equivalent to 11 months' imports, and its external debt is small. But this misses the point. The reason for concern about India's widening current-account deficit is not that it heralds a financial crisis, but that it is a signal of how supply cannot keep pace with red-hot demand.

Furthermore, unlike China and most other Asian emerging economies, India is heavily dependent on short-term portfolio capital inflows, rather than foreign direct investment, which is longer-term. Short-term capital has accounted for four-fifths of capital inflows into India over the past three-and-a-half years—although, encouragingly, foreign direct investment did pick up strongly last year. This means India is vulnerable to rising interest rates if there is a sharp reversal in the appetite for risk in global financial markets.

How fast can India grow? Most standard methods of estimating the trend—or potential—rate of growth (the maximum at which an economy can expand without triggering a rise in inflation) arrive at figures of around 7%. But business people, investors and an unusually large number of economists, are convinced that India is undergoing a “paradigm shift” and so backward-looking historical data are now irrelevant for assessing future growth.

India's capacity for growth has certainly increased over the past decade, thanks to earlier reforms. Yet given widespread signs that India is already exceeding its speed limit, there is a high risk that if the economy continues to grow at 9% or more, it will get ever hotter. Inflation will climb higher and financial imbalances will widen, running the risk of a hard landing. India has no genuinely independent central bank to put on the brakes. And policymakers are understandably reluctant to cool demand when India needs rapid growth to create jobs and reduce poverty.

An alternative to slowing demand is to boost supply by speeding up reforms and attacking the many bottlenecks caused by inadequate infrastructure, dreadful public services, skill shortages and rigid labour laws. But improving infrastructure and education not only takes time, it also requires money, and India's fiscal finances are far from healthy.

On the surface, the government has made great strides to cut its budget deficit. The IMF forecasts the deficit for central and state governments will fall to 6.2% of GDP in the fiscal year ending in March, slightly below budget and down from a peak of 10% in 2001-02. Some of the reduction is due to greater fiscal prudence and reduced tax evasion, but it also reflects a cyclical upswing in tax revenue on the back of the economic boom and low interest rates, thanks to the global liquidity glut. If interest rates rose because foreign investors lost their appetite for risk, or if the economy slowed, the budget deficit would widen.

It already looms dangerously large. Chetan Ahya, Morgan Stanley's economist in Mumbai, calculates that off-budget items, such as oil and power subsidies, amount to another 1.8% of GDP. This puts the total deficit closer to 8% of GDP, the biggest among the main emerging economies. India also has the highest ratio of public debt to GDP, at 80% (see chart 3).

The budget deficit could swell further over the next few years. Generous tax exemptions for exporters in special economic zones may erode future revenues. And the government's Sixth Pay Commission, due to report by April 2008, is likely to lead to a big rise in public-sector pay. Its predecessor's report marked the start of a sharp downturn in public finances; and the new recommendations will be implemented in 2009, an election year.

Again, the concern is not that India's public borrowing causes a financial crisis. Most of it is funded through domestic, not foreign, debt and controls on capital outflows ensure that domestic savers buy government bonds. The real problem is that India's weak fiscal position constrains its future growth by leaving no room for more public spending on infrastructure, education and health.

Leaving the farm

The growth optimists point to India's favourable demography. The population of working age will continue to rise for several decades, whereas in China it is expected to fall. This, it is argued, will boost India's workforce and both saving and investment. Furthermore, 60% of India's labour force is engaged in low productivity farming. As workers shift from agriculture to more productive jobs in industry and services, this will automatically boost GDP growth. Yet this assumes the newcomers will all find jobs. If those jobs do not appear, the so-called demographic dividend will more likely turn into a demographic disaster. Some 60% of the demographic bulge will come in five poor and badly governed states.

This is just one example of how economic commentators tend to confuse India's long-term potential (what is feasible provided the best policies are put in place) with its current potential (ie, non inflationary) growth rate. That India has huge long-term potential is undeniable, but without reforms the country cannot fully exploit it.

All agree that the biggest obstacle to growth of 9% or more is India's infrastructure—especially its lousy roads, ports and power. According to the World Bank, the average manufacturing firm loses 8% of sales each year from power cuts. India spends 4% of its GDP on infrastructure investment, compared with China's 9%. In absolute dollar terms, China spends seven times as much on its infrastructure.

India's government has ambitious plans to increase total infrastructure spending to 8% of GDP over the next five years. This will involve some increase in government spending, but the idea is for the bulk of it to be financed by public-private partnerships. That will be hard.

Private investors, especially foreign ones, still shy away from sectors like electricity and roads because they are uncertain of earning a reasonable return. Only about half of all electricity generated is paid for, because power is stolen and bills are left unpaid. Saumitra Chaudhuri, the economic adviser at ICRA, a credit-rating agency, argues that public-private partnerships first require regulatory reforms to protect the interests of both investors and consumers. As the World Bank put it in a report last year, “when systems are failing, it is not enough to fix the pipes, one needs to fix the institutions that fix the pipes.”

Another obstacle to growth in manufacturing is India's labour laws, which are among the most restrictive in the world. Firms employing more than 100 people cannot fire workers without government permission, which discourages expansion. Today's central government cannot scrap these laws because it relies on the support of the communist parties. In theory, the state governments can apply the laws more flexibly, especially in the special economic zones, but this is unlikely to lead to more flexible labour markets overnight.

A third big problem is the dreadful quality of public services, from education and health to the provision of water. Half of urban households lack drinking water within the home; one quarter have no access to a toilet, either public or private. Many public services in cities have worsened in recent years. In Bangalore water is now available for less than three hours a day, compared with 20 hours in the early 1980s. This may be another reason why workers are not moving in from rural areas as rapidly as in China.

Nor are young Indians equipped for more productive jobs in the towns. The quality of education and health care is dire. A survey in 2003 found that only half of paid teachers were actually teaching during school hours. Another survey found that government health centres in poor parts of Delhi had a more than 50% chance of prescribing a harmful therapy for common ailments.

Bizarrely, India has one of the most privatised health systems in the world. Government spending accounts for only 21% of total health spending. Likewise, in eight of 18 states studied more than half of all children in urban areas are in private schools. But this is not a model for free-market economics or the result of policy reform. People go private only because public services are so bad. Subir Gokarn, an economist at CRISIL, another credit-rating agency, worries that because the educated middle class do not use public services, there is less public outcry for reform than there should be.

Sadly, the prospects for dramatic change in the near future look slim. With a few exceptions, such as the partial opening of retailing to foreign investment and the privatisation of the two biggest airports, reforms have stalled since the government took office in 2004. Despite the reformist instincts of Manmohan Singh, the prime minister, the need to maintain the coalition overwhelms the appeal of reform.

Back to school

The supply-side constraints of infrastructure, labour laws and public services seem formidable, yet the vast majority of local economists in Delhi reckon that annual growth of at least 8% is sustainable even without further reform (with reform they look forward to 9% or more). A popular argument is that other Asian economies grew by 8-9% for long periods, so why not India? But East Asian economies invested much more in education and infrastructure than India does today.

A recent study from Goldman Sachs, which forecast that India could sustain 8% growth until 2020, was widely trumpeted in Indian newspapers. However, the bank's report clearly stated that this would require better education, labour market reforms and less red tape. Oddly, most newspapers failed to mention that.

Indeed, it is possible to detect a belief among some that it is now India's “right” to match China's growth rate of 10%. Even the finance minister, Palaniappan Chidambaram, has felt the need to remind people that present rates of growth are not “because some kind god smiled at us”. No country “deserves” rapid growth, unless it puts in place the right policies. The biggest danger of today's rampant economic optimism is that it could breed complacency about the need for reforms. That would be a sure recipe for a future slowdown.

India needs faster growth to create more jobs for its expanding population and to make it easier to relieve poverty. The awkward truth is that although the economy is sprinting ahead, most people are only crawling. Although the educated middle class has enjoyed big salary increases and a surge in the value of their homes and shares, the 60% of the population close to or below the poverty line have not yet seen a material gain.

Measured by the commonly used gini coefficient, India has less income inequality than China or America. But it has much more poverty. Some 260m people still live on the equivalent of less than $1 a day. Half of all children under five are malnourished. India needs rapid growth. But by itself that is not sufficient to end poverty, warns Rajiv Kumar, the director of ICRIER, an economic research institute. Better infrastructure and education are needed to make the rural poor more mobile so they have an escape route. In this way, better infrastructure and improved public services can not only increase growth, but also spread the rewards.

To boost sustainable growth, India needs to clear the path ahead rather than risk running an economy beyond its safe maximum speed. Indians are understandably eager for their economy to sprint like a tiger rather than amble along like an elephant. Yet few animals have an elephant's stamina or can travel as far in a day—provided its way is not blocked.

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