Deloitte and Touche’s new report on China and India is interesting. I will need to read it in detail later this week. Get it here. Personally, I am more bullish on India over the long term. (and I am not biased just because I am an Indian.) Much of China’s growth is driven by government stimulus. On the extreme, I would say it is 21st century version of Stalinistic planned communism on steroids. There is an inherent undercurrent of societal discomfort. The recent PBS documentary Tankman explains this more. You can watch it online in the PBS website.

Sooner or later, China’s economic growth will ‘regress to the mean’. Indian growth is happening from the bottom, through the entrepreneurship of people with much less government intervention. I believe this is more sustainable over the long term. I read Economist’s survey of China in their March issue. And I have firsthand experience of the Indian growth.

India has its own set of problems, not least of which is religious and class tensions. Infrastructure is a big bottleneck, and trade unions and fringe political parties scuttle development. It will take a generation of time and effort for true visible transformation in people’s quality of life.

As an investor, one should of course invest in both the growth economies, however, as they always say, ‘On the keyboard of life, keep one finger on the escape key’. Be ready to liquidate your positions in a short notice. I would invest primarily on those companies who have a huge internal market. For example, the retail outlet Pantaloons in India is a big bet. They have a captive internal market, local knowledge and can leverage issues that traditional MNCs cannot. Case in point is the recent withdrawal of Walmart from South Korea after losing ground to local competitors.