Why India will overtake China

China has higher literacy and better infrastructure. It takes a month to start a business in China, and three in India. China has more savings, less debt and less poverty.

But

At least India's democracy never did anything quite so mad as launch a Great Leap Forward (30 million dead) or the Great Proletarian Cultural Revolution (millions more).

And

...[India's] recent budget managed to continue privatization, open pensions and mining to foreign investment, and cut corporate taxes and tariffs...

These early successes have created momentum for more change, and a virtuous circle is beginning to close. Now it is obvious, even to the communists, that the parts of the Indian economy that are humming, such as drugs, auto parts and IT, are the ones that are most open and that this is no coincidence. Outsiders are beginning to notice...

China's hardware - in the form of bridges, roads, ports and the like - is incomparably better than India's. Anyone who has ever been to both Shanghai and Bombay, the countries' respective commercial capitals, does not need any convincing that Shanghai is the more modern and efficient city.

But in important ways, India's economic software is superior. India's banks report about 10 percent non-performing loans; China admits to 20 percent and the true figure could be double that.

India's capital markets work the way they should; China's are a rigged casino. India has more engineers and scientists; its domestic entrepreneurs have made a bigger mark.

And while no one in his right mind wants to go near the creaky, backlogged Indian civil courts, India is a country that does try to govern by the rule of law. China, ultimately, is a country that will break the rule of law whenever the party feels like it or deems its power to be threatened even if that "threat" is a few thousand poor peasants and their lawyer.

It is also worth noting that China's one-child policy means that it will face the costs of a rapidly aging population much sooner than India.