CHINA and India are in a struggle for a top rung on the ladder of world power, but their approaches to the state and to power could not be more different.

Two days after last month's terrorist attack on Mumbai, I met with a Chinese friend who was visiting India on business. He was shocked as much by the transparent and competitive minute-by-minute reporting of the attack by India's dozens of news channels as by the ineffectual response of the government. He had seen a middle class housewife on national television tell a reporter that the Indian commandos delayed in engaging the terrorists because they were too busy guarding political big shots. He asked how the woman could get away with such a statement.

I explained sarcasm resonates in a nation that is angry and disappointed with its politicians. My friend switched the subject to the poor condition of India's roads, its dilapidated cities and the constant blackouts. Suddenly, he stopped and asked: "With all this, how did you become the second-fastest growing economy in the world? China's leaders fear the day when India's government will get its act together".

The answer to his question may lie in a common saying among Indians that "our economy grows at night when the government is asleep". As if to illustrate this, the Mumbai stock market rose in the period after the terrorist attacks. Two weeks later, in several state elections, incumbents were ousted over economic issues, not security.

All this baffled my Chinese friend, and undoubtedly many of his countrymen, whose own success story has been scripted by an efficient state. They are uneasy because their chief ally, Pakistan, is consistently linked to terrorism while across the border India's economy keeps rising disdainfully. It puzzles them that the anger in India over the Mumbai attacks is directed against Indian politicians rather than Muslims or Pakistan.

The global financial crisis has definitely affected India's growth, and it will be down to perhaps 7 per cent this year from 8.7 per cent in 2007. According to my friend, China is hurting even more. What really perplexes the Chinese, he said, is that scores of nations have engaged in the same sorts of economic reforms as India, so why is it that it's the Indian economy that has become the developing world's second best? The speed with which India is creating world-class companies is also a shock to the Chinese, whose corporate structure is based on state-owned and foreign companies.

I have no satisfactory explanation for all this, but I think it may have something to do with India's much-reviled caste system. Vaishyas, members of the merchant caste, who have learned over generations how to accumulate capital, give the nation a competitive advantage. Classical liberals may be right in thinking that commerce is a natural trait, but it helps if there is a devoted group of risk-taking entrepreneurs around to take advantage of the opportunity. Not surprisingly, Vaishyas still dominate the forbes list of Indian billionaires.

In a much-discussed magazine article last year, Lee Kwan Yew, the former Prime Minister of Singapore, raised an important question: Why does the rest of the world view China's rise as a threat but India's as a wonderful success story? The answer is that India is a vast, unwieldy, open democracy ruled by a coalition of 20 parties. It is evolving through a daily flow of ideas among the conservative forces of caste and religion, the liberals who dominate intellectual life, and the new forces of global capitalism.

The idea of becoming a military power in the 21st century embarrasses many Indians. This ambivalence goes beyond Mahatma Gandhi's nonviolent struggle for India's freedom, or even the Buddha's message of peace. The sceptical Indian temper goes back to the 3,500-year-old "Nasadiya" verse of the Rig Veda, which meditates on the creation of the universe: "Who knows and who can say, whence it was born and whence came this creation? The Gods are later than this world's creation. Who knows then whence it first came into being?" When you have millions of gods, you cannot afford to be theologically narcissistic. It also makes you suspect power.

Both the Chinese and the Indians are convinced that their prosperity will only increase in the 21st century. In China it will be induced by the state; in India's case, it may well happen despite the state. Indians expect to continue their relentless march toward a modern, democratic, market-based future. In this, terrorist attacks are a noisy, tragic, but ultimately futile sideshow.

However, Indians are painfully aware that they must reform their government bureaucracy, police and judiciary — institutions, paradoxically, they were so proud of a generation ago. When that happens, India may become formidable, a thought that undoubtedly worries China's leaders.
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Gurcharan Das is the author of India Unbound