This is going to be one of those rare times when I disagree completely with you. While a lot of the details of your analysis of the Indian psyche are completely accurate (especially the point about China locking in lower value-added manufacturing through technology), you kind of miss the forest for the trees. There's no such thing as an "India" in any way comparable to a "China" - a united polity pursuing a common purpose. India is exactly as Lee Kuan Yew described it, 32 nations that happened to be array along a British rail line. One only has to look at the absence of language standardization and the multiplicity of regional languages in India to realize this.
India has no potential because there's no "India" in any real sense. I could draw a boundary around the countries of the Middle East and North Africa and call this the "Middle Eastern Union" or the "United States of MENA" and I'd have better justification for that than calling India a country since the people in my imaginary state all speak and write in a common language, Arabic. The reasons we don't have a MEU/USMENA and we have an "India" are completely arbitrary, one is no more united than the other.
I've heard it said by the few Indian acquaintances I have that managed to rise above the gutter is that India maintains what little unity it has through democracy, and that it can never advance because of democracy.
I doubt you can justify lack of unity because of language. China officially have 55 different ethnic minorities. Heck even within the one majority ethnic group, the Hans. There are multiple langagues. Mandarin, Cantonese Fokkin hakka, just to make a few. And this despite the best effort to standardise the language as Mandarin.
That said, it doesn't mean us Chinese do not look at it as we are not Chinese because we speak different language or have different customs and cultures. It is this diversity that makes us rich in culture.
What makes all Chinese is the share history of thousands of years, and the share suffering at the hands of foreigners in the past 200 years. Heck, even in Taiwan recognises they are Chinese. Although this is getting diluted as each generation further move away in culture and connectiveness to the motherland.
Move to your last sentence regarding India maintain unity through democracy. That may be so, but also through armed repression which we don't hear much about from the MSM because it is not in the west to broadcast India's brutality and oppression. What a democracy oppressing it's people!!
Take a look at Kashmir, the Mao rebellion in the south west! Let along the treatments of minority Muslims. And least of all should you run over a cow!
Finally, I agree it's the 'democracy' that's holding India's development back. Maybe that was the West' s plan all along!