Pgpib-o4 – Sreejeet chakraborty, Muntazir NAzar, Tanumoy Hazra, Deeptarup

Saha, Priyanka Jaiswal and Sarmishtha Sarkar.

India and China- An economic comparison:-

Today we all know that China and India are the fastest and second fastest growing
economies of the world. China is the 2nd largest economy in terms of nominal GDP
and GDP( PPP) while India is the 11 th largest economy in terms of nominal GDP
and 4th largest in terms of GDP(PPP).

India is federal constitutional republic with a parliamentary democracy. It is the

seventh-largest country by geographical area, the second-most populous country
with over 1.2 billion people, and the most populous democracy in the world.

The People's Republic of China (PRC), commonly known as China, is the most
populous state in the world with over 1.3 billion people. Located in East Asia, it is
a single-party state governed by the Communist Party of China (CPC).

Both India and China began planning for national development in the early 1950s
following Indian independence in 1947 and Chinese revolution in 1949. China
largely had a command economy structure until the late 1970s and altough India
adopted a mixed economy, state regulation of economic activity was fairly
extensive until 1991. In the 1950s, both India and China were at similar stages of
development. The World Bank noted that both states had similar per capita
incomes in the range of $50-60(world bank,1983). Both states also adopted similar
strategies for economic development. Mao and Nehru had been influenced by the
perceived success of the Soviet Union’s rapid industrialization of a rural economy
with little external assistance. The development strategy of the Soviet Union was in
many ways emulated by both India and China as they focused on investment in
heavy industry in the 1950s. Even before independence, Indian elites started to
believe rapid industrialisation in the fashion of the soviet union was the only means
to eradicate poverty in india and so after independence, the government’s industrial
policy resolution of 1948 and 1956 assigned the state the responsibility for
developing major industries.
Economic reforms in China that began in 1978 was initiated by Deng Xiaoping
and occurred in two stages. The first stage, in the late 1970s and early 1980s,
involved the decollectivization of agriculture, the opening up of the country to
foreign investment, and permission for entrepreneurs to start up businesses.
However, most industry remained state-owned, inefficient and acted as a drag on
economic growth. The second stage of reform, in the late 1980s and 1990s,
involved the privatization and contracting out of much state-owned industry and
the lifting of price controls, protectionist policies, and regulations, although state
monopolies in sectors such as banking and petroleum remained. The private sector
grew remarkably, accounting for as much as 70 percent of China GDP by 2005, a
figure larger in comparison to many Western nations. From 1978 to 2010,
unprecedented growth occurred, with the economy increasing by 9.5% a year.

India initiated the economic liberation reform in the year 1991 under the leadership
of then Prime Minister P.V. Narasimha Rao’s and had a single stage only. This is
considered to be one of the milestones in India economic reform as it changed the
market and financial scenario of the country. Under the liberalization program,
foreign direct investment was encouraged, public monopolies were stopped, and
service and tertiary sectors were developed. Since the initiation of the liberalization
plan in the 1990s, the economic reforms have put emphasis on the open market
economic policies. Foreign investments have come in various sectors and there has
been a good growth in the standard of living, per capital income and Gross
Domestic Product.

Through these decades of development India and china has been able to reduce
poverty increase employment, health, living standards and education of its people.
For instance in case of India the poverty index fell from 51.3% in1978 to 36% in
2000. Whereas in case of china the fall has been much steeper like from 85% in
1978 to 15% in 2000. The literacy rate of both the countries has increased
considerably. Infant mortality, gender discrimination rate has also dropped among
other things.
To get a more proper picture of what is happening in the both the countries other
variables need to be considered like happiness, perception, corruption, etc.
Accordingly India ranks a low 119 among 169 countries on the 2010 Human
Development Index. Life expectancy at birth is 64.4 years in India. The Chinese
are expected to live about 73.5 years. Beginning 1980, India’s HDI values have
increased from 0.320 to 0.519, an increase of 62%. In the same period, life
expectancy at birth increased almost 9%, mean years of schooling by close to three
years, and expected years of schooling by four years and per capita GNI by 254%.

Survey in China showed white collars workers are generally happier than blue-
collars and people in their 20s feel unhappy among other age groups. Nearly 75
percent of respondents considered themselves happy, according to a 2010 survey
on the sense of happiness felt by Chinese urban residents. The survey found that 59
percent of respondents said they feel "relatively happy," while 14.9 percent
considered themselves "very happy," though 12.3 percent said they had not fared
well. Management level employees of government agencies and state enterprises
constituted the highest ratio of respondents who said they are "very happy," while
the lowest ratio of respondents who considered themselves happy belonged to the
working classes of the nation. The survey report attributed the high sense of well-
being among civil servants to their job stability and generous employee benefit
systems, as well as the high social status they enjoy.

According to the world prosperity index 2010 India has slipped 10 places to the
88th spot from 78th in 2009. China is ranked 58th in the list of 110 countries,
which is topped by Norway.
The following table and graphs sheds some light into the G.D.P(nominal) of both
the countries over different periods of time:-

YEAR CHINA INDIA

1913 8.9 7.5
1950 4.5 4.2
1998 11.5 7.7
From the above graph it is clear that China is way ahead of India when compared
in terms of G.D.P growth rate, but what gave China such an added advantage over
India that it is growing at a double digit growth rate?

The answer may lie in the facts that while China initiated its reforms in the late
1970s India initiated the same but only in the early 1990s. So that puts India a
decade behind China. Secondly, while china focused extensively on the
manufacturing sector, India focused its attention on the service sector. The reason
for choosing such different models of development being that India formerly being
a British colony had a huge English speaking work force and thus focused on the
service sector while china on the other hand had no such English speaking work
force and thus focused on the manufacturing sector. Thus this disadvantage for
china turned out to be a blessing for it as the manufacturing sector other than the
agricultural sector contributes bulk to the G.D.P of the country. The fastest way for
an underdeveloped country to develop is to focuses on the manufacturing sector
because through this sector a large number of the population can be employed
irrespective of the fact that whether they are illiterate, semi literate or literate.
Service sector on the other hand requires literate people only and for an
underdeveloped country to focus its attention on this sector for development could
turn out to be time consuming and hugely expensive affair because the country
needs to educate and train its population first. This is what exactly happened to
India and china. But china is catching up fast with India in the service sector also.

Thirdly, while the Chinese economy is an export oriented economy the Indian
economy is a domestic consumption based economy. As a result of which china
has been able to accumulate huge amount of foreign exchange reserves to the tune
of three trillion dollars and this also contributes to the rapid rate of economic
growth of china when compared to that of India. The following graphs depict
exactly that. From the graphs it is clear china exports nearly to the tune of 1000
billion dollars while India on the other hand exports to the tune of 150 billion
dollars.

China also imports to the tune of 800 billion dollars while India on the other hand
imports to the tune of 200billion dollars.
The following table shows the sectoral contribution to the G.D.P of both the
countries:-

SECTORS INDIA(2009 estimates) CHINA(2009 estimates)

Agriculture 17.1% 10.3%
Industry 28.2% 46.3%
Service 54.6% 43.4%

Though china has been far more successful in attracting FDIs and FIIs compared
to India but India is fast catch up. Foreign investors are very much optimistic about
India and its potential as a reliable investment destination because of its democracy
and stability. The people of India are the most optimistic in the world according to
a survey conducted.

Though India has miles to go before it can catch up with china but the ultimate
advantage will be with India in the long run because of its relatively young
population. China’s population will start to get old in a couple of decade because
of its stringent one child policy. India has set itself ambitious target of achieving
double digit growth in this decade only. Both India and china are poised to
overtake the USA economy 2050 and 2025 respectively. China is poised to become
the largest economy by 2025 surpassing USA while India will eventually surpass
the USA and become the 2nd largest economy by2050.