Indian Economy :

A Comparative Overview with China

ARTI NANAVATI
PROF. OF ECONOMICS
DIRECTOR, CENTRE FOR CANADIAN
STUDIES
MAHARAJA SAYAJIRAO UNIVERSITY OF
BARODA
VADODARA- 390002 GUJARAT-INDIA

DEPT. OF ECONOMICS, SIMON FRASER

UNIVERSITY BURNABY, BC, CANADA
18 JUNE, 2009
 Some General Facts

 India is the world’s second most populous country of over 1 billion people
after China.

 Urban population 28% of total. (China 39%)

 More than half of its population is 25 years of age. ‘Demographic dividend’.

 Measured in USD exchange rate terms, 12th largest in the world, with a GDP
of $3.32 trillion (PPP) , China ranked 2nd largest with GDP of $7.8 trillion.
(2008)

 PCI $2,900 at PPP and that of China $6100 (2008)

 Population below poverty line is 27.5% (2008 est.) China 10%

 World Bank classifies India as a low income economy

• The contribution of Agriculture, industrial and service sector (2007-8) in
GDP has been 21,24 and 55%. ( In China the corresponding percentages
are 11.3, 48.6 and 40 % in GDP 2008)

• Agriculture is the predominant occupation in India, accounting for about

60% of employment ( China 43%) . The service sector makes up a further
28% (China 32%) , and industrial sector around 12% (China 25%).

• Organized sector employs 8% of workforce (two thirds of which are in

public sector), and produces about 40% of GDP. Rest in informal sector --
with predominance of ‘women.’ Urban informal sector is a fast growing
sector.

• 30% of total labour is constituted by casual labour and only 10% are in
regular employment.

• Major problem not of open unemployment but of underemployment and

disguised unemployment.

• Unemployment rate 6.8% (2008 est., in China 4.3% is official and 17%
unofficial UR).
Why India?

 GDP growth rate 9% in 2007-2008, slowed down to 7.3% in 2008-9.

 Major industries are Textiles, chemicals, food processing, steel,

transportation equipment, cement, mining, petroleum, machinery,
software.

 Services are a growing sector and play an important role in Indian

economy. India is an imp. ‘back office’ destination for global
outsourcing of customer services and technical support.

 Major exporter of highly skilled workers in financial, software,

software eng.

 Potentials are in , manufacturing, pharmaceuticals, biotechnology,

nanotechnology, telecommunication, shipbuilding, aviation, tourism
and retailing.
 Composition of India’s GDP
(at Factor Cost by Economic Activity –
at 1999-2000 prices, in%)

2000-01 2007-08

1)Agriculture etc 23.89 20.55

2)Industry 25.80 24.71*
2.1 Manufacturing 15.30
2.2 Construction 05.81
3) Services 50.30 54.74
3.1 Trade, hotel, Restaurants 14.34 26.80**
3.2 Transport, storage & communica. 07.96
3.2 Finance, insurance, etc 13.04 14.32
3.3 Community, social and per. 14.98 13.62
service
* Inclusive of2.1, 2.2, ** of 3.2. Source : EPW 14TH June , 2008 and Economic Survey of India
2007-8
Source: EPW June 14, 2008
India- Structural Transformation-?

 Economic policy: Approach

i) Since independence (1947) – till almost late eighties

followed a socialist inspired approach- strict govt. control
over -private sector participation, foreign trade and FDI
(Approach-import substituting rather than export
promoting) .

ii) India’s low average growth rate ( 3%) from 1947-80 was
referred as ‘Hindu rate of growth’, because of the
unfavorable comparison with the other Asia countries,
especially the ‘East Asian Tigers’.
 A period of import tariff, export taxes, quantitative
restrictions , approvals needed for 60% of new FDI
in the industrial sector.

 FDI averaged only $200M between 1985-1991.

 In 2004, net FDI inflow was about 7-8 USD bn. (
China, 52 USD bn)

 A large percentage of the capital flows consisted of

foreign aid, commercial borrowing and deposits of
non resident Indians.

 Largely and intentionally isolated from world

markets.
 Late eighties: the govt. led by Rajiv Gandhi eased restrictions
on capacity expansion for incumbents, removed price control
and reduced corporate taxes.
 Phase of high growth with high fiscal deficit and worsening
current account
 Collapse of soviet union – a major trading partner, first Gulf
war causing spike in oil prices led to major balance of
payment crisis with the prospects of defaulting on its loan.
 Prime Minister Narasimha Rao with Finance Minister
Manmohan Singh initiated the economic liberalization of
1991.
 Reforms did away with license Raj in investment, industrial
and import licensing-ended many public monopolies,
introduced automatic approvals of FDI in many sectors.
 Agriculture
 India ranks second world wide in farm output.
 In 2007, accounted for 17% in GDP employing 60% of the total workforce.
 After having growth rate of 2% for many years- now the growth rate is about
4.5%.

 Two thirds of India’s workforce still earn their livelihood directly or

indirectly through agriculture.
 High level of disguised unemployment.

 Despite improvements, average yield in India ranges from 30-50% of the

highest average yield in the world.
 Major agricultural products include rice, wheat, oilseed, cotton jute, tea,
sugarcane, potatoes, cattle, water buffalo, sheep goats, poultry and fish.
 India is the largest producer in the world of milk cashew nuts coconuts tea,
gingerturmericand black pepper.It also has the world's largest cattle
population (193 million).

 It is the second largest producer of wheat rice sugar groundnutand inland

fishIt is the third largest producer of tobacco India accounts for 10% of the
world fruit production with first rank in the production of banana and
sapota.
 Industry

 India ranks 14th in the world in factory output.

 Industry accounts for 27.6% of the GDP and employs 17% of the
work force.

 Manufacturing growth rate 8.4%.

 high-skill sectors account for almost 40 percent of the manufacturing
output of India.

 Textile manufacturing is the second largest source for employment

after agriculture and accounts for 26% of manufacturing output
 One third of industrial labour force is engaged in simple household
manufacturing only.

 Economic reforms led to more private sector participation, an

expansion in the production of consumer goods and both domestic
and foreign competition.
 Services

 India is fifteenth in services output.

 With largest share in GDP of 55%, it employs 23% of workforce.

 The growth rate which was 4.5% in 1951-80 increased to 7.5% in 1991-
2000. Recent growth rate 10.7%.

 Fastest growing services are –business services, information

technology enabled services, business process outsourcing
contributing about one third of total output of services in 2000.

 India’s IT industry an important contributor to BOP, accounts for

only about 1% of total GDP and 1/50th of the total services.

 India leads the market in offshored back-office services, but as a

manufacturing center it lags behind China, Thailand, and the rest of
Asia.
 External Sector

Exports $175.7 billion f.o.b (2008 est.)

Export goods petroleum products, textile goods, gems and

jewelry, engineering goods, chemicals, leather
manufactures

Main export US 15%, the People's Republic of China 8.7%, UAE

partners 8.7%, UK 4.4% (2007)
Imports $287.5 billion f.o.b. (2008 est.)

Import goods crude oil, machinery, gems, fertilizer, chemicals

Main import People's Republic of China 10.6%, US 7.8%,

partners Germany 4.4%, Singapore 4.4%
 Almost stagnant export for the first 15 years after independence.
Dominated by products like tea, jute and cotton manufacturers having
generally inelastic demand.

 Since liberalization ex-im have become much broad based.

 India’s exports are consistently rising, covering about 80% of its imports.

 Merchandise trade of India about 31% of GDP in 2007 (China 68%)

 High technology exports as % of total manufacturing exports are 5% in

case of India and 30% in case of China.

 FDI in India has reached 2% of GDP (China 3%, 2006), compared with
0.1% in 1990

 The top five countries in FDI inflows (2000-2007) are Mauritius

(44%),United States(9.4%), UK( 8%), Netherlands(6%)and Singapore(5%).
 Sectoral Employment Share
by Current Daily Status

Industry Division 1993-4 2004-5

Agriculture and allied activities 61.03 52.06
Mining & Quarrying 0.78 0.63
Manufacturing 11.10 12.90
Electricity, gas and water supply 0.41 0.35
Construction 3.63 5.57
Trade , hotels and restaurants 8.26 12.62
Transport, Storage & communication 3.22 4.61
Finance, insurance, real estate and 1.08 2.00
business services
Social, community and personal services 10.50 9.24
Source: Economic Survey of India 2007-08
 Economically Active Adult population (%)
2004-2005

1993 2005
-----------------------------------------------------------------------------------------------
Agriculture 74.8 68.5

Labour 34.4 30.3

Cultivator 39.3 37.3
Farm regular 1.1 0.9

Non Farm Sector 25.2 31.5

Casual 6.3 7.3
Regular 7.0 9.3
Self employed 11.9 14.9
-----------------------------------------------------------------------------------------------
100 100
Source: NSSO, 62th Round
 Structure of Employment

Proportion
Proportion of
of workers
workers in
in the
the workforce
workforce (2005-06)
(2005-06)

Self-employed
Self-employed
55.0%
55.0%

Workers
Workers
45.0%
45.0%
Growth of working class

Worker population (in millions)

250
206.39
194.10
200 168.69
142.26
150

100

50

0
1987-88 1993-94 2001-02 2005-06
 Rural workers
Workers in the countryside have also increased in numbers. There were
144 million rural workers in 2005-06. There is a high proportion of
casualisation in rural areas.

Rural workers (in millions)

150.0

100.0 116.54
114.85
103.20
83.06
50.0

19.45 18.39 20.32 27.46

0.0
1987-88 1993-94 2001-02 2005-06

Regular Casual
 Urban workers

 There were nearly 63 million urban workers in 2005-06.

Proportion of regular workers is more among urban workers when
compared to rural areas

Urban workers (in millions)

70
60 17.24
18.06
50
40 14.98
11.72
30 45.16
40.87
20 28.03 32.11
10
0
1987-88 1993-94 2001-02 2005-06

Regular Casual
 Wages

Wage rates defer between rural and urban areas and between
males and females
 Working age population

 A big majority of India’s population is in the

working age group.
 Share of working age population (15-59) will
increase from 58% in 2001 to 63% in 2011.

 In 2005-06, about 60% of the population was in the

working age group.
 Of the working age group population, roughly 460
million people were in the workforce in 2005-06.

 Of these about 206 million (45%) were

regular/casual workers.
 Youth workers

 India has among the largest number of youth

workers in the world.

 In 2005-06, in the 15-34 age group there were 390

million youth (35% of population)

 Of these 40.4% were engaged in gainful activity –

i.e, nearly 160 million.

 Nearly half of them were workers.

Rate of growth of employment in Organized Sector
(% per annum)

1983-1994 1994-2005

Public Sector 1.53 -0.70

Private Sector 0.44 0.58

Total Organized 1.20 -0.31

Source: Eleventh Plan Document.

 Public-Private organized sector

 Total no. of public and private sector workers stagnated between

1991-2001 and slightly decreased in recent times.

Employment in organised sector (in millions)

Source: DGET

30
25
20
15
10
5
0
1981 1991 2001 2004
Year

Public Private
Public sector workers

Public sector workers by Industry - 2004

Agriculture Mining

Manufacturing
Electricity, gas,
water
Construction

Community, Trade,
social services restaurants

Financing, Transport,
insurance storage
 Private sector workers

Private sector workers by Industry - 2004

Community,
social services
Financing,
insurance Mining
Transport,
storage Agriculture

Trade,
restaurants

Construction Manufacturing

Electricity, gas,
water
Is development inclusive?
 Labour Market

 Growing employment but poor in qualitative terms with low regular

employment, underemployment and mismatch between education
and employment.
 A huge section of the working class lives in rural areas, is unskilled
and condemned to low wages. In non-agriculture sector growth in
employment is in informal sector.

 Even in the urban areas there is a high degree of casualisation,

contract labour working in deplorable conditions with no security of
work.

 Although regular employment has risen, its growth has been almost
exclusively in the smaller, least productive enterprises.

 About 87% of manufacturing employment taking place in micro

enterprises(<10 persons) producing just a third of manufacturing
output.
 Employment in firms with more than ten employees
accounts for only around 3.75 per cent of total employment
(one quarter of regular employment) and has been falling.
Indeed, India has a much smaller proportion of
employment in enterprises with ten or more employees
than any OECD country.

 70% of Indians(800million), lived on less than 20 rupees(

slightly less than C50 cents) per day with most working in
informal sector with no social security. (2007 Report on
National Commission for Enterprises in the unorganized
sector)
Sex Ratio in Population with Rural-Urban break up
Year Sex Ratio
Rural Urban Total
1901 979 910 972
1911 975 872 964 Source : Office of the Registrar
General, India
1921 970 846 955 Sex Ratio 1901-91 (Total, Rural and
Urban) from Brief Analysis of PCA
paper-2 of 1992
1931 966 838 950 1961 Population from PCA 1961
1971 Population from Social and
1941 965 831 945 Cultural Tables
1981 figures from Series Part-II A(I),
1951 965 860 946 General Population Tables – Census
of India 1981.
1961 963 845 941 Figures of 1991 (including interpolated
data for JK-1991 based on 2001
1971 949 858 930 census) and 2001 from PCA census
of India -2001
1981 951 879 934
1991 938 894 927
2001 946 901 933
Trends in Gender Disparity in Literacy Rate

Male Female Male/Female Slightly more

Literacy rate than half of total
Year disparity women are
1961 40.4 15.3 0.45 literate.

1971 39.5 18.4 0.38 Male-Female

1981 56.3 29.7 0.35 LR
disparity is on
1991 63.8 39.4 0.28 decline.
2001 75.8 54.1 0.21
 Area and Gender based Labor and
Work Force Participation Rate (%)

Labor force Work force

participation rates participation rates

1993-94 2004-05 1993-94 2004-05

Rural male 53.4 53.1 50.4 48.8

Rural female 23.2 23.7 21.9 21.6

Urban male 53.2 56.1 49.6 51.9

Urban female 13.2 15.0 12.0 13.3

Source: Economic Survey of India: 2007-08
Area and Gender based Structure of Employment 2004-2005

Particulars Rural Urban

Male Female Male Female
Labour
Force 56% 31% 57% 15%

Self empl. 57% 62% 42% 44%

Regular
Wage and
Salaried 10% 4% 42% 40%

Unempl.
Rate 3% 2% 5% 8%

Source: NSSO 62 Round

 Gender based Distribution of Occupation in
Rural India (%) 2004

Sector Male Female

-------------------------------------------------------------------------------------------------------
Agriculture 54.7 30.4
Casual 21.8 15.5
Cultivators 31.8 14.7
Regular 1.1 0.2
Non Farm 31.3 7.7
Casual 9.6 2.0
Self empl. 14.4 4.1
Regular 7.3 1.6
-------------------------------------------------------------------------------------------------------------
Total 86.0 38.1
-------------------------------------------------------------------------------------------------------------

Not working 14.3 62.0

-------------------------------------------------------------------------------------------------------------
Casual 31.4 17.5
Self emp/cultivators 46.2 18.8
Regular 8.4 1.4
---------------------------------------------------------------------------------------------------------------
Share of women employment out of total employment
in organized sector in India

Year % of women in % of women in % of women

Public sector Private sector in Total
1995 13.4 20.2 15.4
2000 14.8 23.9 17.6
2001 14.9 24.2 17.8
2002 15.4 24.3 18.1
2003 15.6 24.5 18.4
2004 15.9 24.8 18.7

2005 16.2 24.8 18.9

Source : Quarterly Employment Review, Directorate General of Employment &
Training, Ministry of Labor
 Women wage lower than men by 33-40 points.
Women-men wage differential is 0.75:1.

 The gender based wage differential though has

narrowed down with increase in education level. It
is still high.

 Urban wage differential persists but narrower than

in rural area.
 INDIA AND CHINA

India China
2007

GDP (current
US$billion) 1176.9 3205.5

GNP PC
(current US$) 950 2370.0

GDP growth
Annual % 9.1% 13%

Population
growth rate
(annual %) 1.3 0.6

Mobile and cellular subscription

Per ‘ooo population 21 42

Internet user per ‘000 population 7 16

Source: World Bank: World Development Indicators: Country Profile April 2009
 Situating India and China in World Trade (2007)

Particulars Unit China India

Share in Merchandise

Exports (%) 8.71 1.05

Rank 2 26
Imports (%) 6.70 1.52
Rank 3 18

Share in Commercial Services

Exports (%) 3.63 2.74

Rank 7 10
Imports (%) 4.14 2.49
Rank 6 13
Source: WTO- World Trade Statistics, April 2009
 China India world Trade highlights 2007

Particulars China India

Exports of good & services

% of GDP 42 21

Imports of goods & services 32 24

% to GDP

Trade per capita

($US, 2005-07) 1483 391

Patents granted 67948 4320

 China- Merchandise Trade 2007

Breakdown in economy's in total exports: total imports

By main commodity group (ITS)

(%) (%)

1.Agricultural products 3.2 6.8

2.Fuels and mining products 3.4 22.0
3.Manufactures: 93.2 70.9

By main destination By main origin

1 European Union (27) 20.1 1. Japan 14.0

2. United States 19.1 2. European Union (27) 11.6
3. Hong Kong, China 15.1 3. Korea, Rep. of 10.9
4. Japan 8.4 4. Taipei,Chinese 10.6
5. Korea, Republic of 4.6 5. China 9.0
 India’s- Merchandise Trade 2007

Breakdown in economy's in total exports: total imports

---------------------------------------------------------------------------------------------------------------------------

By main commodity group (ITS)

(%) (%)

1.Agricultural products 11.0 4.4

2.Fuels and mining products 24.3 40.2
3.Manufactures: 63.6 46.3

By main destination By main origin

1 European Union (27) 21.7 1. European Union (27) 14.8

2. United States 13.8 2. China 11.2
3. United Arab Emirates 9.9 3. Saudi Arabia 7.6
4. China 6.5 4. USA 6.5
5. Singapore 4.4 5. United Arab Emi. 5.4
 Trade in Commercial Services-2007

Breakdown in economy's total exports total imports

(%) (%)

China:
1. Transportation 25.7 33.5
2. Travel 30.6 23.0
3. Other commercial services 43.6 43.5

India:
1. Transportation 9.7 40.1
2. Travel 12.1 11.3
3. Other commercial services 78.2 48.6
 Cross Country Comparison

Share of Manufacturing Sector (2004)

45.00

39.41
40.00

35.00
31.40

30.00 28.34 28.74

Share in GDP

25.00 24.07 24.00

20.00

16.10
15.00

10.00

5.00

0.00
Argentina Brazil India China Indonesia Korea Malaysia
Countries
 Composition of Manufacturing Sector Across Countries
100%
3.80
7.82
11.99 11.00
90%

80%
29.60 38.24
28.06
34.75
70%
Share (Percentage)

60%

50%

32.35 20.59
40% 44.98
40.90

30%
13.27

20% 15.22

8.10 8.83
10% 20.39
12.37
9.50 8.24
0%
CHN IND KOR MYS
Countries

Chemicals FBT Mach & Transp Others Textiles

 Share (Percentage)

0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
1970
1971
1972
1973
1974
1975
1976
1977
1978

China
1979
1980
1981
1982
1983

Argentina
1984
1985
1986

Brazil
1987

Years
1988
1989

India
1990
1991
1992
1993

Korea
1994
1995
1996
1997
1998
Indonesia

1999
2000
Manufacturing Exports: Cross Country Comparison

2001
2002
2003
2004
 Levels of Manufactured Exports Across Countries
542.20

500.00

400.00
US $Billion

300.00

233.99

200.00

95.80
100.00

52.19 55.05
40.55

9.94
0.00
Argentina Brazil China India Indonesia Korea Malaysia
Countries
 Size of Labor Force in Manufacturing Sector
180.00

160.00
160.00

140.00

120.00
Number of Workers (Million)

100.00

80.00

60.00 53.06

40.00

20.00
11.72 11.65
4.23 2.02
1.36
0.00
Argentina Brazil China India Indonesia Korea Malaysia
Countries
 Spending on R & D as a percentage of GDP (2003)
3

2.5
2.5
R & D Expenditure as a Percentage of GDP

1.5
1.3

1.03
1

0.77
0.7

0.5 0.42

0.2

0
Argentina Brazil China India Indonesia Korea Malaysia
Countries
 HUMAN DEVELOPMENT INDICATORS-
(2006)

----------------------------------------------------------------------------------------------------------------------------

Human Development Index

( Position among 179 countries) INDIA CHINA

Particulars Rank Value Rank Value

HDI 132 0.609 94 0.762

Life expectancy at birth( yrs) 127 64.1 69 72.7

Adult literacy rate (%) 118 65.2 53 93

Combined(pri—ter)enrolment 134 61 113 68.7

ratio

GDP PC($PPP) 126 2489 104 4682

----------------------------------------------------------------------------------------------------------------------------

Source: Human Development Report 2008

 HUMAN POVERTY INDEX (HPI-1) -2006

Particulars India China

Rank Value(%) Rank Value(%)

HPI-1 87 28.5 35 7.9

Probability of
Not surviving to
Age 40 (% of
cohort) 2000-05 16.8 6.8

Adult Illiteracy Rate

1999-2001 34.8 7.8

contd.
 HUMAN POVERTY INDEX (HPI-1) -2006

Particulars India China

Rank Value(%) Rank Value(%)

Children Under
Weight for age
(% aged under
6, 2005-6) 46 7

Population below
Income Poverty line
$1.25 a day 41.6 15.9
$2 a day 75.6 36.3

National poverty line 28.6 2.8

HPI-1 rank minus

income
Poverty Rank -11 -19

Source: Human Development Report-2008

Gender Related Development Index (GDI)

Particulars India China

-----------------------------------------------------------------------------------------------------
GDI Rank Value % of HDI Rank Value % of HDI
116 0.591 97.1 79 0.760 99.8
-------------------------------------------------------------------------------------------------------

Male Female Male Female

Life Expectancy
At birth (2006) 66.5 97.1 71.0 74.5

Adult literate
(1999-2006) 76.4 53.4 96.3 89.5

Combined gross
Enrol. Ratio (%)
2006 63.3 57.4 68.9 68.5

Estimated Earned
Income (PPP US$) 3698 1185 5646 3644
-------------------------------------------------------------------------------------------------------
HDI rank minus
GDI -1 1
Gender Empowerment Measure (GEM) 2007

Particulars India China

GEM - Rank 72
----------------------------------------------------------------------------------------------------------
Ratio of estimated
Female to male
earnings 0.32 0.65
----------------------------------------------------------------------------------------------------------

% to total

Seats in parliament
held by women 9.2 21.3

Female legislatures,
Senior officials &
Managers - 17

Female professional
And tech. workers - 52
 India-China comparative Business Scenario-2007

Particulars India China

--------------------------------------------------------------------------------------------------------------------------------------------
(Rank out of 183 countries-2008)
--------------------------------------------------------------------------------------------------------------------------------------------
1) Corruption perception index 85 72
-------------------------------------------------------------------------------------------------------------------------------------------

Procedure (no) duration cost (% GNP) Procd. Duration Cost

2) Starting a business 13 30 days 70.1 14 40 days 7.5

------------------------------------------------------------------------------------------------------------------------------------------

duration cost (as % of estate) Recovery rate duration cost recovery rate
(cents per dollar)
3) Closing a business 10 yrs 9 10.4 1.7yrs 22 35.3
--------------------------------------------------------------------------------------------------------------------------------------------

Source: Transparency international 2008

 GLOBAL COMPETITIVENESS RANKING 2008-9: India and
China
(Rank out of 134 countries)

Pillars Components India China

------------------------------------------------------------------------------------------------------------------------
GCI Global Competitiveness Index 50 30
------------------------------------------------------------------------------------------------------------------------

Basic requirements 80 42
1 Institutions 53 56
2 Infrastructure 72 47
3 Macroeconomic stability 109 11
4 Health and primary education 100 50
Efficiency Enhancer 33 40
5 Higher education and training 63 64
6 Goods market efficiency 47 51
7 Labour market efficiency 89 51
7 Financial market sophistication 34 109
8 Technological readiness 69 77
9 Market Size 5 2
Innovation and Sophistication factors 27 32
11 Business sophistication 27 43
12 Innovation 32 28

Source: Global Competitiveness Report 2008

 Major Areas of Reforms Needed

 Labour market: Stringent labour laws should be relaxed

 Business environment: Lowering the barriers to entrepreneurship
Ending reservation of products fro SSI
Need for Bankruptcy law
Dispersion of tariff rates
Easing of Service sector FDI restrictions
More privatization of public sector enterprises.
 Financial sector: More liberalization
Privatization of public sector banks
 Infrastructure : Electricity reforms to be speeded up
transport: More private sector involvement
 Public Finances: Better targeting of subsidies, GST
 Education: Higher public expenditure on primary and
education, Addressing financing of higher edu.

India can learn from China in:

Social and Physical Infrastructure
Improving manufacturing sector’s productivity
 In Conclusion

 India and China – non comparable:

India-- Democracy (messy)
Highly diverse social structure
Reforms reactionary in nature- a late starter
Less integrated to Global market (including East Asia)
Dissimilar trade pattern
Lagging behind in FDI and infrastructure
Weak link between economic development and social
welfare at regional level compared to China.
 Differencing Relative strengths

India China

i) Agriculture √
reforms
ii) Industrial growth √
iii) FDI √
IV) Open to external
trade √
v) National market √
vi) Service sector √ √
vii) Infrastructure - √
viii) Capital efficiency √
viii) Corporate governance √
ix) Democratic accountability √
x) Foreign portfolio capital √
Two divergent development Paths:

India China
i) Increasingly building ground up Top down approach
ii) Service sector led growth Manufacturing sector and foreign trade
iii) Private sector led growth State led modernization (late 1970’s)
(early nineties)
iv) Consumption driven Investment driven
v) Knowledge based sector-labor Cheap- assembly line workers
vi) World’s back office Factory of the world
India China

vii) Domestic Private Companies FDI inflow

State owned enterprises

VIII) Young work force Aging workforce

VIII) Cheaper labour Rural reform

 India’s hope!!!!

 No Trade off to democracy for 2% higher growth!

 Accumulated diversity not assimilated.

 Both India and China have accepted the capitalist road to prosperity but
capitalism is more comfortable in democracy which fosters entrepreneurs.

 India’s growth may be more enduring as people have scripted its growth
whereas in China it is state crafted.

India- A country with Potentials for ‘sustaining’ development!!

“Because the Indian state is inefficient, millions of
entrepreneurs have stepped in to vacuum. When
government schools fail, people start private
schools in the slums, and the result is millions of
‘slumdog millionaires’ .”

You cannot do this in China!!

Gurucharandas
Times of India, 10 May 2009
 THANK YOU

artinanavati@gmail.com