Economic development of China and India -a comparative study for the period 1991-2010 Introduction: An in depth study and analysis of India vs. China economy reveals that both India and China rank among the front runners of global economy and are among the world’s most diverse nations. Both the countries were among the most ancient civilizations and their economies are influenced by a number of social, political, economic and other factors. China and India together account for about 37. 5% of world population and 6. % of the value of world output and income at current prices and exchange rates. However, if we try to properly understand the various economic and market trends and features of the countries, we can make a very high level comparison between Indian and Chinese economy. |Indicators |India |China | |Political System |Multi-party Democracy |One-party authoritarian rule | |Speed of Growth |Economic reforms started in 1991. |Economic reforms started in 1978. | |Average 6% growth rate in past two |Average 9. 5% growth rate in past two | | |decades |decades. | |Areas of Specialization |Rising power in software, design, |Dominant in mass manufacturing, | | |services, and precision industry. |electronics and heavy industrial | | | |plants | |Foreign Direct Investment |6. 8% (up from 0. 3% in 2004) |17. 0% | |Future Areas of growth |R, bio-technology, high-value IT |IT business, services and continued | | |enabled services (legal, medical, |manufacturing | | |engineering architecture), | | | |manufacturing, agro-based industry | | Below is a representation by nominal GDP from year 2006 to 2050 for India and China: Figures reflect data published in 2007 Gross Domestic Product (nominal) [2006-2050] (in US$ billions) | | | | | |Categories | India | China | |Labour force |2nd |1st | |GDP (nominal) per capita |139th |98th | |GDP (PPP) per capita |128th |99th | |GDP (real) growth rate |28th |16th | |Human Development Index |134th |92nd | |Exports |23rd |1st | |Imports |15th |2nd | |Current account balance |169th |1st | |Received FDI |29th |5th | |Foreign exchange reserves |5th |1st | |Rail network |4th |3rd | |Road network |3rd |2nd | | | The above figures force us to believe that the economy of China is more developed than that of India. China occupies the third position.
Compared to the estimated $1. 209 trillion GDP of India, China has an average GDP of around $4. 6 trillion. In case of per capita GDP, India lags far behind China with just $2,800 compared to $6,100 of the latter in the year 2008. To make a basic comparison of India and China Economy, we need to have an idea of the economic facts of the countries. A comparative overview of Economies: If we make the analysis of the India vs. China economy, we can see that there are a number of factors that has made China a better economy than India. Agriculture Agriculture is a key factor of economic comparison of India and China. It forms a major economic sector in both the countries.
However, the agricultural sector of China is more developed than that of India. Unlike India, where farmers still use the traditional and old methods of cultivation, the agricultural techniques used in China are very much developed. This leads to better quality and high yield of crops which can be exported. China’s less than 40% of population is engaged in Agricultue which contributes to 10. 6% of the GDP. India’s 54% population is engaged in agriculture whereas agriculture contributes only 17%. Liberalization of the market In spite of being a Socialist country, China started towards the liberalization of its market economy much before India. This strengthened the economy to a great extent.
On the other hand, India was very slow in embracing globalization and open market economies. While India’s liberalization policies started in the 1990s, China welcomed foreign direct investment and private investment in the mid 1980s. This made a significant change in its economy and the GDP increased considerably. Port and shipping: Port and shipping Indian exports $13. 94 billion in august 2009 where as china is $ 95. 41 billion. Indian imports amounted to $130. 36 billion where as china is 424. 59 billion. Installed port capacity in China is 5. 6 btpa vis-a-vis India’s capacity of ~0. 75 btpa. Container terminal capacity in China is ~100 m teus vis-a-vis India’s capacity of 8. 6 m teus.
The largest container vessel calling at Chinese Port is more than 13,000 teus where as at Indian container terminal (JNPT) is 6,000 teus. The draft at Shanghai is 19+ m where as at JNPT it is 11. 5m and at Mundra it is 17. 5 m. The berth length at Shanghai is 13,800 m and that at Hong Kong is 4,426 m whereas total container berth length at JNPT is 2000 m and at 1280 m at Mundra. There is striking difference between India and china. Rates of investment: Rates of investment the investment rate in China (investment as a share of GDP) has fluctuated between 35 and 44 per cent over the past 25 years, compared to 20 to 26 per cent in India. Infrastructure investment from the early 1990s has averaged 19 per cent of GDP in China, compared to 2 per cent in India. Role of FDI in China:
Role of FDI in China can afford to have such a high investment rate because it has attracted so much foreign direct investment (FDI. But FDI has accounted for only 3-5 per cent of GDP in China since 1990, and at its peak was 8 per cent. In the period after 2000, FDI was only 6 per cent of domestic investment. Whereas India is only 4%. Structural change: China followed a “classic” pattern, moving from primary to manufacturing sector, which has doubled its share of workforce and tripled its share of output. India’s move has been mainly from agriculture to services in share of output, with no substantial increase in manufacturing, and the structure of employment has not changed much.
Share of the primary sector in GDP fell from 60 per cent to 25 per cent in four decades, but share in employment still more than 60 per cent. Trade patterns: China has seen rapid export growth involving aggressive increases on world market shares, based on relocative capital attracted by cheap labour and heavily subsidised infrastructure. India has a lower rate of export growth, with cheap labour due to low absolute wages rather than public provision and poor infrastructure development. So exports have not yet become engine of growth, except in services. Trade policies: China’s policy of exporting employment was net addition to domestic employment, since until 2002 China had undertaken much less trade liberalization than most other developing countries.
India’s increase in export employment was outweighed by employment losses especially in small enterprises because of import competition. Poverty reduction: China has officially 4 per cent of the population now lives under the poverty line, unofficially around 12 per cent. (Reflects earlier asset redistribution and basic need provision in China under communism, plus larger mass market and role of agricultural prices. ) India has poverty ratio much higher and persistent, between 26 per cent and 34 per cent depending upon how one interprets the NSS data. Infrastructure and electricity: Compared to India, China has a much well developed infrastructure.
Some of the important factors that have created a stark difference between the economies of the two countries are manpower and labor development, water management, health care facilities and services, communication, civic amenities and so on. All these aspects are well developed in China which has put a positive impact in its economy to make it one of the best in the world. India has become much developed than before, it is still plagued by problems such as poverty, unemployment, red tapeism and bureaucracy. Fifty years after independence, many rural areas are still without electricity. Even measured against neighboring countries, India’s per capita electricity consumption is very low – 270 kilowatt hours/year as compared to 480 for China. With more than 3. million small-scale units spread across India and with over 18 million people employed in them, SMEs are India’s second largest employer – after agriculture. But, according to the Ministry of Small Scale Industries, more than 300,000 SMEs have been sick since March 2000 due to inadequate electricity supply. Large investment required to achieve Govt. target of per capita consumption of 1,000 KWh by 2012. In fact unlike India, China is still investing in huge amounts towards manpower development and strengthening of infrastructure. Education: Primary, secondary education, vocational education & training in china results in 99. 1% literacy rate where as in India it is 50 to 60 %. Adult literacy India is 61% whereas in China it is 91% Expenditure on education India is 10. 7% whereas China is12. 8%.
But the quality of education of India is far better than china. A quick comparison of both the economies: 1) Much of china’s dazzling infrastructure was been built in the late 1990’s and India is gearing the repeat that performance in the latter part of this decade. India lags behind China in infrastructure and has bureaucratic red tape & corruption. 2) Foreign inflows into china jumped substantially in the early 1990’s and those into India have jumped in the mid -2000’s. 3) The Chinese culture is more homogeneous and Indian culture is great diversified. Chinese do not have many religions, casteism and dialects. Hence people gel with each other for consistent growth. 4) Plenty of dams in China.
Insufficiency of dams leads to flood and drought conditions with huge economic losses. 5) No terrorism in China. India is very susceptible to terrorism from outside the country and within the country (naxalites). This is not an economic factor but severely affects the economy. 6) India has the advantage of the English language which has made it easier to participate in the global economy. 7) Indian greater expertise with market also shows in the financial sector, which is deeper and more robust than Chinese counterpart. 8) According to Peter Drucker, India has managed rural to urban transition in a relatively smooth and peaceful manner, which China is still struggling to do. Conclusion:
In contrast to India’s neglect of the basic infrastructure, China is investing its surplus in railroad, power, road and water management in a concerted way. There is no question that China still lacks adequate infrastructure, but it has understood clearly the importance of modernizing its basic infrastructure to generate employment and adequate utilization of its vast population. Indian policy makers, and some economists, on the other hand, give the impression that India’s strategy to accelerate growth is to leapfrog past technologies through its information technology (IT) acumen. India’s services sector has seen a steady increase in growth rates, share of GDP and contribution to GDP growth. More than half of India’s GDP growth in the 1990s came from the growth of the services sector.
The IT sector of India with its minimal requirement for infrastructure has given tremendous boost to the Indian economy. But boosting IT is not a development strategy. IT cannot move a slow-moving economy, burdened with a massive shortfall of infrastructural development, a huge number of illiterates, crippling poverty and very high unemployment and under-employment. The real bad news is about the India’s agricultural sector, which continues to employ about 54 percent of the country’s workforce, has seen a real decline in terms of its contribution to GDP growth and its share of GDP. India’s industrial sector has not been able to replicate the growth magic of the services sector either.
While industry’s share of GDP has increased over the years, its growth rate dropped in the 1990s and its contribution to GDP growth has more or less remained constant over the years. Data show that six major industry groups – food products, cotton textiles, textile products, wood, paper and basic metal and alloy industries – have experienced a sharp slowdown over the past few years. Overall, as industrial development was divorced from efficiency and productivity, India’s ability to compete globally has been seriously compromised. By contrast, during the same period, Chinese manufacturers became increasingly competitive where Infrastructure has made all the difference. The Govt of India should relook the pace and areas of progress. Indian progress has to start from villages with a good infrastructure in place.