India Vs China: Two giants race for economic growth
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Introduction:
2000 years ago India and China were the top two economies of the world. They are back in the race once again.
Today they account for 1/3rd of global population. Just for this reason it is imperative that they develop and lift their masses out of abject poverty. Let’s see who has fared well and what the future holds for these two giants.
Rear view mirror:
China - Since the late 1970s China has moved from a closed, centrally planned system to a more market-oriented one that plays a major global role - in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, growth of the private sector, development of stock markets and a modern banking system, and opening to foreign trade and investment. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978.
India - India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization measures, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and served to accelerate the country's growth, which averaged under 7% per year from 1997 to 2011. The outlook for India's long-term growth is moderately positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy.
Comparative Numbers:
Per capita GDP Nominal:
China: $7,589
India: $1,627.
Population below poverty line:
China 6.1%
India 29.8%
GDP composition as in 2014:
India: Agriculture (17.9%), Industry (24.2%) and Services (57.9%).
China: Agriculture (9.7%), Industry (43.9%) and Services (46.4%).
India invests about 30% of its GDP, compared with about 50% in China. China has arguably the best physical infrastructure outside the western world. India's looks more like the poor country that it still is.
Challenges for China: The Chinese government faces numerous economic challenges, including: (a) reducing its high domestic savings rate and correspondingly low domestic consumption; (b) facilitating higher-wage job opportunities for the aspiring middle class, including rural migrants and increasing numbers of college graduates; (c) reducing corruption and other economic crimes; and (d) containing environmental damage and social strife related to the economy's rapid transformation. Several factors are converging to slow China's growth, including debt overhang from its credit-fuelled stimulus program, industrial overcapacity, inefficient allocation of capital by state-owned banks, and the slow recovery of China's trading partners.
China’s growth has been fuelled by an excessive reliance on a mercantilist strategy of providing the world with vast amounts of cheaply priced exports rather than building a large, vibrant consumer market at home. Coupling this has been Beijing’s huge—and often wasteful—investment in lumbering state-owned enterprises (SOEs), which, despite the growth of private sector firms in certain sectors of the economy, have consolidated in number and grown ever larger over time; a moribund system of state-owned ‘banks’, who pretend to lend money to SOEs, who, in turn, pretend to pay back the banks; a breathtaking infrastructure network of modern airports, highways, ports and railways, some of which operate way below capacity; and real estate, where overspending has created an untold number of unoccupied buildings and huge market
bubbles.
Challenges for India: However, India has many challenges that it has yet to fully address, including poverty, corruption, violence and discrimination against women and girls, an inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, high spending and poorly-targeted subsidies, inadequate availability of quality basic and higher education, and accommodating rural-to-urban migration.
Both countries have ridden the wave of a low dependency ratio (i.e., the ratio of the population younger than 18 years of age or older than 65 years of age to the total population). China’s dependency ratio fell from 68% in 1980 to 36% by 2010, but is now a concern: China will get old before it gets rich.
But having a younger population is not an unqualified blessing. A closer look suggests that India must gain ground on two counts. First, better work quality and working conditions. As per the Economic Survey 2014–15, 92% of the labour force is either self-employed or employed in the unorganized sector. This means inferior work quality, poor working conditions and lower-than-organized-sector wages—all of which significantly hampers productivity. Two, a large percentage of India’s labour force is unskilled or uneducated. Although the workforce is growing and getting younger, this lack of skill and education would not only mean a massive loss of opportunity but also lead to significant socioeconomic challenges.
Future:
In part because of China’s faltering, India’s economic prowess is now front and centre, with a debate about how in the years ahead the trajectory of India’s economy will stack up against China’s. Indeed, the intense draw of India to business headlines around the world has been the country’s very strong macroeconomic growth performance in the past few years. New IMF data indicate that not only did India’s rising real GDP growth rate catch up with where China’s growth rate had decreased to in 2014–7.3 percent–but they project that as China’s growth rate continues to decline–to 6.8 percent in 2015 and then decrease further to 6.3 percent in 2016—India’s growth rate will substantially exceed China’s over the same period, reaching 7.5 percent in 2016.
Sources:
http://www.livemint.com/Politics/dlpKXKCzc7x1nSuMi8yOCN/The-economic-growth-trajectory-of-India-and-China.html
http://static3.businessinsider.com/image/53cd44a169bedd8351af9a0d-960/total-debt-china.png
http://ftalphaville.ft.com/files/2013/01/China-debt-GDP-GMO.png
http://statisticstimes.com/economy/china-vs-india-gdp.php
http://blogs.wsj.com/indiarealtime/2015/09/07/india-or-china-which-asian-giant-has-more-inclusive-growth/
http://www.cnbc.com/2016/02/08/forget-china-india-reports-higher-gdp.html
http://www.forbes.com/sites/harrybroadman/2015/10/31/why-indias-tortoise-may-beat-chinas-hare/#74e1f5026265
http://www.indexmundi.com/factbook/compare/china.india/economy