Growth differentials in India and China

China and India are among the fastest growing economies in the world, with growth rates much admired by developing countries desperately struggling to crawl out of the poverty trap. Their abundance of relatively skilled labor at low cost has turned them into "factories of the world", and their huge populations in turn offer lucrative consumer markets for multinationals. These two Asian giants are tipped to become the world's next economic superpowers.

 

India and China launched reforms from different starting points: China embarked on market reforms in 1979 from a centrally planned, economically backward, agrarian economy. India initiated its reforms in the early 1990s and is today a semi-socialist economy in a democracy ridden with red tapism, problems of corruption and bureaucratic inefficiency.

 

India's growth has differed from China's and the rest of Asia in its reliance on domestic demand and growth in services rather than labour-intensive manufacturing. The growth in China is mainly based on increase in FDI and exports while the Indian growth is fuelled by domestic demand. China’s economic development is the predominance of the production sector, which entails phenomena such as focusing on labor-intensive industries, high domestic saving rate, large-scale infrastructure construction, constant increase of FDI and international trade.

 

This development pattern keeps its eyes on both domestic demand and the foreign market. India’s development pattern is peculiar in its emphasis on consumption rather than investment, domestic demand rather than foreign market, service sector rather than production sector and high-tech industries rather than labor-intensive industries. The Indian economy excels in finance, software and high level research, and shows robust long term growth potential.

 

The length of expressways in China is about ten times that of India's and China now attracts about $70-80 billion in FDI each year, compared with maybe $20 billion or $30 billion in India. The gap in FDI was much larger just a few years ago. In 2004, one city in China, Shanghai, absorbed $6 billion. In the same year, this was exactly the same amount of FDI India got. 

 

Going by the basic facts, the economy of China is more developed than that of India. While India is the 11th largest economy in terms of the exchange rates, China occupies the second position surpassing Japan. Compared to the estimated $1.3123 trillion GDP of India, China has an average GDP of around $4909.28 billion. In case of per capital GDP, India lags far behind China with just $1124 compared to $7,518 of the latter.

 

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. 

 

Although India has become much developed than before, it is still plagued by problems such as poverty, unemployment, lack of civic amenities and so on. In fact unlike India, China is still investing in huge amounts towards manpower development and strengthening of infrastructure.

 

Agriculture is another 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.

 

In social sector also, China is much developed than India. China’s expenditure on health care system is nearly 5 times that of India. The gap between India and China is widening in terms of values of most social indicators of living standards, such as life expectancy, infant mortality rate, mean years of schooling, the coverage of immunization. Moreover, 97 percent of Chinese children are immunized with DPT vaccine, in contrast with India’s meagre figure of 66 percent. In the field of research and development, India has not made a dent yet. The fact that in 2011, 12.3% of residential patents registered in the world is from China.

 

Another critical negative factor for India’s economy are the inflation and the unemployment rates, which much bigger than China’s. India’s average inflation rate for 2011 was 9%, where as China’s inflation was less than 6%. The Unemployment rate of India was nearly 9%, when China had 4% which is considered negligible according to international standard.

 

Many believe that difference between the political systems is a major reason behind the widening level of development in two neighbours, other factors are also equally responsible if no greater. China’s human development indicators are much better than that of India. Thus, a host of factors are responsible for difference between India and China.

 

China's greater openness to the outside world and its ability to benefit from foreign trade and investment can be attributable to a "stronger state" (albeit authoritarian), one that is able to advocate and implement policies in the country's interests, rather than being held hostage by any vested interest groups. 

 

By contrast, India's burgeoning but unruly democracy means that in order to gain power, the Indian policy makers are often trapped in myopic vested interests and are sometimes held hostage by protectionist voices. 

 

India needs to pull its socks especially by the policy makers and politicians. India is not dying; but India is simply not staying fit to fight for global economic dominion.

 

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