Transcript Indian Economy : A Comparative Overview with China

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
1)Agriculture etc
2)Industry
2.1 Manufacturing
2.2 Construction
3) Services
3.1 Trade, hotel, Restaurants
3.2 Transport, storage & communica.
3.2 Finance, insurance, etc
3.3 Community, social and per.
service
23.89
25.80
15.30
05.81
50.30
14.34
07.96
13.04
14.98
2007-08
20.55
24.71*
54.74
26.80**
14.32
13.62
* 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
partners
Imports
Import goods
Main import
partners
US 15%, the People's Republic of China 8.7%, UAE
8.7%, UK 4.4% (2007)
$287.5 billion f.o.b. (2008 est.)
crude oil, machinery, gems, fertilizer, chemicals
People's Republic of China 10.6%, US 7.8%,
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
0.78
0.63
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
business services
1.08
2.00
Social, community and personal services
10.50
9.24
Mining & Quarrying
Manufacturing
Source: Economic Survey of India 2007-08
Economically Active Adult population (%)
2004-2005
1993
2005
----------------------------------------------------------------------------------------------Agriculture
74.8
68.5
Labour
Cultivator
Farm regular
34.4
39.3
1.1
30.3
37.3
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
194.10
200
206.39
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
83.06
103.20
114.85
116.54
50.0
19.45
18.39
20.32
27.46
1987-88
1993-94
2001-02
2005-06
0.0
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
50
40
30
20
10
0
18.06
11.72
17.24
14.98
28.03
32.11
1987-88
1993-94
Regular
40.87
45.16
2001-02
2005-06
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
Private Sector
1.53
0.44
-0.70
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
Year
Public
Private
2004
Public sector workers
Public sector workers by Industry - 2004
Agriculture
Mining
Manufacturing
Electricity, gas,
water
Construction
Trade,
restaurants
Community,
social services
Financing,
insurance
Transport,
storage
Private sector workers
Private sector workers by Industry - 2004
Community,
social services
Transport,
storage
Financing,
insurance
Mining
Agriculture
Trade,
restaurants
Construction
Electricity, gas,
water
Manufacturing
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
1901
1911
1921
1931
1941
1951
1961
1971
1981
1991
2001
Sex Ratio
Rural
Urban
Total
979
910
972
975
970
966
872
846
838
964
955
950
965
965
963
831
860
845
945
946
941
949
951
938
858
879
894
930
934
927
946
901
933
Source : Office of the Registrar
General, India
Sex Ratio 1901-91 (Total, Rural and
Urban) from Brief Analysis of PCA
paper-2 of 1992
1961 Population from PCA 1961
1971 Population from Social and
Cultural Tables
1981 figures from Series Part-II A(I),
General Population Tables – Census
of India 1981.
Figures of 1991 (including interpolated
data for JK-1991 based on 2001
census) and 2001 from PCA census
of India -2001
Trends in Gender Disparity in Literacy Rate
Male
Female
Male/Female
Literacy rate
disparity
40.4
39.5
56.3
63.8
75.8
15.3
18.4
29.7
39.4
54.1
0.45
0.38
0.35
0.28
0.21
Year
1961
1971
1981
1991
2001
Slightly more
than half of total
women are
literate.
Male-Female
LR
disparity is on
decline.
Area and Gender based Labor and
Work Force Participation Rate (%)
Labor force
participation rates
1993-94
Rural male
2004-05
Work force
participation rates
1993-94
2004-05
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
Male
Female
Urban
Male
Female
Labour
Force
56%
31%
57%
15%
Self empl.
57%
62%
42%
44%
Regular
Wage and
Salaried
10%
4%
42%
40%
3%
2%
5%
8%
Unempl.
Rate
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
Public sector
% of women in
Private sector
% of women
in Total
1995
2000
2001
2002
2003
2004
13.4
14.8
14.9
15.4
15.6
15.9
20.2
23.9
24.2
24.3
24.5
24.8
15.4
17.6
17.8
18.1
18.4
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
GDP (current
US$billion)
1176.9
3205.5
GNP PC
(current US$)
950
2370.0
GDP growth
Annual %
9.1%
13%
Population
growth rate
(annual %)
1.3
0.6
Mobile and cellular subscription
Per ‘ooo population
21
42
Internet user per ‘000 population
7
16
2007
Source: World Bank: World Development Indicators: Country Profile April 2009
Situating India and China in World Trade (2007)
Particulars
Unit
China
India
Share in Merchandise
Exports
Imports
(%)
Rank
(%)
Rank
8.71
2
6.70
3
1.05
26
1.52
18
3.63
7
4.14
6
2.74
10
2.49
13
Share in Commercial Services
Exports
Imports
(%)
Rank
(%)
Rank
Source: WTO- World Trade Statistics, April 2009
China India world Trade highlights 2007
Particulars
Exports of good & services
% of GDP
Imports of goods & services
% to GDP
Trade per capita
($US, 2005-07)
Patents granted
China
India
42
21
32
24
1483
391
67948
4320
China- Merchandise Trade 2007
Breakdown in economy's in
total exports:
total imports
By main commodity group (ITS)
1.Agricultural products
2.Fuels and mining products
3.Manufactures:
(%)
(%)
3.2
3.4
93.2
6.8
22.0
70.9
By main destination
1 European Union (27)
2. United States
3. Hong Kong, China
4. Japan
5. Korea, Republic of
By main origin
20.1
19.1
15.1
8.4
4.6
1. Japan
2. European Union (27)
3. Korea, Rep. of
4. Taipei,Chinese
5. China
14.0
11.6
10.9
10.6
9.0
India’s- Merchandise Trade 2007
Breakdown in economy's in
total exports:
total imports
--------------------------------------------------------------------------------------------------------------------------By main commodity group (ITS)
1.Agricultural products
2.Fuels and mining products
3.Manufactures:
(%)
(%)
11.0
24.3
63.6
4.4
40.2
46.3
By main destination
1 European Union (27)
2. United States
3. United Arab Emirates
4. China
5. Singapore
By main origin
21.7
13.8
9.9
6.5
4.4
1. European Union (27)
2. China
3. Saudi Arabia
4. USA
5. United Arab Emi.
14.8
11.2
7.6
6.5
5.4
Trade in Commercial Services-2007
Breakdown in economy's
total exports
(%)
total imports
(%)
China:
1. Transportation
2. Travel
3. Other commercial services
25.7
30.6
43.6
33.5
23.0
43.5
India:
1. Transportation
2. Travel
3. Other commercial services
9.7
12.1
78.2
40.1
11.3
48.6
Cross Country Comparison
Share of Manufacturing Sector (2004)
45.00
39.41
40.00
35.00
31.40
Share in GDP
30.00
25.00
24.07
28.34
28.74
Indonesia
Korea
24.00
20.00
16.10
15.00
10.00
5.00
0.00
Argentina
Brazil
India
China
Countries
Malaysia
Composition of Manufacturing Sector Across Countries
100%
11.99
3.80
7.82
11.00
90%
80%
29.60
28.06
Share (Percentage)
70%
38.24
34.75
60%
50%
32.35
20.59
44.98
40%
40.90
30%
13.27
20%
15.22
8.10
8.83
9.50
8.24
KOR
MYS
20.39
10%
12.37
0%
CHN
IND
Countries
Chemicals
FBT
Mach & Transp
Others
Textiles
China
Argentina
Brazil
India
Korea
Years
Indonesia
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
Share (Percentage)
Manufacturing Exports: Cross Country Comparison
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Levels of Manufactured Exports Across Countries
542.20
500.00
US $Billion
400.00
300.00
233.99
200.00
95.80
100.00
55.05
52.19
40.55
9.94
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
Size of Labor Force in Manufacturing Sector
180.00
160.00
160.00
Number of Workers (Million)
140.00
120.00
100.00
80.00
60.00
53.06
40.00
20.00
11.72
11.65
1.36
4.23
2.02
Korea
Malaysia
0.00
Argentina
Brazil
China
India
Countries
Indonesia
Spending on R & D as a percentage of GDP (2003)
3
2.5
R & D Expenditure as a Percentage of GDP
2.5
2
1.5
1.3
1.03
1
0.77
0.5
0.7
0.42
0.2
0
Argentina
Brazil
China
India
Countries
Indonesia
Korea
Malaysia
HUMAN DEVELOPMENT INDICATORS(2006)
---------------------------------------------------------------------------------------------------------------------------Human Development Index
( Position among 179 countries)
Particulars
INDIA
Rank
Value
CHINA
Rank
94
Value
HDI
132
0.609
0.762
Life expectancy at birth( yrs)
127
64.1
69
72.7
Adult literacy rate (%)
118
65.2
53
93
Combined(pri—ter)enrolment
ratio
134
61
113
68.7
GDP PC($PPP)
126
2489
104
4682
----------------------------------------------------------------------------------------------------------------------------
Source: Human Development Report 2008
HUMAN POVERTY INDEX (HPI-1) -2006
Particulars
HPI-1
India
Rank
Value(%)
87
28.5
Rank
35
China
Value(%)
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
Children Under
Weight for age
(% aged under
6, 2005-6)
Rank
India
Value(%)
46
Rank
China
Value(%)
7
Population below
Income Poverty line
$1.25 a day
$2 a day
41.6
75.6
15.9
36.3
National poverty line
28.6
2.8
HPI-1 rank minus
income
Poverty Rank
-11
Source: Human Development Report-2008
-19
Gender Related Development Index (GDI)
Particulars
India
China
----------------------------------------------------------------------------------------------------GDI
Rank Value % of HDI
Rank Value
% of HDI
116
0.591
97.1
79
0.760
99.8
-------------------------------------------------------------------------------------------------------
Life Expectancy
At birth (2006)
Adult literate
(1999-2006)
Combined gross
Enrol. Ratio (%)
2006
Male
66.5
76.4
63.3
Female
97.1
53.4
57.4
Male
Female
71.0
74.5
96.3
89.5
68.9
68.5
Estimated Earned
Income (PPP US$)
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
Female legislatures,
Senior officials &
Managers
-
17
Female professional
And tech. workers
-
52
21.3
India-China comparative Business Scenario-2007
Particulars
India
China
-------------------------------------------------------------------------------------------------------------------------------------------(Rank out of 183 countries-2008)
-------------------------------------------------------------------------------------------------------------------------------------------Corruption perception index
85
72
------------------------------------------------------------------------------------------------------------------------------------------1)
Procedure (no) duration
cost (% GNP)
Procd.
Duration
Cost
Starting a business 13
30 days
70.1
14
40 days
7.5
-----------------------------------------------------------------------------------------------------------------------------------------2)
duration cost (as % of estate) Recovery rate
(cents per dollar)
duration cost
recovery rate
Closing a business 10 yrs
9
10.4
1.7yrs
22
35.3
-------------------------------------------------------------------------------------------------------------------------------------------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
-----------------------------------------------------------------------------------------------------------------------1
2
3
4
5
6
7
7
8
9
11
12
Basic requirements
80
Institutions
Infrastructure
Macroeconomic stability
Health and primary education
Efficiency Enhancer
33
Higher education and training
Goods market efficiency
Labour market efficiency
Financial market sophistication
Technological readiness
Market Size
Innovation and Sophistication factors 27
Business sophistication
Innovation
Source: Global Competitiveness Report 2008
42
53
72
109
100
56
47
11
50
40
63
47
89
34
69
5
64
51
51
109
77
2
32
27
32
43
28
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
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
China
√
√
√
√
√
√
√
√
√
√
√
√
Two divergent development Paths:
India
China
i)
Increasingly building ground up
ii)
Service sector led growth
Manufacturing sector and foreign trade
iii)
Private sector led growth
(early nineties)
State led modernization (late 1970’s)
iv)
Consumption driven
v)
Knowledge based sector-labor
vi)
World’s back office
Top down approach
Investment driven
Cheap- assembly line workers
Factory of the world
India
vii)
Domestic Private Companies
VIII)
Young work force
VIII)
Cheaper labour
China
FDI inflow
State owned enterprises
Aging workforce
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
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