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SR ENGG COLLEGE
PAPER ON
INDIA Vs CHINA: GROWTH & DEVELOPMENT
Done by:
E. Anand, MBA
8056298974, e.anand6@gmail.com
ABSTRACT
The accelerated economic growth of both China and India in recent years has
been the focus of significant policy discussion and analysis. China’s economic
growth has been led by manufacturing, while India’s growth has been through
information technology (IT). As both of these countries look to sustain their growth,
China is striving to increase its presence in IT, while India strives to be a stronger
player in manufacturing. Achieving these respective goals will require both countries
to take a series of policy actions, which is the focus of this paper. For China to
increase its IT sector, necessary policy steps include: focus current IT industry on
global exports; spur entrepreneurship and reduce dependence on central
government; create a strong trade association to improve regulatory environment;
and improve quality and approach of educational system. Conversely, for India to
improve its manufacturing sector, it must increase its FDI inflows for manufacturing
and improve basic infrastructure.
MANUFACTURING SECTOR
Sector/Market size
India is fast emerging as a global manufacturing hub. India has all the requisite skills
in product, process and capital engineering, thanks to its long manufacturing history
and higher education system. India's cheap, skilled manpower is attracting a number
of companies, spanning diverse industries, making India a global manufacturing
powerhouse. India with its vast design skills has attracted a lot of outsourcing
technological orders.
The Indian economy clocked a robust 7.9 per cent growth in the second quarter (Q2)
ended September 2009, catapulted by a stimulus packages-powered strong
industrial growth. Manufacturing sector grew by 9.2 per cent in Q2 of 2009-10
against 4.9 per cent in Q2 of 2008-09, according to the latest CSO estimates
available on the Index of Industrial Production (IIP).
Major indicators Nomura's Composite Leading Index (CLI), UBS' Lead Economic
Indicator (LEI) and ABN Amro' Purchasing Managers' Index (PMI), variety of indices
that track activity in vital economic sectors, indicate an upward trend in economy
owing to growth in the manufacturing sector.
The HSBC Markit Purchasing Managers' Index (PMI), the most reliable indicator of
manufacturing activity in the country based on a survey of 500 companies, climbed
to its highest level in one-and-half years to 57.6 in January, 2010. The index had
stood at 55.6 in December 2009.
Companies reaped the benefit of increasing new orders which led them to step up
their production levels. According to the HSBC Markit report, Indian manufacturers
sharply raised their output levels during the month in line with the increase in new
orders and the latest gains have been above the pre downturn averages.
Exports from special economic zones (SEZs) rose 33 per cent during the year to
end-March 2009, far outpacing the country's overall exports growth of just 4 per cent,
according to the Commerce Department. According to the data, exports from such
tax-free manufacturing hubs totalled US$ 18.16 billion last year. Between April to
June 2009, exports from SEZs totalled US$ 8.7 billion.
• LG is looking at making India its global manufacturing hub for its mobile
handsets. The company will soon be exporting mobile phones to Europe and
the Commonwealth Independent States (CIS) from India.
• Samsung plans to invest US$ 100 million over a period of four years in its
manufacturing plant near Chennai and make it its global hub.
• Hyundai has made India the manufacturing and export hub for its small cars.
The i10 is being manufactured only in India and exported to the world. India is
Hyundai's largest base outside Korea.
The rapid growth of the Indian economy is likely to make India the fifth largest
consumer market in the world by 2025 from twelfth in 2005, according to a study by
McKinsey Global Institute. Aggregate Indian consumer spending is likewise
estimated to more than quadruple to approximately US$ 1.5 trillion by 2025, on the
back of a ten-fold increase in middle class population and a three-fold jump in
household income.
The manufacturing sector is estimated to have a US$ 180-billion investment
opportunity over the next five years, according to the Investment Commission of
India.
AGRICULTURE
Agriculture is one of the strongholds of the Indian economy and accounts for 18.5
per cent of the country’s gross domestic product (GDP).
The average growth rate of agriculture and allied sectors during the last two years
i.e., 2006–07 and 2007–08 has been more than 4 per cent as compared to the
average annual growth of 2.5 per cent during the 10th Five Year Plan.
According to a Rabobank report the agri-biotech sector in India has been growing at
a whopping 30 per cent since the last five years, and it is likely to sustain the growth
in the future as well. The report further states that agricultural biotech in India has
immense potential and India can become a major grower of transgenic rice and
several genetically engineered vegetables by 2010.
The food processing sector, which contributes 9 per cent to the GDP, is presently
growing at 13.5 per cent against 6.5 per cent in 2003–04, and is going to be an
important driver of the Indian economy.
India has become the world's largest producer across a range of commodities due to
its favourable agro-climatic conditions and rich natural resource base.
India is the largest producer of coconuts, mangoes, bananas, milk and dairy
products, cashew nuts, pulses, ginger, turmeric and black pepper. It is also the
second largest producer of rice, wheat, sugar, cotton, fruits and vegetables.
According to the Centre for Monitoring Indian Economy (CMIE), crop production is
expected to rise by 1.7 per cent during FY 10. Foodgrain production is expected to
increase by 1.1 per cent. Of this, wheat production is projected to remain at the
same level of 80 million tonnes as estimated for FY 09. Rice production is projected
to increase by 1.1 per cent to 98.8-million tonnes. Production of coarse cereals and
pulses is also expected to rise in FY 10.
Cotton production in India, the world’s second-largest producer, may rise 10 per cent
to about 32 million bales (one bale is equal to 170 kg) in the 2009-10 season
(October-September) on high support price and more sowing of high-yielding Bt
seeds.
India’s coffee output is pegged at 3.1 lakh tonne in 2009-2010, 4.4 per cent higher
compared to 2008-09, according to the post-blossom estimates released by the
Coffee Board. India is likely to climb up in the ranking list of world top 10 coffee-
producing countries if the actual output in 2009-10 matches estimates. According to
the International Coffee Organisation (ICO) India has a bright chance of becoming
the fifth largest coffee producer in the world, replacing Mexico. Currently, it is placed
in the sixth position.
CONCLUSION:
China and India have embarked on two very different development paths. Each has
leveraged its strengths to develop its own industries.
To develop its manufacturing sector, India would need to improve its infrastructure,
continue its development of human capital and provide some preferential treatment
to increase FDI and the foster specific industry development. Besides allowing for
the duty free import of capital goods and raw materials, similar to China, India has
developed SEZs that provide high quality infrastructure facilities and support
services to manufacturing firms. Learnings from China’s experience would suggest
that higher level of FDI is necessary for further growth in the manufacturing sector.
However, Indian nationalism would make it difficult for India to liberalize its FDI
regulation. Certain government parties are resistant to multinational investment in
India.
To develop its service industry, China would need to focus on an export oriented
growth. Currently, the majority of Chinese software services producers are domestic
companies with domestic consumers with only Chinese language. Since software is
inherently a global enterprise, China will need to look beyond its borders for
expansion. With the internationalization of the industry, China would need to make
extra efforts to stamp out intellectual property rights violations.