Comparing Indian economy with that of the Chinese

Ayush Rai
1730904

Submitted to
Dr. Rajib Sutradhar

ECO631
Department of International Studies and History
December 2019
Introduction
Both, India and China are countries that have a vast area, a high population and an ancient
history. Both the economies together contributed more than 50% to the world economy up
until the seventeenth century. Due to various cases of unrest, domestically and no industrial
revolution, unlike Europe, both the economies were destroyed till the 20th century. India
became independent in 1947, whereas China was also declared a republic in 1949, emerging
out of a domestic civil war. During that time, both the economies were insignificant in the
World arena. However, today both of them are among the three largest economies of the
world. Therefore, it becomes interesting to compare these two countries on various social and
economic parameters, as both were almost on the same level of development in mid 20th
century.
Socio-Economic indicators
According to IMF report of 2018, the per capita income of China is $18110, while that of
India is $7874. China ranks 72 in the list of 175 countries, while India ranks at 119. As per
the global multi dimensional poverty index, in 2016, 28% of India’s population was multi
dimensionally poor, while the same for China stood at 5.5%. Urbanisation level in India, as
per the Census 2011 is 31%, while that of China is 58.5%. India’s literacy rate stands at 74%
as of 2011, while that of China exceeds 95%. China ranks 85th in human development index
with a high score, while India ranks 129th with a medium score.
As of 2018, 27% of China’s labour force is employed in agriculture, which contributes 8%
to the GDP. 29% is employed in the industrial sector, which contributes 40.5% to the GDP.
The service sector employs 44% of the population, which contributes 51.5% to the GDP. In
India, 44% of the labour force is occupied in agriculture, contributing almost 15% to the
GDP. 25% of the labour force is occupied in industry, contributing 23% to the GDP. 31% are
employed in services contributing 62% to the GDP.
Analysis
From the 1950s to the 1980s, Indian economy was much better than that of China’s. In
terms of number of people below poverty line and in per capita income, India was much
better. However, one point to be noted is that the communist government in China focused a
lot on social reforms. Class exploitation had almost ended. Education and healthcare reached
every section of the society. However, in India, things were almost the opposite. In spite of
being economically better off, social exploitation based on caste, religion etc. had not ended.
Communities such as Scheduled Castes and Scheduled Tribes were still deprived from
education. This comparison can be pointed out from the fact that China and India had almost
same levels of literacy rate in the 1950s. However, in 1980, China’s literacy rate reached
65%, while India’s literacy rate was still below 50%.
China went under liberalisation reforms in 1978, which had a very big impact in the Chinese
economy. Infact, that was the moment when GDP growth rate of China began to pickup
much faster than that of India. India underwent the same kind of reforms in 1991. However,
the GDP growth rate or the poverty reduction rate of India could still not match that of
China’s. From 1983 to 2010, the average GDP growth rate of China was above 10%. India’s
GDP growth rate never reached 10%. Between 1990 and 2013, China is said to have pulled
more than 700 million people out of poverty, while the same number for India is around 170
million Various reasons can be attributed to it :-
The first key factor was the drastic reduction of births in a very short time. With the one-
child rule, there were millions of women forced into abortion and the sudden lack of children
gave a once a lifetime bonus. For a couple of decades, the workers bulged and were not
burdened with children. In India, the total fertility rate reduced at a much lower rate. From
above 6 fertility rate of China in 1970, it fell below the population replacement fertility rate
of 2.1. On the other hand, India’s fertility rate was below that of China in 1970, but is even
today marginally above the population replacement fertility rate. However, it is predicted that
China’s population is now ageing and dependent population is set to rise. On the other hand,
India will continue to have a demographic advantage in the future as well.
The second key factor is that China was more keen to open up key sectors such as retail,
textiles and manufacturing. Walmart and other western companies entered China decades
ago, while the same did not happen in India. India allowed foreign companies only in select
industries — such as software — and those industries performed very well and provide good
jobs even today. But, in industries that deal with the masses, India did not allow much of
foreign investment and therefore, the amount of jobs that China generated due to its opening
up of market could not be generated in India. As a result, only the middle class in India
enjoys the benefits of globalisation. Large scale food chains, such as the MC donalds or
multiplex, such as PVR are still far away from the masses in India. Moreover, manufacturing
industry never really took up in India. Although, some economists say that India can directly
jump from the agriculture sector to the tertiary sector, as most developed western economies
depend on the tertiary sector. However, we should know that even those western economies
were in a stage of industrial sector, few decades ago. The reduction of people, who depend
upon agriculture in India is reducing at a very slow rate.

The third key factor is the geographical location of both the countries. In china’s
neighbourhood, countries such as Japan, South Korea and Taiwan were going through a
massive technological advancement. China could easily gain from those advancements, by
trading extensively with them. Infact, due to the presence of large manpower, many Japanese
and Korean companies opened up their plants in China as well. This helped China in a big
way. On the other hand, India’s neighbourhood did not consist of any major advanced
economy. India’s neighbour countries fared even worse than India in socio-economic
indicators.

One last factor can be the different structure of governments in China and India. China’s
government can be more authoritative and dictatorial as compared to India. Infact, all of
China’s property belongs to the state and there is no scope of private property. This can
especially, be used to explain the wide infrastructural gap between India and China. For
example, China has built more than one lakh kilometres of expressways, while India has less
than seven thousand kilometres of them. Therefore, the logistics cost of India is twice more
than that of China. China also has a well built network of high speed rail, while India has no
high speed rail. All this can be attributed to the slow process of land acquisitions in India,
compared to China. Moreover, since the government in India is elected only for five years, it
might look at only short term gains and be involved in electoral politics. No serious planning
for long term is in the preference of the government. On the other hand, Chinese government
need not worry about electoral gains and can go for large scale projects.
Conclusion

As GDP growth of China has reduced to single digits, since 2010, Indian economy has come
to limelight in the global arena. For a considerable time, India is holding the tag for the
fastest growing major economy. However, it might take a long time for Indian economy to
match the scale of China. The central governments and the state governments have a major
role to play. As there is a trade war between U.S. and China, India should utilise this situation
to attract more and more investment. Large scale labour intensive manufacturing sector, is
what should India focus on. For that, infrastructure creation is a pre-requisite, including
connectivity, education and healthcare.