Can India Outplay China
A few days ago on 19th April 2023 , UNFP ( United Nation Population Fund ) released data on the world's population . According to it, India is now the most populous country in the world with 1.4286 Billion people against 1.4257 Billion Chinese . God knows, is it a matter of rejoicing ?
How much is India’s growth
There is no doubt India has achieved significant growth in many sectors in recent past decades but still we stand far behind when compared to China . After the global downfall due to Covid 19 pandemic and geopolitical issues, China's growth has suffered and India has a better opportunity to rise . In fact India has gained but not as much to match or outplay China .
Chinese vs Indian GDP per capita - The two countries are home to almost 40% of the world population . In the 1970s both had near similar GDP per capita or sometimes India was even better placed and even in the 80s the situation was more or less the same . But since 1990 Chinese growth started jumping many folds compared to India .
Chinese nominal GDP per capita in 2018 was $ 9580 compared to Indian $ 2038 .
Today China’s GDP is nearly US $ 18 Trillions compared to India’s nearly $ 3 Trillion . Chinese GDP is second in the world while India’s 5th . Both Indian and Chinese GDPs were neck to neck till 1990 . Chinese GDP on PPP basis ( 1st in people purchasing power ) 2.61 times that of India ( 3rd ) as per 2021 data .
Why Indian Economy’s growth has been slow
Though a communist country, China opened its market much earlier than India . China is still a socialist country running capitalism in the fields of technology and economy though yet under a state plan . The difference is due to pace of economic reforms in the two countries is due to different paths followed by these two nations -
1 . The Chinese economy was privatized much earlier and faster , keeping communism in place.
2 . Deeper reforms in the labor market .
3 . Prices were released much faster .
4 . Market was opened faster for International trade and FDI ( Foreign direct investment ) in China.
5 . Fiscal competition among various states was introduced .
6 . Better and early Investments in growth of Science , education , infrastructure and research .
7. Too much dependence on agriculture , soil conditions , land holding / tenancy policy , less capital equipment investments , lesser land to man ratio . Agriculture affects the growth of the national economy . However agriculture sector contribution in India is more than Chinese ( sometime back India 20% , China 7.7% )
8 . Sometime back , Indian employment rate was 49% compared to Chinese slightly above 75% .
9. India’s fractured society due to many reasons - caste and subcaste , religions, languages . China has communism and the government can enforce its plan . Any hurdle is summarily cleared with an iron hand . Inefficiency is not tolerated.
Though after the late 1970s state run communism in China was not so strict . The government accepted capitalism but not at bullet speed rather in a calculated measure. Though They allowed FDIs and foreign companies to build factories, they restricted their product selling in the domestic market by asking them to supply technologies to local companies. This practice was followed even by the USA during industrialization . This resulted in lakhs of rural people moving to manufacturing sites for jobs and reducing poverty .
10 . On the other hand though India was never a communist country , it followed a loose socialist economy . India was slower in modernisation than China . It opened its socialist like economy almost a decade later in a piecemeal manner restricted by pressure on the coalition government’s policies , and conflicting interests of industrialists , unions , farmers etc. Thus lost its early bird advantage and by the 1990s China’s manufacturing
sector moved far ahead of India. Due to a better efficient labor force International companies preferred China even though India’s labor was cheaper . China’s minimum wages vary from $ 140 - 346 per month while in India it’s $ 66 - 202( depending on region and product type ).
11. India’s bureaucracies , redtapeism and delays in implementation of development plans .
12 . China aggressively invested in developing its infrastructures at a fast pace which was a necessity for any development and to attract FDIs. Many Chinese roads and transport systems are better than even many developed western countries . In the recent past India too understood its importance and has started investing heavily in infrastructures . Strong infrastructure is necessary for the manufacturing sector . As per recent world bank data China spent 27 % of GDP in manufacturing while India 14% .
13 . Lagging behind in Literacy - As per the World Bank report of 2018 Chinese literacy rate is nearly 97% compared to India’s 74% . Though There has been some improvement in India’s rate in the past few years while China had leverage almost 25 years ago .
14 . Indian Gender Gap - There is a gender gap in the field of education and employment for boys and girls though in the fast few years India is also catching up to bridge this gap. China focuses on learning for both genders while India lags behind in case of girls. This gap also creates a gap in employment in the two genders .
14 . India has many sub standard Institutions of Education - Though some Indian institutions have given many CEOs of global companies , India has many such schools and colleges who have far substandard teachers , environment and basic curricula . They just churn out worthless unskilled youths with degrees of no value in the job market . Number of such youths is piling up which isn’t good for society . Very few institutions have any basic skills and training needed in the job market . Ill-educated and unskilled people can’t contribute much to productivity .
15. China’s Investment more - China opened its market much earlier . It is built on the foundation of Investment, Infrastructure and Manufacturing . As per world Bank data China invests nearly 50% of GDP compared to India’s 30% . 14% of the Indian economy comes from manufacturing while China’s 27%.
India is an emerging economy and trying to catch up with China . Research has shown that by 2050 China will be no. 1 in while India will be no.2 . But as an emerging economy India will have to enhance its Institutions and Infrastructures significantly.
16 . Not Enough Foreign Investment - India needs more FDI to enhance its economy . In the eyes of rich / developed countries for doing business in India , India is still less favored compared to China , Indonesia , Vietnam .India’s diverse society and frequent strikes and bandhs , unions , labor laws , land acquisition problems , lack of political will , delay in statutory clearances etc . After the Covid 19 pandemic countries hesitated in investing in China . According to Heritage Foundation 2022 in the Index for Economic Freedom India stands 27 in a list of 39 countries. As per a report between 2019 and 2021 global FDI investment in India shrunk from 3.4% to 2.8% while China’s grew from 14.5% to 20.3% .
17 . Everlasting Taxation Dispute - Many international companies like Ricard , Amway , IBM , Vodafon , Cairn have suffered due to prolonged taxation disputes . Sometimes India had lost cases on international forums at the Hague Tribunal . Due to such disputes they desist from investing further in India .
18 . Populist Spending - India spends huge sums in allowing populist approaches in schools , hospitals and other government services . In the recent past , India spent more on poverty schemes , even more than the Chinese spent on bigger population . It’s unclear how it will benefit in the future .
The End
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