India and China Comparative Economic Analysis

Economic models of India and China: Looking back and looking ahead [5400 words] China and India are two of the world’s oldest civiliza¬tions, each with the quality of resilience that has enabled it to survive and prosper through the ages and against the odds. Existing in close proximity to each other, the ancient civilizations of India and China surprisingly had little political and economic interac¬tion for the past many centuries. Historically and culturally India never played second fiddle to China and so is the case with China.

Therein lies the root cause of volatile and strained relationship. Both see themselves as great Asian powers whose time has finally come.

There is no doubt that China and India will be dominant economic powers by the middle of this century but in many key respects they are quite different from one another. This is reflected in the position each has in the areas of economic and social indicators, where the score card is continually changing.

Infact, the strengths of India are very often the weaknesses of China and the strengths of China are the weaknesses of India. Notwithstanding their recent economic growth stories, each has its weak point— regional conflicts, pov¬erty, linguistic and religious divisions for India; the contradiction between a capitalist economy and Communist politics, growing regional divide and growing unemployment for China. Both are plagued with domestic politico- economic troubles that could be their undoing if not managed properly.

Yet, China and India also share remarkable similarities in economic outlooks and policies.

Both are focusing on increasing comprehensive national strength on a solid economic- technological base. Both are major competi¬tors for foreign investment, capital, trade, resources, and markets. Burgeoning economic ties between the world’s two fastest- growing economies have become the most salient aspect of their bilateral relationship. Both have begun to behave like normal neighbors— allowing trade and investment and promoting people- to-people contact.

But in the economic sphere Chinese and Indian econ-omies are still more competitive than complementary. More importantly, resource scarcity has now added a new dimension to the traditional Sino- Indian geopolitical strategy.

The real issue, of course, isn’t where China and India are today but where they will be tomorrow. The answer will be determined in large measure by how well both countries utilize their resources, and on this score, India is doing a superior job.

Though India has inherited a more heterogeneous society and conflict ridden polity, but Indian heterogeneity and pluralism have also provided the basis for a better ability to politically manage conflicts, which China’s overarching homogenizing bureaucratic state has so far failed to acquire and this ability is likely to be sorely needed in the future years of increasing conflicts inevitable in a fast-growing internationally-integrated economy with mounting disparities and tensions.

So, this requires looking at deeper social, economic and historical forces than simply referring to an aggregative comparison of an authoritarian and a democratic political regime. China and India are the world’s next major powers. They also offer competing models of development.

Together accounting for 2. 5 billion people, China and India are today the engines of growth in the midst of rapid economic transformation in the global economy. Since 1980, China and India have achieved remarkable rates of economic growth.

The emergence of China and India as major forces in the global economy has been one of the most significant economic developments in recent economic history. It has long been an article of faith that China is on the faster track, and the economic data bear this out.

The “Hindu rate of growth”-a pejorative phrase referring to India’s inability to match its economic growth with its population growth-may be a thing of the past, but when it comes to gross domestic product (GDP) figures and other headline numbers, India is still no match for China.

However, the statistics tell only part of the macroeconomic story. At the micro level, things look quite different. There, India displays every bit as much dynamism as China. Indeed, by relying primarily on organic growth, India is making fuller use of its resources and has chosen a path that may well deliver more sustainable progress than China’s FDI and export-driven approach.

This paper examines the economic models of India and China, comparing and contrasting their experiences over the past decades.

China’s export-led manufacturing boom is largely a creation of foreign direct investment (FDI), which effectively serves as a substitute for domestic entrepreneurship. During the last three decades, the Chinese economy has taken off, but few local firms have followed, leaving the country’s private sector with no world-class companies to rival the big multinationals. India has not attracted anywhere near the amount of FDI that China has. In part, this disparity reflects the confidence international investors have in China’s prospects and their skepticism about India’s commitment to free-market reforms.

But, India has managed to spawn a number of companies that now compete internationally with the best that Europe and the United States have to offer. Moreover, many of these firms are in the most cutting-edge, knowledge-based industries. China’s sustained double-digit growth rate over the last 25 years and India’s rapid growth rate in the last decade and half have, in a sense, surprised researchers, as they have been unprecedented. This has prompted many researchers to try to uncover the “China” or “India” model of development.

China and India already rank among the world’s largest economies, and each is moving rapidly towards the centre stage of the global economy. In this process different priorities have been placed on economic reforms in the past two decades – China taking a more outward strategy and India, until recently, a more inward one.

The fact that India is increasingly building from the ground up while China is still pursuing a top-down approach reflects their contrasting political systems: India is a democracy, and China is not.

But the different strategies are also a function of history. China’s Communist Party came to power in 1949 intent on eradicating private ownership, which it quickly did. Although the country is now in its third decade of free-market reforms, it continues to struggle with the legacy of that period. India, on the other hand, developed a softer brand of socialism, Fabian socialism, which aimed not to destroy capitalism but merely to mitigate the social ills it caused. It was considered essential that the public sector occupy the economy’s “commanding heights”.