Amity law school, Centre-ii

ECONOMICS project
On
COMPARITIVE ANALYSIS OF TRENDS IN
ECONOMIC GROWTH OF INDIA AND
CHINA

SUBMITTED TO:
MS. ISHA JAISWAL
FACULTY
ECONOMICS
AMITY UNIVERSITY, NOIDA

SUBMITTED BY:

SARTHAK GAUR A11911112086
ADITYA AGRAWAL A11911112118
HIMANSHI GUPTA A11911112
ARJUNVEER KHANNA A11911112
NISHANT KAPOOR A11911112

SEM-4
TH
, SEC-B


We take this opportunity to express our profound gratitude
and deep regards to our guide Ms.Isha Jaiswal for her
exemplary guidance, monitoring and constant
encouragement throughout the course of this project. The
blessing, help and guidance given by her time to time shall
carry us a long way in the journey of life on which we are
about to embark.
We are obliged to staff members of amity Law school,
Centre-II, for the valuable information provided by them in
their respective fields. We are grateful for their cooperation
during the period of my assignment.
Lastly, we thank almighty, our parents, brothers, sisters and
friends for their constant encouragement without which this
assignment would not be possible.

Sarthak Gaur,
Aditya agrawal,
Himanshi Gupta,
Arjunveer Khanna,
Nishant Kapoor

Asian century?
Driven by perceptions of growth prospects of China and India in particular.
Both China and India have large populations covering substantial and
diverse geographical areas, large economies with even larger potential size.
Current success stories of globalisation: two economies that have
apparently benefited.
Success defined by the high and sustained rates of growth of aggregate and
per capita national income; the absence of major financial crises; and
substantial reduction in income poverty.
Catching up?

Table 1: Selected economic and productivity indicators for United States, China, and
India: 19982007
Productivity growth
(% average annual change) GDP (US$)
Country 1998
2007
1998
2002
2003
07
Per employee
2007
Per capita
2009
2009
United
States
1.6 1.8 1.3 100 100 100
China 10.3 8.5 9.7 19 22 80
India 4.2 2.8 6.3 11 10 28
NOTES: Productivity growth measured on basis of GDP per employee at 1990
purchasing power parities. GDP per capita at 1990 purchasing power parities.GDP is
U.S. dollars converted at 2005 purchasing power parities.
SOURCE: The Conference Board, Total Economy Database (September 2010),
http://www.conference-board.org/economics, accessed 3 November 2010 and
National Science Board, 2010


India and China Relative to the World


Not similar economies:
Institutional conditions
India was a mixed economy with large private sector, so essentially
capitalist market economy with the associated tendency to involuntary
unemployment.
China was mostly a command economy, which until recently had a very
small private sector; there is still substantial state control over
macroeconomic processes in forms that have differed from more
conventional capitalist macroeconomic policy.



Table 2: India and China Relative to the World (Percentage Shares)
1978 1980 1985 1990 1995 2000 2005 2006
GDP constant 2000 $
China 0.94 1.03 1.51 1.85 2.93 3.76 5.19 5.53
India 0.93 0.89 1.01 1.12 1.28 1.44 1.77 1.86
Exports of goods and services (Constant 2000 US$)
China 1.44 1.71 1.93 1.81 2.56 3.50 7.66 8.52
India 0.43 0.45 0.39 0.46 0.67 0.76 1.07 1.05
GDP PPP (Constant 2005 international $)
China .. 1.98 2.90 3.55 5.66 7.17 9.53 10.07
India .. 2.29 2.58 2.89 3.32 3.69 4.35 4.53
Source: World Bank, World Development Indicators Online
Rates of GDP growth and investment
The Chinese economy has grown at an average annual rate of between 9
and 10 per cent for three decades, showing volatility around high trend.
Indias economy broke from Hindu rate of 3 per cent in the 1980s, to
annual rates of 5-6 per cent, until recently average growth rate was 8-9 per
cent.
The investment rate in China fluctuated between 35 - 45 per cent over the
past 25 years, compared to 24 - 34 per cent in India.
Aggregate ICORs (incremental capital-output ratios) have been around the
same in both economies.
Infrastructure investment from the early 1990s has been just under 20 per
cent of GDP in China, compared to 2 per cent in India.
Structural change over four decades
China: classic pattern, moving from primary to manufacturing sector,
which has doubled its share of workforce and tripled its share of output.
India: Move has been mainly from agriculture to services in share of output,
with no substantial increase in manufacturing, and the structure of
employment has not changed much. Share of the primary sector in GDP fell
from 60 per cent to 25 per cent in four decades, but share in employment
still more than 60 per cent.
Annual rates of growth of national income




1951-52 to 1964-65 4.0
1964-65 to 1974-75 3.2
1974-75 to 1984-85 4.1
1984-85 to 1994-95 5.3
1994-95 to 2004-05 6.0
2004-05 to 2009-10 8.6



Share of agriculture in GDP and employment

0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
1
9
6
0
1
9
6
4
1
9
6
8
1
9
7
2
1
9
7
6
1
9
8
0
1
9
8
4
1
9
8
8
1
9
9
2
1
9
9
6
2
0
0
0
2
0
0
4
China: Agriculture in GDP
and employment
Agriculture, value
added (% of GDP)
Employment in
agriculture (% of
total
employment)



Structural change in the Indian economy








0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
1
9
6
0
1
9
6
5
1
9
7
0
1
9
7
5
1
9
8
0
1
9
8
5
1
9
9
0
1
9
9
5
2
0
0
0
2
0
0
5
India
Agriculture, value
added (% of GDP)
Employment in
agriculture (% of
total employment)
Primary Seconday Teritiary
1950-51 52.6 14.5 32.9
1960-61 42.8 19.6 37.6
1970-71 42.4 20.8 36.8
1980-81 35.7 24.7 39.6
1990-91 29.3 26.9 43.8
2000-01 23.4 26.2 50.5
2007-08 17.8 29.4 52.8
Occupational distribution
Changes in output shares have not been accompanied by commensurate
changes in the distribution of the workforce.
The proportion of all workers engaged in primary activities as the main
occupation has remained stubbornly around 60 per cent, despite fall in the
primary sectors share of national income.




Chinese characteristics
After 1978, decollectivization, price increases, and the relaxation of local
trade restrictions on most agricultural products
Spurred the takeoff of China's agricultural economy from 1978 to 1984.
Grain production increased by 4.7 percent per year, and fruit, red meat,
and fish production grew by 7.2 percent, 9.1 percent, and 7.9 percent
respectively.
Agricultural growth decelerated after 1985, but the country still enjoyed
agricultural growth rates that outpaced the rise in population.
Agriculture contributed more than 30 percent of GDP before 1980, it fell to
16 percent in 2000, and its share of employment fell from 81 percent in
1970 to 59 percent in 2000.
The share of primary products, especially those from agriculture, in total
exports was over 50 percent in 1980, it fell to only 10 percent in 2000. Over
the same period, the share of food in total exports fell from 17 percent to 5
percent.
0
10
20
30
40
50
60
70
80
1
9
8
0
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
China: Shares of total employment
Primary
Secondary
Tertiary
Trade patterns
China: Rapid export growth involving aggressive increases on world market
shares, based on relocative capital attracted by cheap labour and heavily
subsidised infrastructure. This in turn required suppression of domestic
consumption.
India: Lower rate of export growth, with cheap labour due to low absolute
wages rather than public provision and poor infrastructure development.
So exports have not yet become engine of growth, except in modern
services.



Obvious Importance of Trade








6.60
10.65
9.94
19.04
23.07
23.33
22.60
25.13
29.56
33.95
37.08
39.08
38.29
34.89
26.18
6.39
6.21
5.31
7.13
10.97
13.23
12.76
14.49
14.80
17.57
19.21
21.32
20.59
23.51
25.40
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
1978 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Chart 1: Exports of goods and services (% of GDP)
China
India
Goods in China and Services in India

India: Not a mercantilist success
India has not run trade surpluses, and even current account has mostly
been in deficit.
Recent export growth part dominated by Chinese market, part of broader
Asian production hub.
Services growing share of Indian economy, but new services other than
finance and real estate still small (5 per cent of GDP and less than 1 per
cent of total employment).
Basic development project far from complete

8.2
14.5
17.6
20.8
20.1
22.4
26.7
30.7
33.8
35.7
34.8
31.6
4.1
5.8
8.8
9.4 9.4
10.1 10.2
10.8
12.2
13.0
12.5
16.4
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008
Chart 2: Exports of goods (% of GDP)
China
India
Only China truly mercantilist
2008: China recorded a trade surplus of $361 billion and a current account
surplus of $390 billion.
India recorded a merchandise trade deficit of $92.4 billion. Even if the net
surplus from services export is taken into account the deficit stands at
$76.4 billion.
Net exports has been a trigger for growth for China, but not so for India.

Is China different?
Similar to the first-tier East Asian industrialisers?
The Chinese economys export dependence, as measured by the total value
of exports as a percentage of GDP, rose from 21 percent in 1991 to 40
percent in 2006, while the average of Japan, Taiwan, and Korea never
exceeded 20 percent.
Chinese private consumption as a percentage of GDP has dropped from 50
percent in 1991 to 38 percent in 2006, while the figures for Japan and Four
Dragons always have stayed above 50 percent since takeoff.
US market dependence
The US constitutes the single most important market for Chinas exports,
only surpassed by EU as a whole recently.
China is the biggest exporter to the US among all Asian exporters. In 2005,
Chinas total export value to the US reached 163 trillion, in comparison to
136 for Japan and 141 trillion for all Four Tigers combined.

Sino-centric export model
China has emerged as the most important destination of other Asian
exporters.
Japans export to China as percentage of total export increased from 7.1 in
1985 to 13.5 in 2005 (with a concomitant drop of export to US from 37.6 to
22.9). Both South Koreas and Taiwans export to China rose from zero in
1985 (under Cold War) to 22 in 2005 (with a simultaneous drop of exports
to the US from 36 to 15 for Korea and from 18 to 15 for Taiwan)
Can China emerge as an alternative growth pole for
developing Asia ?





China - Investment and consumption rates
30.0
32.0
34.0
36.0
38.0
40.0
42.0
44.0
1
9
7
8
1
9
7
9
1
9
8
0
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
50.0
52.0
54.0
56.0
58.0
60.0
62.0
64.0
66.0
68.0
Investment rate Consumption rate
So what explains Indian GDP growth success?
Boom dependent upon greater global integration, with both trade and
financial liberalisation playing roles.
Financial deregulation encouraged capital inflows, sparked a retail credit
boom and combined with fiscal concessions to spur consumption among
the rich/middles classes especially in urban areas, leading to rapid increases
in aggregate GDP growth.
Constrained fiscal policies, poor employment generation and persistent
agrarian crisis reduced wage shares in national income and kept mass
consumption demand low.
Rise in profit shares and middle class demand generated higher rates of
investment and output over the upswing.
Public spending as principal stimulus for growth was substituted in the
1990s with debt-financed housing investment and private consumption of
the elite and burgeoning middle classes.
So this Indian growth story is not so different from the speculative bubble-
led expansion of several other developed and developing countries in the
same period.







Employment trends in India



The Chinese case
Elasticity of employment with respect to GDP over 1995-2008 was 0.03. So
a 1 percent increase in GDP was associated with a .03 percent increase in
employment. This includes agriculture where employment is declining.
In secondary (manufacturing and construction) and tertiary sectors, output
elasticity of employment was 0.13 for both, also very low.

Decreasing Employment Elasticity in China






Employment
Growth
value-
added
Growth
employment
Elasticity
1980-1990
Primary Industry 2.8 6.2 0.45
Secondary
Industry
5.9 9.5 0.62
Tertiary Industry 7.9 12.2 0.65
Total 4.1 9.3 0.44
1990-2000
Primary Industry -0.8 3.8 -0.21
Secondary
Industry
1.6 13.5 0.12
Tertiary Industry 5.1 9.1 0.56
Total 1.1 10.1 0.11
Informalising Labour Market













Unorganised and migrant workers in China
These data leave out the increasing proportion of unorganised workers,
most particularly the rural migrants. Many of them are self-employed.
Rural-urban migrants currently estimated to be around 150 million (half the
urban work force).
Recent CASS survey shows that in 2005 a majority of migrant workers were
in informal activities and typically faced long hours of work for all days of
the week, for less than minimum wages and with poor residential
conditions.
0
5000
10000
15000
20000
25000
30000
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
EMP-CITY-SOE
EMP-STF&WRK
EMP-CITY
Poverty reduction
China: Officially 4 per cent of the population now lives under the poverty
line, unofficially around 12 per cent. (Reflects earlier asset redistribution
and basic needs provision in China under communism, plus larger mass
market and recent role of agricultural prices.)
India: Official poverty ratio much higher and persistent, currently 28 per
cent. Food deprivation is much higher.


Poverty reduction in India depends upon
a relatively egalitarian path of growth
increases in agricultural productivity that help raise wages and keep food
prices under control
expansion of non-agricultural employment, including in rural areas
direct public action in the form of poverty eradication programmes aimed
at generating productive employment for the poor.


Rates of poverty reduction
Rural India Urban India
Annual poverty reduction in percentage points
1973-74 to 1987-88 -1.24 -0.79
1987-88 to 2004-05 -0.64 -0.74
Annual poverty reduction normalised to initial year, per cent
1973-74 to 1987-88 -2.19 -1.60
1987-88 to 2004-05 -1.62 -1.92

Poverty and inequality in China
While Chinese growth has been consistently high across time, poverty
reduction has been concentrated in particular periods.
The reduction was concentrated in two relatively brief periods between
1979 and 1999: (1) the first five years of the reform period i.e., 1979-
1984, and (2) the middle three years of the 1990s. Both were period of
rising farm incomes.
So poverty reduction in China has not depended on GDP growth but on a
fall in rural-urban and income group-wise inequality.,
Growth is increasingly associated with and predicated on inequality, making
it harder for China to deliver the kind of poverty reduction it did manage to
sustain in the early 1980s and mid-1990s.
Human development
China: earlier extensive public provision of health and education: universal
education until Class X, and public services to ensure nutrition, health and
sanitation. (In the 1990s, higher fees and some privatisation of such
services led to reduced access and worsening indicators; since 2002 revival
of public spending in these areas.)
India: the public provision of all of these has been extremely inadequate
throughout this period and has deteriorated in per capita terms since the
early 1990s. Since 2004, slight increase in education spending but still well
below China; government health spending still very low.




Inequalities
In both economies the recent pattern of growth has been inequalising.
China: spatial inequalities across regions have been the sharpest. More
recently, vertical inequalities have grown, especially in urban areas and for
migrant population vis--vis others.
India: vertical inequalities and the rural-urban divide have become much
more marked.
Most important problems are currently the same
Limits to current growth model in terms of both external and internal
viability:
China: high export-high accumulation model which requires
constantly increasing shares of world markets and very high
investment rates. Already signs of reduced unit values of exports and
stagnation/decline of manufacturing employment.
India: IT-enabled services experiencing current boom, but
competitive threat from other countries. Also this not enough to
transform Indias huge labour force into higher productivity activities.
Agrarian crisis
Inadequate generation of employment in terms of decent work
Public neglect of social sectors
Growing inequalities.



Problems with recent boom
Countries competed to send cheaper goods to Northern markets.
The financial bubble in the US attracted savings from across the
world, including from the poorest developing countries, so that the
South transferred net financial resources to the North even when
they received large capital inflows.
A net transfer of jobs from North to South did not take place, as
technological change in manufacturing and new services meant that
fewer workers could generate more output.
Livelihood crises in the South generated short term movements of
labour migration that also subsidised production and accumulation in
the North.
Global output recovery already over
Basic problems in financial sector are still not addressed (and now real
estate, sovereign debt issues) and increased risky behaviour because of
moral hazard of bailouts.
Policy response has been to encourage renewed bubbles based on earlier
growth model.
US cannot be engine of global growth in the immediate future.
Weak employment recovery so sources of new demand constrained.
Severe procyclical policies are still being imposed on BOP constrained
economies by IMF and other international agencies.



New commodity price surge
From mid 2008 commodity prices started falling as index investors started
to withdraw.
Another bubble now: Most important commodity prices have been rising
again.
FAO food price index now above previous peak.
But global demand and supply for most commodities remains broadly in
balance; for some, both output and stock holding have increased.
However, longer term supply issues are important for food and other
agricultural commodities because of policy neglect and persistent agrarian
crisis.

New forms of primitive accumulation drove Indian boom
Nature: Expropriation of peasantry from land, privatisation of water and
other natural resources, over-extraction and degradation.
Petty production: Simultaneous destruction of viability (of peasant
cultivation) and creation of new petty producers because of lack of
employment generation.
Use of informal labour: Especially women, and in unpaid and underpaid
forms, which has subsidised modern industry and services.
Use of social categories (gender, caste, religion) to reinforce surplus
extraction in accumulation process.
Failure of human development is an indicator of this continued reliance
on inequality for accumulation.

This creates challenge and new opportunities for progressive
alternatives
Process can continue for some time as region remains favoured destination
for mobile global capital
But limits to this growth process are increasingly being felt: in finance
(bubble will burst eventually), in internal imbalance (agrarian crisis and
rising food prices), external imbalance (BOP problems), in ecology, in
employment and livelihood and associated social tensions.
New rights-based demands (employment guarantee, food guarantee,
education guarantee) generate need of system to respond, in however
limited a form.
New awareness among Left of need to mobilise among different categories
of workers and others.
Need for financial regulation
Savings glut not because of inadequate financial development: countries
with large savings surpluses (such as Malaysia, Indonesia and South Korea)
have very deregulated and globally integrated financial systems.
Insufficient financial widening and lack of inclusion of small and medium
firms, producers, cultivators and informal sector producers is still a major
constraint.
Capital management techniques are required to control destabilising flows
of cross-border capital
Crucial interaction between food prices and deregulated finance needs to
be recognised and dealt with.
No country has developed without directed credit.

Asia needs a new development strategy
Mercantilist obsession with increasing net exports must be revised.
Greater emphasis on more trade within the Asian region and South-South
trade.
Need to shift to wage-led and employment-led growth domestically.
This is important because the global crisis is not over, it is still unfolding;
and the causes of the crisis have still not been dealt with globally.

Elements of alternative strategy
Generation of good quality productive employment is the most critical
variable.
Need growth strategy that allows and encourages labour productivity
increases overall while significantly expanding expenditure and therefore
income and employment opportunities in social sectors.
Major role for state intervention, through direct public investment and
through fiscal, monetary and market-based measures that alter the
structure of incentives for private agents.








Sources:
http://www.conference-board.org/economics
http://databank.worldbank.org
Global Trade Analysis Project(GTAP)(Version 7)
Datt, Rudder, Sundharam, K.P.M (2009), Indian Economy, New delhi: S
Chand Group

Data and Statistics
World Bank, India Country Overview
World Bank, China
IMF, China
IMF, India
CIA, The World fact book