India and China

 The Indian economy has shown tremendous growth

and progress in the recent years and despite its growing prosperity the country has to yet come out of the clutches of poverty. The feel good environment is good for the business sector mostly in the urban sector and Indias rural sector is still trailing far behind. So the need of the moment would be to strike up a balanced good approach. In this backdrop we will understand more about India China growth story

 China opened up its economy in 1978 while India

started with the process of liberalization only in 1991

Institutional conditions
India was a mixed economy with large

private sector, so essentially India has been a capitalist market economy existing under government control and regulations.
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.
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The financial sector

India: financial sector was again typical of the mixed

economy with comprehensive government control over the financial system; financial liberalisation since early 1990s has meant robust growth of private financial institution pushing growth and strengthening financial sector in India

China: financial system still under the control of the

state, despite recent liberalisation. Four public sector banks handle the bulk of the transactions in the economy, and can regulate the volume of credit to manage the economic cycle, and direct credit to priority sectors.
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India
Although India occupies only 2.4% of the world's

land area, it supports over 17.3% of the world's population. Almost 50% of Indians are between the age group 025 years. More than 70% of the people live in more than 550,000 villages, and the remainder in more than 200 towns and cities. Over thousands of years of its history, Indian people and culture have a remarkable racial and cultural synthesis. As in the year 2011, the Population of India is 1,210,193,422 or 1.21 billion. China in terms of area is three times that of India and population of over 1.3 billion

Population Growth Rate

Population growth rate in India is 1.40% while

population growth rate in China is 0.65%

This means that India will continue to have large

young work force for years to come while same will not happen in case of China.

Net Domestic Product by Sector of origin At current prices - India

Sector Primary Secondary

1993-94 35.1 21.7

2003-04 26.4 21.3

2009-10 20.1 27

Tertiary

43.2

52.3

52.9

Source: Statistical Outline of India and Economic Survey

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World Origin of GDP Source: World Bank

Country UK Agriculture (%) 1 Industry (%) 26 Services (%) 73

USA Japan China India

2 1 13 21

24 31 46 27

74 68 41 52

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China: Work force distribution

1952 1965 1975 1985 1995 2005 Primary Secondary Tertiary 83.5 7.4 9.1 81.6 8.4 10.0 77.2 13.5 9.3 62.4 20.8 16.8 52.2 23.0 24.8 44.8 23.8 31.4

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Manufacturing
USA is largest manufacturing nation in the world

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followed by China and Japan India stands at 12th position in global manufacturing order. Other countries ahead of India are Germany France, UK, South Korea, Italy, Brazil, Canada, Russia It is expected that by 2025 China will become largest manufacturing nation in the world followed by USA India will be holding 6 or 7 position in manufacturing order by 2025. Other countries ahead of India will be Japan, Germany, South Korea and France

Some Statistical Details pertaining to India and China

Parameters GDP per Capita Growth rate of GDP Unemployment rate Foreign Exchange and Gold Reserves External Debt Population India $ 1297 Around 8% Around 10% Around $ 300 billion $ 297 billion 1.21 billion China $4763 Around 10% Around 4% Around $ 3 Trillion $ 549 billion 1.37 billion

Life expectancy
Infant Mortality rate per 1000Literacy rate

66 years
30.15 90%

73.47 years
20.25 61%

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Points in Favour of India over China

Corporate Tax regime in India is more favorable

Indian Capital Market and Banking System is considered

stronger in comparison to that of China. Though market capitalization of companies on bourses in China like Shanghai and Shenzhen is more, India is much ahead in terms of number of listed companies and matching international trading standards. SEBI a market regulator in India is much stronger than hat of SEC of China.
Similarly though worlds largest bank today in terms of

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market capitalization is from China (ICBC Industrial and Commercial bank from China. ICBCs assets are currently being valued at $ 2.3 trillion in comparison to that of State Bank of India whose assets are valued around $ 370 billion) still Indian banks are considered stronger on account low NPA, good CRAR and adoption of international regulatory norms.

India - China
Although there are excellent companies in China

but in terms of management capabilities Indian companies and business leaders score over China.
Private sector Indian companies are much ahead

of China in Making global Merger and acquisitions and managing them successfully as well.

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Some major acquisitions by Indian companies have been

Tata Steels $13.6 Billion Acquisition of Corus Tata Groups acquisition of U.S.-based Glaceau, a

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health drinks and water manufacturer, for US$677 million Tata Teas purchase of a controlling stake in Britains Tetley for US$407 million Indias wind energy firm Suzlons acquisition of Hansent Transmission for $324 million and acquisition of Repower Infosyss $28 million acquisition from Phillips of BPO centers in Chennai; Lodz, Poland and Bangkok, Thailand. Indian Phamaceutical giant Ranbaxys acquisition of Romanias Terapia Ballarpur Industries (an Indian Paper and Pulp company) and JP Morgans acquisition of Malaysias Sabah Forest Industries

India China
India is having large work force that is

comfortable using English as language with high degree of precision at work on the other hand same is not true for China.
Majority of population still is comfortable using

mandarin which incidentally is also worlds most spoken language.

However over the years English has emerged as
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global language while Mandarin is still a local language

Poverty in India
As per recent World Bank estimate more 42% of

the population lives below $1.25 a day or roughly Rs. 21.6 a day (based on PPP basis) in India. Percentage of population living below $1 day is 24% which is equivalent to Rs. 17.2 (on PPP basis)

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Advantage China
Huge Consuming Market with greater Per Capita

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Income. Very high economic growth rate highest in the world Good Infrastructure World Class manufacturing base Efficient export trade logistics Moving up rapidly in value chain from labour intensive cheap products to more technology intensive exports Existence of large and flourishing Special Economic Zones Quick Clearance of FDI Proposals Low labour cost and suitable labour laws Single political direction and stable economic policies Strong investment in Education and training

Rates of investment
The investment rate in China (investment as a share

of GDP) has fluctuated between 35 - 44 per cent over the past 25 years, compared to 20 - 26 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

averaged 19 per cent of GDP in China, compared to 2 per cent in India

As per latest list of top ten biggest ports in the world,
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seven ports are from China. These are Shanghai, Ningbo-Zhoushan, Tianjin, Guangzhou, Qinhuangdo and Hong Kong

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.
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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.
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 services.

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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.

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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. Very recently slight increase in education spending but still well below China; government health spending still very low.
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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, especially for migrant population vis--vis others.
India: vertical inequalities and the rural-urban

divide have become much more marked.

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Sustainability of current patterns

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, plus question about whether it will be enough to transform Indias huge labour force into higher productivity activities.
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India: Organised sector employment

Employment in the organised sector
80 70 60 50 40 30 20 10 0

1981

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Public Sector

Private Sector

Total

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2003

China: Urban employment

Share of urban employment by type of employer
90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
1978 1980 1985 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

State owned units

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Collectives & coops

Other private units

Self-employed

Challenges Ahead - China

Most of the companies from China making to the list of Forbes 500 companies are state owned companies. Among the top 20 companies from China are companies like Sinopec, State Grid Corporation of China, China National Petroleum Corporation, Industrial and Commercial bank of China, China Mobile, China Railway Group, China railway Construction Corporation, China Construction bank, China Life Insurance Company and Agriculture Bank of China. A big challenge for state owned Chinese companies is to become and stay competitive in international markets. There is international pressure on China to move towards floating Renminbi or Yuan. On account of same in future Yuan will appreciate and will put pressure on export earnings of Chinese companies. China has to learn to deal with the same. There are wide income inequalities still existing in China between rural and urban areas and migrant labourers and relatively unskilled workers are being paid very low wages in China. This is resulting in wide discontent in China and challenge is to ensure that such discontent is controlled as this may otherwise destabilize the Chinese economy. The rate of growth of money supply in China is very high (close to 200% per annum). This is already putting pressure of inflation on growth and interest rates. It is still to be seen how Chins will deal with these challenges in years to come. China still is under control of one party government (communist party of China). Like all major countries in the world over the period of time China will have to move towards more democratic setup. How China growth story/process will be handled then will decide future of China in global economy

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Challenges for Indian Economy

Improvement of Infrastructure

Managing control over Inflation along with

challenge of ensuring low interest rates in market Managing and controlling asset price bubble. Ensuring that political process and changes in same continue to favour process of growth Managing rising unemployment, inequality of income and wealth Investing heavily in Education, Health

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