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Indian Economy: A Comparative Overview With China
Indian Economy: A Comparative Overview With China
ARTI NANAVATI PROF. OF ECONOMICS DIRECTOR, CENTRE FOR CANADIAN STUDIES MAHARAJA SAYAJIRAO UNIVERSITY OF BARODA VADODARA- 390002 GUJARAT-INDIA DEPT. OF ECONOMICS, SIMON FRASER UNIVERSITY BURNABY, BC, CANADA 18 JUNE, 2009
after China.
Urban population 28% of total. (China 39%) More than half of its population is 25 years of age. Demographic dividend.
Measured in USD exchange rate terms, 12th largest in the world, with a GDP
of $3.32 trillion (PPP) , China ranked 2nd largest with GDP of $7.8 trillion. (2008)
PCI $2,900 at PPP and that of China $6100 (2008) Population below poverty line is 27.5% (2008 est.) China 10% World Bank classifies India as a low income economy
The contribution of Agriculture, industrial and service sector (2007-8) in GDP has been 21,24 and 55%. ( In China the corresponding percentages are 11.3, 48.6 and 40 % in GDP 2008)
Agriculture is the predominant occupation in India, accounting for about 60% of employment ( China 43%) . The service sector makes up a further 28% (China 32%) , and industrial sector around 12% (China 25%). Organized sector employs 8% of workforce (two thirds of which are in public sector), and produces about 40% of GDP. Rest in informal sector -with predominance of women. Urban informal sector is a fast growing sector. 30% of total labour is constituted by casual labour and only 10% are in regular employment. Major problem not of open unemployment but of underemployment and disguised unemployment. Unemployment rate 6.8% (2008 est., in China 4.3% is official and 17% unofficial UR).
Why India?
GDP growth rate 9% in 2007-2008, slowed down to 7.3% in 2008-9. Major industries are Textiles, chemicals, food processing, steel,
transportation equipment, cement, mining, petroleum, machinery, software. economy. India is an imp. back office destination for global outsourcing of customer services and technical support. software eng.
2000-01
1)Agriculture etc 2)Industry 2.1 Manufacturing 2.2 Construction 3) Services 3.1 Trade, hotel, Restaurants 3.2 Transport, storage & communica. 3.2 Finance, insurance, etc 3.3 Community, social and per. service
Source: EPW June 14, 2008
2007-08
20.55 24.71* 54.74 26.80** 14.32 13.62
* Inclusive of2.1, 2.2, ** of 3.2. Source : EPW 14TH June , 2008 and Economic Survey of India 2007-8
i) Since independence (1947) till almost late eighties followed a socialist inspired approach- strict govt. control over -private sector participation, foreign trade and FDI (Approach-import substituting rather than export promoting) . ii) Indias low average growth rate ( 3%) from 1947-80 was referred as Hindu rate of growth, because of the unfavorable comparison with the other Asia countries, especially the East Asian Tigers.
restrictions , approvals needed for 60% of new FDI in the industrial sector.
FDI averaged only $200M between 1985-1991. In 2004, net FDI inflow was about 7-8 USD bn. (
foreign aid, commercial borrowing and deposits of non resident Indians. markets.
on capacity expansion for incumbents, removed price control and reduced corporate taxes. Phase of high growth with high fiscal deficit and worsening current account Collapse of soviet union a major trading partner, first Gulf war causing spike in oil prices led to major balance of payment crisis with the prospects of defaulting on its loan. Prime Minister Narasimha Rao with Finance Minister Manmohan Singh initiated the economic liberalization of 1991. Reforms did away with license Raj in investment, industrial and import licensing-ended many public monopolies, introduced automatic approvals of FDI in many sectors.
Agriculture
India ranks second world wide in farm output. In 2007, accounted for 17% in GDP employing 60% of the total workforce. After having growth rate of 2% for many years- now the growth rate is about
4.5%.
highest average yield in the world. Major agricultural products include rice, wheat, oilseed, cotton jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep goats, poultry and fish. India is the largest producer in the world of milk cashew nuts coconuts tea, gingerturmericand black pepper.It also has the world's largest cattle population (193 million).
It is the second largest producer of wheat rice sugar groundnutand inland
fishIt is the third largest producer of tobacco India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.
Industry
India ranks 14th in the world in factory output. Industry accounts for 27.6% of the GDP and employs 17% of the
work force.
Manufacturing growth rate 8.4%. high-skill sectors account for almost 40 percent of the manufacturing
output of India.
after agriculture and accounts for 26% of manufacturing output One third of industrial labour force is engaged in simple household manufacturing only.
Economic reforms led to more private sector participation, an
expansion in the production of consumer goods and both domestic and foreign competition.
Services
India is fifteenth in services output. With largest share in GDP of 55%, it employs 23% of workforce. The growth rate which was 4.5% in 1951-80 increased to 7.5% in 1991-
technology enabled services, business process outsourcing contributing about one third of total output of services in 2000. only about 1% of total GDP and 1/50th of the total services.
manufacturing center it lags behind China, Thailand, and the rest of Asia.
External Sector
Exports
US 15%, the People's Republic of China 8.7%, UAE 8.7%, UK 4.4% (2007) $287.5 billion f.o.b. (2008 est.) crude oil, machinery, gems, fertilizer, chemicals People's Republic of China 10.6%, US 7.8%, Germany 4.4%, Singapore 4.4%
Dominated by products like tea, jute and cotton manufacturers having generally inelastic demand.
Since liberalization ex-im have become much broad based. Indias exports are consistently rising, covering about 80% of its imports. Merchandise trade of India about 31% of GDP in 2007 (China 68%) High technology exports as % of total manufacturing exports are 5% in
FDI in India has reached 2% of GDP (China 3%, 2006), compared with
Manufacturing
Electricity, gas and water supply Construction Trade , hotels and restaurants Transport, Storage & communication Finance, insurance, real estate and business services
11.10
0.41 3.63 8.26 3.22 1.08
12.90
0.35 5.57 12.62 4.61 2.00
10.50
9.24
Non Farm Sector 25.2 31.5 Casual 6.3 7.3 Regular 7.0 9.3 Self employed 11.9 14.9 ----------------------------------------------------------------------------------------------100 100
Source: NSSO, 62th Round
Structure of Employment
Proportion of workers in the workforce (2005-06) Proportion of workers in the workforce (2005-06)
250 194.10 200 142.26 150 100 50 0 1987-88 1993-94 2001-02 168.69
206.39
2005-06
Rural workers
Workers in the countryside have also increased in numbers. There were 144 million rural workers in 2005-06. There is a high proportion of casualisation in rural areas.
Rural workers (in millions)
150.0 100.0 83.06 50.0 19.45 0.0 1987-88 1993-94 Regular 2001-02 Casual 2005-06 18.39 20.32 27.46 103.20 114.85
116.54
Urban workers
There were nearly 63 million urban workers in 2005-06.
Proportion of regular workers is more among urban workers when compared to rural areas
Urban workers (in millions)
70 60 50 40 30 20 10 0
17.24
45.16
1987-88
1993-94 Regular
2001-02 Casual
2005-06
Wages
Wage rates defer between rural and urban areas and between males and females
working age group. Share of working age population (15-59) will increase from 58% in 2001 to 63% in 2011.
In 2005-06, about 60% of the population was in the
working age group. Of the working age group population, roughly 460 million people were in the workforce in 2005-06.
Of these about 206 million (45%) were
regular/casual workers.
Youth workers
India has among the largest number of youth
1983-1994
1994-2005
1.53 0.44
1.20
-0.70 0.58
-0.31
Is development inclusive?
Labour Market
Growing employment but poor in qualitative terms with low regular
employment, underemployment and mismatch between education and employment. and condemned to low wages. In non-agriculture sector growth in employment is in informal sector.
Although regular employment has risen, its growth has been almost
accounts for only around 3.75 per cent of total employment (one quarter of regular employment) and has been falling. Indeed, India has a much smaller proportion of employment in enterprises with ten or more employees than any OECD country.
70% of Indians(800million), lived on less than 20 rupees(
slightly less than C50 cents) per day with most working in informal sector with no social security. (2007 Report on National Commission for Enterprises in the unorganized sector)
Year
1901
1911 1921 1931 1941 1951 1961 1971 1981 1991 2001
Sex Ratio Rural Urban Total 979 910 972 975 872 964 970 846 955 966 838 950 965 831 945 965 860 946 963 845 941 949 858 930 951 879 934 938 894 927 946 901 933
Year
Area and Gender based Labor and Work Force Participation Rate (%)
Labor force participation rates 1993-94 Rural male 53.4 2004-05 53.1 Work force participation rates 1993-94 50.4 2004-05 48.8
23.7
56.1 15.0
21.9
49.6 12.0
21.6
51.9 13.3
Particulars
Labour Force
Self empl. Regular Wage and Salaried Unempl. Rate
10%
4%
42%
40%
3%
2%
5%
8%
Share of women employment out of total employment in organized sector in India Year % of women in Public sector % of women in Private sector % of women in Total
Source : Quarterly Employment Review, Directorate General of Employment & Training, Ministry of Labor
in rural area.
India
1176.9 950 9.1%
China
3205.5 2370.0 13%
1.3 21 7
0.6 42 16
Source: World Bank: World Development Indicators: Country Profile April 2009
Situating India and China in World Trade (2007) Particulars Unit China India
Share in Merchandise
Exports Imports (%) Rank (%) Rank 8.71 2 6.70 3 1.05 26 1.52 18
Share in Commercial Services Exports Imports (%) Rank (%) Rank 3.63 7 4.14 6 2.74 10 2.49 13
Exports of good & services % of GDP Imports of goods & services % to GDP Trade per capita ($US, 2005-07) Patents granted
42 32
21 24
1483 67948
391 4320
China: 1. Transportation 2. Travel 3. Other commercial services India: 1. Transportation 2. Travel 3. Other commercial services
40.00
Share in GDP
25.00
24.00
10.00
5.00
Share (Percentage)
60%
50% 32.35 40% 20.59 44.98 40.90 30% 13.27 20% 15.22 8.10 10% 12.37 0% CHN IND Countries Chemicals FBT Mach & Transp Others Textiles KOR MYS 20.39 9.50 8.24 8.83
Share (Percentage)
100.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 0.00
Argentina Brazil
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Years
400.00
US $Billion
300.00
233.99
200.00
100.00 52.19 9.94 0.00 Argentina Brazil China India Countries Indonesia Korea 55.05 40.55
95.80
Malaysia
140.00
120.00
100.00
80.00
60.00
53.06
40.00
11.72
Brazil
China
India Countries
Indonesia
Korea
2.5 2.5
1.5 1.3
0.5
0.42 0.2
Particulars HPI-1 Probability of Not surviving to Age 40 (% of cohort) 2000-05 Adult Illiteracy Rate 1999-2001
Rank 35
16.8
6.8
34.8
7.8
contd.
Particulars Children Under Weight for age (% aged under 6, 2005-6) Population below Income Poverty line $1.25 a day $2 a day National poverty line HPI-1 rank minus income Poverty Rank
Rank
India Value(%)
Rank
China Value(%)
46
41.6 75.6
28.6
15.9 36.3
2.8
-11
-19
63.3
57.4
68.9
68.5
Estimated Earned Income (PPP US$) 3698 1185 5646 3644 ------------------------------------------------------------------------------------------------------HDI rank minus GDI -1 1
17 52
cost (% GNP)
Procd.
Duration
Cost
duration cost
recovery rate
GLOBAL COMPETITIVENESS RANKING 2008-9: India and China (Rank out of 134 countries)
Pillars Components India China -----------------------------------------------------------------------------------------------------------------------GCI Global Competitiveness Index 50 30 -----------------------------------------------------------------------------------------------------------------------1 2 3 4 5
6 7 7 8 9 11 12
Basic requirements 80 Institutions Infrastructure Macroeconomic stability Health and primary education Efficiency Enhancer 33 Higher education and training Goods market efficiency Labour market efficiency Financial market sophistication Technological readiness Market Size Innovation and Sophistication factors 27 Business sophistication Innovation
Labour market: Stringent labour laws should be relaxed Business environment: Lowering the barriers to entrepreneurship Ending reservation of products fro SSI Need for Bankruptcy law Dispersion of tariff rates Easing of Service sector FDI restrictions More privatization of public sector enterprises. Financial sector: More liberalization Privatization of public sector banks Infrastructure : Electricity reforms to be speeded up transport: More private sector involvement Public Finances: Better targeting of subsidies, GST Education: Higher public expenditure on primary and education, Addressing financing of higher edu.
India can learn from China in: Social and Physical Infrastructure Improving manufacturing sectors productivity
In Conclusion
India and China non comparable: India-- Democracy (messy) Highly diverse social structure Reforms reactionary in nature- a late starter Less integrated to Global market (including East Asia) Dissimilar trade pattern Lagging behind in FDI and infrastructure
Weak link between economic development and social welfare at regional level compared to China.
Increasingly building ground up Service sector led growth Private sector led growth (early nineties) Consumption driven
Manufacturing sector and foreign trade State led modernization (late 1970s) Investment driven
v)
vi)
India
vii)
China
FDI inflow State owned enterprises Aging workforce
VIII)
VIII)
Cheaper labour
Rural reform
Indias hope!!!!
No Trade off to democracy for 2% higher growth! Accumulated diversity not assimilated. Both India and China have accepted the capitalist road to prosperity but capitalism is more comfortable in democracy which fosters entrepreneurs. Indias growth may be more enduring as people have scripted its growth whereas in China it is state crafted.
India- A country with Potentials for sustaining development!!
Because the Indian state is inefficient, millions of entrepreneurs have stepped in to vacuum. When government schools fail, people start private schools in the slums, and the result is millions of slumdog millionaires . You cannot do this in China!! Gurucharandas Times of India, 10 May 2009
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