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Recent Employment Trends in India and China: An Unfortunate Convergence
Recent Employment Trends in India and China: An Unfortunate Convergence
C. P. Chandrasekhar
and
Jayati Ghosh
Asian century?
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
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.
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.
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.
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.)
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.
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.
Lessons
For more inclusive growth, the 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 marketbased measures that alter the structure of incentives for
private agents.