Indian and Chinese Economies Post-liberalisation
The neoliberal economic policies that started shaping the economic course of the world were first introduced in the 70s and 80s. Originally an economic line of thinking, it became a political project led by the Reagan and Thatcher governments massively promoting the free-market reforms. The decades that followed were characterized by the opening up of markets throughout the world along with Bretton Woods institutions such as the World Bank adopting policies of globalization, privatization, and liberalization. Among many nations who subscribed to these models, Asia’s two giants India and China joined the chorus although at different periods. China under Deng in the 1970s opened its economy in what we may call a “gradualist” process while India undertook the reforms in 1991 under P.V Narasimha Rao. This article would focus on looking at the works done to understand both the economies- their hurdles as well as achievements using three main pieces of literature. The timespan covered is between 2000 and 2008 which is important as a yardstick to understand the performance of both countries. Aspects such as the structure of the economies, their respective political systems, integration into the world economy, etc. have been addressed. Understanding the role of India and China in the world market is a necessity and carves out some crucial questions that need to be asked when understanding the process of market liberalization.
The first and foremost work is by Meghnad Desai titled India and China: An Essay In Comparative Political Economy. In this piece, Desai covers the history behind both the countries’ political systems and their significance in shaping the respective economies. Desai remarks that China’s central rule had “a uniform revenue collection system and land ownership pattern prevailed while the central power was effective.” In India’s case, he writes, “land reform was a maze of regional complexity”. Although both the countries had “similar diversity in the eco-agricultural makeup of regions”, the difference lay in the style of governance: China was centrally monitored while India had the quasi-federal structure. This argument is critical as it provides important analytical passages into thinking about how it translated into liberalization in both countries. Desai states “Differences between the two appear much greater from the vantage point of 2003 than they would have in 1973 or even 1983.” This is significant as by the time 2000 arrived, China had attracted much more foreign capital than India, the result being China’s per capita income being $3,117 while India’s was $1,760. He investigates the FDI per capita of both the countries which by 1998 had a huge gap (China at $183 and India at $14). By associating these results to both the countries’ diaspora connections, Desai makes one of the most interesting yet arguable points. The slower economic growth of India is, however, highlighted by Desai. According to him, “India has failed to impose arm’s length regulatory regimes free of politics and the result has been fraud and corruption in equity market-related activities.” Desai’s understanding can be argued as broad. This is however not to say that his article provides a perfect introduction to understanding both the economies. His continuous assertion of China’s central authority and India’s “political and institutional differences” are significant in further understanding the two’s performance in the economic realm. The issues related to the Chinese regime are one of intolerance and complete separation of the political from the economy while in the case of India it has been to face a rigid system of bureaucracy followed by lesser autonomy for the states.
The second work is called China and India: A comparative analysis of their integration into the global economy by Mazhar Siraj. This paper focuses on valuable data from both countries to understand how they have integrated into the global economy by simultaneously looking at the challenges that they are facing post-liberalization. Siraj notes that China’s growth has been led by greater exports of manufactured goods while India’s has been to export services. Although both the countries have the advantage of a huge labor force, they are facing a problem of unemployment and a lack of skilled labor in the formal sector. Predominantly agrarian, China managed to decrease its share of agriculture in GDP (36.1% in 1980 vs 11.4% in 2005) by promoting the town and village enterprises while also receiving foreign investment to boost its manufacturing share in GDP (25.4% in 1980 vs 34.1 in 2005). It has not been similar for India as there was no increase in its manufacturing share in GDP (17.7% in 1980 vs 15.1% in 2005) even though it substantially reduced the share of agriculture (38.1% in 1980 vs 19.6% in 2005). A result is a large number of unskilled laborers who are employed in the informal sector comprising 92% of the total working population in India. Economists have also termed this type of growth as “jobless growth” since there is no new employment creation while the economy grows. However, India has seen a massive rise in its service sector which contributes to nearly 61.1% of the GDP compared to China which remains at 40.2% for the same year. Evidence shows that the rate of unemployment has increased in China from 1990 to 2005. The numbers in China are still less than what it is for India. Economists worry that India has skipped the pattern of modernization that requires a shift from agriculture to manufacturing. Siraj provides good empirical data to understand how this transition has played out in both countries. China is seen to have reduced labor in the agricultural sector from 69% (1980) to 50% (2000) by increasing its share in the industrial sector from 18% (1980) to 23% (2000). India, on the other hand, has been successful in reducing its share in agriculture from 86.6% (1983) to 60.4% (2000), but the increase in labor in industries has remained somewhat modest- 14.7% (1983) to 17.5% (2000).
The last and the final paper this article looks into is The integration of China and India into the world economy: A comparison by Isabelle Bensidoun et.al. Published in the European Journal of Comparative Economics, this article is one of the most significant pieces of work done in the comparative studies of India and China. The authors use a systematic structure in their work to define and categorize India and China while ensuring that they put both countries in the same context. This is evident due to their categorization of “emerging economies” instead of the standard categories used by the World Bank such as “developing” and “developed”. By defining these “emerging economies” and focusing mainly on two, they provide an important analytical framework. Like Siraj, they have also gone on to engage with China’s success as a manufacturing hub while India’s relatively weaker position in the sector since liberalization. They place the share of the world’s goods and services for India and China at 1.2% and 7% in 2005 respectively. Credit has been placed to China’s “large and dynamic manufacturing industry” whereas India’s economy is seen as “relatively closed” compared to China. Nevertheless, unlike Siraj’s overwhelmingly empirical account and Desai’s broad brush, the authors here have intended to highlight some of the major reasons why this is the case. Firstly, they attribute the success of China in international trade to the “rapid diversification of its manufactured exports”. Second, the practice of “offshoring and outsourcing” is well contextualized with regard to India and China’s rapid growth. India is a brilliant example of outsourcing of information technology, which gives it the edge in exporting quality IT services with a fifth of world exports in 2006. In contrast, China has been deemed as the “factory of the world” with one-fifth of world exports (same as India in services) by the manufacture of electronic goods making it the best destination for offshoring production. Thirdly, there is sufficient data to prove that China’s massive growth compared to India is also a result of its shift to the production of hi-tech goods. Compared to China, India has remained quite constrained as it has only been able to develop its pharmaceutical production capacity.
All three pieces of literature point to explain a sharp difference in the structures of both economies. Although the political system within which they are run is far from similar, the successful integration into the world economy has resulted in showcasing the importance of these large economies. Similar patterns can be found in these texts as they go on to show the lack of manufacturing capacity in India, a difference in the composition of the economies (China being goods oriented while India being service-oriented), their fair share of troubles related to massive demography which has been somewhat better managed in China than in India, etc. The issue areas in the future will therefore be different due to these aspects. India’s task would be to improve its manufacturing infrastructure, which as scholars have noted has not been a successful transition from agriculture. China’s, to increase household consumption which is strikingly much less due to its heavy reliance on external investments. Furthermore, China has been accused of dumping as a result of its rivalry with other great powers such as the US. Because of a lack of homegrown innovation, understandably, China has been accused of economic espionage in the international community. One of the main points highlighted by Bensidoun et.al is the difference in the working-age populations of both countries. India has a different demographic with a large young population (Median age: 26) whereas China has an aging population (Median age: 40). This might result in differing demographic challenges even though they remain similar in terms of diverse demographics.
It is important to acknowledge that the works have limited scope as we embark on understanding the crucial differences. Many questions have remained unanswered in terms of why there is such a difference. The two subsequent works following Desai have probably intended to focus on “what” are the differences rather than “why”. In the case of Desai, the issue seems to have been taken up more broadly instead of reflecting on its complex character. For example, much less attention has been paid to the incentives that FDIs found in China as compared to India. It would be safe to dwell upon the fact that India’s weak infrastructure and lack of necessities such as health and education have resulted in its posturing as a poor investment destination. A good explanation of this has been given in the research paper by Dr. Gaurav Agrawal and Mohd. Aamir Khan in International Journal of Business and Management. They have attempted to focus on how FDI drives economic growth while arguing that “China has adopted a delineated FDI regime in major investment laws and their implementing regulations”, and they write “India also adopted the path of liberalization from 1991 onwards but due to lack of political consensus the labor reforms, fiscal reforms has not yet taken place. Also, the red-tapism, prevailed in the system, unnecessarily causes a delay in the approval of projects and de-motivates the investors”. Other major issue areas that they look at are the lack of skilled labor for technological advancements and infrastructure in and around the economic zones created in India as compared to China. Another area of concern is the shortage of R&D in the Indian context to enhance its production potential.
It has been observed that contrary to China’s image as a centralized system, it has granted maximum flexibility to the provinces for carrying out economic activities thus generating an atmosphere of competition within the borders. This has not been the case for India where the center dictates a lot of policy issues vis-à-vis the states. Besides, India’s political climate remains a major obstacle to any long-term economic goal. A rigid bureaucracy with its colonial legacy and social inequalities have led to a small proportion benefiting from the economic boom in the country hence raising the issue of equitable distribution. Although similar to India in terms of having loss-making public sector enterprises, China has managed to channelize its drawbacks by major infrastructure developments, generating competition amongst the SOEs, incentivizing bureaucratic and political groups, and undertaking major law reforms to enable trade and commerce. It would be interesting to see how both these nations tackle their future issues such as China’s over-reliance on investment and India’s need to invest more as the world faces a major climate crisis. Factors such as energy efficiency, sustainability, employment, and inequality will remain crucial to their development process.
Amartya Mishra is pursuing a Bachelor of Arts in International Relations from Shiv Nadar University. His interest areas include Sino-Indian relations, Cybersecurity, and Global Political Economy. His attempt is to understand international politics by looking at economic trends. (The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of The Policy Observer or our members.)
The current crisis has hit the poor and corroded their savings. It is crucial to provide relief to the poor not only because of the intrinsic value of alleviating the effects of poverty but also because of their high spending propensity. A demand deficiency existed even before the COVID-19 pandemic which has only worsened.
Having just tided over the Second Wave of COVID-19 and after going through prolonged lockdowns, the Third Wave must be prevented as much as possible. The effects of which may drive India’s double crisis to further extremes. However, looking at the vaccination effort and the sluggish attitude towards the procurement of vaccines, the situation looks grim.
The 1980s was a decade where Indira Gandhi and Rajiv Gandhi shifted the Indian economy to function on the economic principles of the Asian Tigers, which are based on the pro-business model, affecting investment, productivity and privatization. In the pre-1980 Indira Gandhi’s anti-poverty policies were strenuous to practically implement in India.