India's Rising Tide

Discussion in 'Economy & Infrastructure' started by Daredevil, Jul 4, 2009.

  1. Daredevil

    Daredevil On Vacation! Administrator

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    India's Rising Tide

    The rural poor fare better than in China.

    By JOHN LEE From today's Wall Street Journal Asia.

    China and India will likely defy the economic malaise in Western economies and grow at more than 7% this year. But that is where the comparison should end. Contrary to popular hype, India is actually outpacing China where it counts most -- the economic growth of the rural poor.

    Half of China's population and two-thirds of India's still live in rural areas -- roughly 700 million people in each country, most of whom remain poor. In China, the urban-rural income ratio has become increasingly disparate; it was 1.8 times more in the mid-1980s, 2.4 in the mid-1990s, 2.9 in 2001 and now around 3.5.

    This trend starkly contrasts with the early years of Chinese economic reform. Over 80% of the poverty reduction in China occurred during Deng Xiaoping's reforms, between 1978 and 1988. Although per-capita incomes have risen since then, the net incomes of about 400 million people have declined over the past decade.

    India started from a lower economic base but has made greater gains: Its urban-rural income gap has slowly but steadily declined since the early 1990s. Over the past decade, economic growth in rural India has outpaced growth in urban areas by almost 40%. Rural India now accounts for half of the country's GDP, up from 46% in 1993. Unlike the Chinese, rural Indians do not have to migrate to already crowded urban areas to earn a better living.

    These trends mirror the path of economic reform in both nations. China had a huge head start in alleviating poverty. It began free-market reforms in 1978, while India only started on its current journey away from socialism toward a market-based system in the early 1990s. Since the turn of the century, India has been rapidly improving, but China has been getting worse. And since 2000, poverty and illiteracy in India have halved, while the same figures doubled in China.

    The role of domestic consumption in the economy also demonstrates the divergent paths of these two developing giants. In China, domestic consumption as a proportion of GDP has fallen to 35% from around 60% in the 1980s. The Chinese "economic miracle" depends mostly on exports and state-led fixed investment. Even Beijing consistently admits this is an unbalanced, unsustainable strategy. Moreover, depressed consumption levels and correspondingly high levels of savings by the citizens of a still-poor country mean growth is uneven and benefits relatively few. In contrast, domestic consumption composes more than two-thirds of the Indian economy. India has a lot of catching up to do, but its poor are rising with the tide, unlike in China.

    China's emphasis on state-led fixed-investment growth in urban areas may have fostered this trend, exacerbating inequality and heavily favoring a relatively small number of well-placed insiders. After the 1989 Tiananmen Square massacre, Beijing decided the state should reassert its control of economic growth, which had rested on private-sector entrepreneurship. Before Tiananmen, private-sector investment growth in rural China was growing at 20% annually. After Tiananmen, it dropped to 7%. Hundreds of millions of Chinese have since missed out on the fruits of the country's spectacular growth.

    The Chinese and Indian development models are not actually in competition, despite what newspaper headlines and books may suggest. But as magnificent as Shanghai now is, its shiny buildings have been built on the backs of peasants forced to deposit their savings into state-owned banks and receiving little in return. In contrast, India started its reforms 15 years later than China but is quietly and gradually building its base. Now that Prime Minister Manmohan Singh is starting his second term, he will do well to reject the dangerous appeal of the Chinese approach.

    Mr. Lee is a foreign-policy fellow at the Centre for Independent Studies in Sydney, a visiting scholar at the Hudson Institute in Washington and the author of "Will China Fail?" (CIS, 2008).
     
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  3. Daredevil

    Daredevil On Vacation! Administrator

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    The competition between China and India mirrors that of a 'Hare and Tortoise race', where the Hare runs faster but gets complacent in the middle of the race while Tortoise runs slowly but steadily. In the end, Tortoise win the race. The above article pretty much reflects this fable of 'Slow and steady wins the race'. China has a head start in its economic growth, despite that there is increased disparity between rural and urban mass of chinese and the economic fruits are mostly skewed towards the urban mass. On the other hand, India started later but did so slowly and steadily and the disparity between urban and rural mass is actually decreasing as opposed to that of what's happening in China. We need to see which strategy will be sustainable in the long-term.
     
  4. Vinod2070

    Vinod2070 मध्यस्थ Stars and Ambassadors

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    Statistics like these are double edge swords. It is actually hiding the fact that both are much lower in China than in India.

    I think we have a long way to go and China at this point is much ahead of us in terms of hard power and social indicators.

    This article changes none of that.
     
  5. SammyCheung

    SammyCheung Guest

    ^ India has done a good job of redistributing wealth to the poor. The long run question is whether this is actually good... or laissez faire capital better?

    Another question is whether an exploding population of young people like India is good, or a one/two child policy as in China.

    India's real GDP per capita is about 40% of China. It's effectively about 25 years behind.
     
  6. 1.44

    1.44 Member of The Month SEPTEMBER 2009 Senior Member

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    I don't think uplifting the life of India's or China's poor should be a contest.
    India need to make it's own way to uplifting it rural population not copy method of a neighboring country.
     
  7. Daredevil

    Daredevil On Vacation! Administrator

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    Before typing something that you don't know,you need to check facts. In 2000, the GDP of China was 1.19 Trillion dollars which is pretty much current GDP of India. So, we are only behind China in GDP terms by 9 years not 25 years as you stated. Please check facts and then come back.

    See that red line which corresponds to year 2000 and Y-axis is China's GDP in billions (dollars).

    [​IMG]
     
  8. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    75% + of Chinese trade is USA if China does something USA dosen't like make threats to sell the worthless debt they are holding or refuse to buy more bye bye 75%, and the worthless 2 trillion in US treasury USA will definetly have the last laugh.
     
  9. Vinod2070

    Vinod2070 मध्यस्थ Stars and Ambassadors

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    These are valid questions and I guess there are no easy or universal answers.

    Yes, the GDP is 40% of China but it may not take 25 years to catch up with where China is now. Just look at China itself. I think China was at India's GDP level just about a decade back or so.
     
  10. SammyCheung

    SammyCheung Guest

  11. Daredevil

    Daredevil On Vacation! Administrator

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    What is your point?. No body disputed the fact that India's current GDP is around 40% of that of China.
     
  12. Known_Unknown

    Known_Unknown Devil's Advocate Stars and Ambassadors

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    I don't want to be the Devil's Advocate here, but China grows on average 2-3% faster than India per annum. So we will take more time to get from 1.19 trillion dollars to 2.9 trillion dollars. Certainly nowhere near 25 years though, but maybe around 12-13 years.
     
  13. Daredevil

    Daredevil On Vacation! Administrator

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    True. It is also possible that in coming few years India can also reach the figures of 10% growth rates.
     
  14. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    i do not understand the rhetoric behind india's economy being 40% of prc's and india would take 25yrs to catch up to that 100 mark. i think i had more or less cleared this stuff in a discussion with badguy the other day. the exchange rate of indian rupee to a dollar in 1980 was 7.88 (present day 48 and present day gdp 1.2t usd) and that of yuan was 1.3 (present day 6.7, present day gdp 4.3t usd), now if we take these exchange rates to calculate our gdps, they would be: prc's gdp- 22.16t usd, and india's gdp- 7.3t usd. now taking india's real growth rate at 8% and inflation at 3% for the next decade with no change in the exchange rate (though it is expected to appreciate), india should be at 23t usd in another 11 yrs. now doing the same calculation on that 40 figure, india will be at 102 in another 9yrs time, so where does that figure of 25yrs come, giving benefit of doubt i will keep it to a decade. mind you the only reason why prc's gdp has zipped past has been an appreciation of yuan to a dollar by some 8% last fiscal, and appreciation of currency is never a good indicator to judge economic progress.



    though i would like to get the actual figures on which the calculations have been done as pointed out by vinod to actually come to a conclusion on how the things have changed on ground but still the approach of the two economies have been completely different, with prc using top down approach in contrast india using bottom up approach. india's focus has always been to provide the rural population with most of basic amenities on the contrary prc has focused on its cities, infrastructure, etc.



    i do not have the latest figures to calculate the consumption levels of both india and prc but taking last fiscal (2007-08 for india and 2007 for prc) figures, the figures stand as below (i had done these calculations on another forum)


    gdp= consumption+gross investment+government spending+(exports-imports)
    prc's gdp =1.083t+1.505t+516+(1220b-904b)=3.420t usd
    consumption= 1.083t usd (derived figure)
    investment= 44% of gdp
    government spending= 516b
    exports= 1.22t
    imports= 904b
    size of prc's economy in 2007 = 3.42t usd


    india's gdp =555b+430b+144b+(162b+35b-230b)=1.1t usd
    consumption = 50.45% of gdp (derived figure)
    investment= 39% of gdp
    government spending= 144b usd
    merchandise exports= 162b usd
    services exports= 35b usd
    imports= 230b usd
    size of indian economy in 2007-08= 1.1t usd


    as a % of gdp: prc's consumption level is 32%, and india's consumption level is 50.45%
    per capita consumption levels: prc(population=1.3b)= 833usd, india (population=1.05b)=528usd (please do not confuse this with per capita income).


    (in the above done calculation there will be certain discrepancies since I do not know the services exports of prc which would eventually reduce the consumption figures for the prc)


    fact of the matter is india's gdp is not as far behind as some like to believe and certainly the consumption levels of the two economies are not that different but still an average indian consumes around 64% of what a chinese consumes, may be more. (this figure in fact could be as high as 70% of prc's)
     
  15. SammyCheung

    SammyCheung Guest

  16. Known_Unknown

    Known_Unknown Devil's Advocate Stars and Ambassadors

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    ^ Uhh.....no, Real GDP is different only in the sense that it takes into account inflation. So the exchange rate adjustment is not redundant.
     
  17. SammyCheung

    SammyCheung Guest

    ^ Er, no..... "real" as opposed to "nominal" means you are trying to measure the intrinsic value instead of using a particular currency at a particular point in time as a base.

    You are thinking of real GDP growth -- for example a country that has nominal growth of 6% and has 2% inflation has real economic growth of 4%. The reduced purchasing power or value of the currency is taken into account to downward adjust the nominal growth rate.

    GDP per capita is a sum, not a percentage. Real GDP per capita gives you the purchasing power in that country. For example, if things are 5x cheaper in India and 3x cheaper in China than USA, then real GDP per capita will be multiplied by that amount to allow comparison of the purchasing power of people in those countries.

    If you look up wikipedia, you see they have stats for both GDP per capita and real GDP per capita, the difference is huge simply due to the different cost of living between countries.
     
  18. Yusuf

    Yusuf GUARDIAN Administrator

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    GDP figures in dollar terms are misleading. Tomorrow if India says it's going to appreciate it's currency by half, it's GDP in dollars will decrease by as much and vice versa. But the ground realities in the country won't change. So the PPP figure probably matters more than nominal.
     
  19. Antimony

    Antimony Regular Member

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    Sammy,

    While India's tax and spend policies do place a lot of burden on the salaried/ middle income classes and utilizes that money for development projects, it is also true that India's free market system, which alows entrepreneurship and intiative by the public, is probably closer to a laissez faire system.

    Most of the economic growth in India is becuase of the fact that the government has stayed out or is pulling itself out

    An even better question is, how is china going to deal with an aging population, which after some point would cease to contribute in any productive manner and instead will consume funds to survive (pensions etc.)

    The one child policy does not help much there.

    We'll see:wink:
     

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