Here is why India will keep growing faster than China

Ray

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Here is why India will keep growing faster than China

NEW YORK: The economic growth race between India and China started in the late 1940s, around the time India gained independence and adopted democracy and China turned to communism. Given the sheer size of their populations, each has the potential to dominate the global economy but until recently, it's been no contest: In 2013, China's per capita gross domestic product was 4.5 times larger than India's.

The latest forecast suggests that the tide may be turning in India's favour, possibly for good. The World Bank anticipates that, by 2017, India will be growing faster than China.

The short-term forecast based on some specific circumstances reveals that, India, for example, now has a credible central banker doing sensible things like tackling inflation. The country's new government is finally building infrastructure and cutting the red tape that held the economy back for so many years.

If India keeps it up, the World Bank expects its economy to grow 7 per cent in 2017, up from 5.5 per cent in 2014. Meanwhile, the forecast calls for growth in China to slow as its government reduces spending, tightens credit, and unwinds its housing bubble. The bank expects China's growth to fall from 7.4 per cent in 2014 to a modest 6.9 per cent in 2017.

There are reasons to believe that the slowdown is not a temporary blip and that, over the long term, India's economy will ultimately overtake China's. At the moment, both countries are growing so quickly because they're catching up to richer economies. They are shaking off the effects of market isolation, under-educated populations, limited access to technology, poor infrastructure, and regulations that stifled business development. Eventually, when these economies catch up, adding machines won't increase productivity. It's impossible to predict exactly how long this will take.

Writing in the Financial Times, Martin Wolf predicts that China and India's fast-growth convergence phase will run at least an additional 20 years. At that point, they -like the current powerhouse economies in the developed world -would be lucky to grow more than a steady 3 per cent per year.

Once that happens, growth will depend on demographics and each country's ability to innovate. India has a better outlook on both fronts. Its population is growing; China's is shrinking.

It's harder to predict which country will be better at innovation. Signs point to India because democracies, with their secure property rights and general stability, tend to be better at fostering successful entrepreneurship. China's authoritarian capitalism is a new model, and it's not clear whether it can produce the sort of environment in which people take chances, form businesses, and invent things.

India still faces many hurdles. It needs to build lots of infrastructure, improve access to quality education, and remove the bureaucracy that has existed for years under many vested interests.This is an area in which China's more authoritarian system has an edge. Its leaders have greater liberty to make hard choices and smooth out rough patches.

China's may prove to be a better model for catch-up growth. But managing a thriving, mature economy requires entrepreneurship and innovation. So far, India has the edge.
Here is why India will keep growing faster than China - Economic Times
The article may think that a mature economy requires entrepreneurship and innovation, but they are silent of a qualities that the Chinese posses - hunger for money and more money, low scruples, and a penchant for gambling. All this make them great entrepreneurs even if they lack and innovations driven psyche.

That apart, the jury is out and we will see the outcome.
 

Nicky G

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Inflating and manipulating GDP aside, China has done well to extract the benefits of manufacturing and infrastructure. These infrastructure spending has helped them shore up GDP growth but if as suspected these investments turn out to be in NPA, they are likely to have a hard time maintaining the pace.

India on the other hand is yet to really scratch these sectors, so we have plenty of room (plenty to catch up to too).

China's demographic problem will mean that they will have to transform from a production based economy to a consumption based one, but for that people need to possess purchasing power, which at the moment and for the foreseeable future they are unlikely to.

India needs a stable government with sincere intent most of all. Lets hope for atleast a decade of that.
 

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