be project_india china usa
TRANSCRIPT
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A Business Environment Project
Date:November 2nd
, 2011
BBS Finance 3F-B
Rahul (8125)
Ishan Luthra (8135)
Cyril Thomas (8136)Achint Singh Gulati (8165)
COMPARISON OF ECONOMIES OF INDIA | CHINA | USA
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TABLE OF CONTENT
Topics Page No
Acknowledgement 2
Introduction 3
Economy of India (Brief Overview) 4
Objectives 5
Indian Economy History 6
Indian Economy Present Scenario 11
India & China 16
India & USA 21
A Multipolar C-I-A World 30
Conclusion 39
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ACKNOWLEDGEMENT
We would like to express our heartiest gratitude to our Business Environment
Professor, Dr. Amar N. Gupta. Without his constant, untiring & unfailing
support and guidance, we would not have been able to complete this project.
We wish to acknowledge all the authors and experts whom we extensively
referred to, as without their researches and analysis, this project would not have
come to fruition.
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INTRODUCTION
Economic Growth & development are two different terms used in economics.
Generally speaking, economic development refers to the problems of
underdeveloped countries and economic growth to those of developed countries.
The term economic development is far more comprehensive. It implies
progressive changes in the socio-economic structure of a country. Viewed in
this way economic development Involves a steady decline in agricultural shares
in GNP and continuous increase in shares of industries, trade banking
construction and services. Further whereas economic growth merely refers to
rise in output; development implies change in technological and institutional
organization of production as well as in distributive pattern of income.
In the words of Prof. Amartya Sen "Development requires the removal of major
sources of unfreedom poverty as well as tyranny, poor economic opportunities
as well as systematic social deprivation neglect of public facilities as well as
intolerance or over activity of repressive states."
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ECONOMY OF INDIA (BRIEF OVERVIEW):
India is developing into an open-market economy, yet traces of its past autarkic
policies remain. Economic liberalization, including reduced controls on foreign
trade and investment, began in the early 1990s and has served to accelerate thecountry's growth, which has averaged more than 7% per year since 1997.
India's diverse economy encompasses traditional village farming, modern
agriculture, handicrafts, a wide range of modern industries, and a multitude of
services. Slightly more than half of the work force is in agriculture, but services
are the major source of economic growth, accounting for more than half of
India's output, with only one-third of its labor force. India has capitalized on its
large educated English-speaking population to become a major exporter of
information technology services and software workers.
An industrial slowdown early in 2008, followed by the global financial crisis,
led annual GDP growth to slow to 6.5% in 2009, still the second highest growth
in the world among major economies. India escaped the brunt of the global
financial crisis because of cautious banking policies and a relatively low
dependence on exports for growth. Domestic demand, driven by purchases of
consumer durables and automobiles, has re-emerged as a key driver of growth,
as exports have fallen since the global crisis started.
India's fiscal deficit increased substantially in 2008 due to fuel and fertilizer
subsidies, a debt waiver program for farmers, a job guarantee program for rural
workers, and stimulus expenditures. The government abandoned its deficit
target and allowed the deficit to reach 6.8% of GDP in FY10. Nevertheless, as
shares of GDP, both government spending and taxation are among the lowest in
the world.
The government has expressed a commitment to fiscal stimulus in FY10, and todeficit reduction the following two years. It has increased the pace of
privatization of government-owned companies, partly to offset the deficit.
India's long term challenges include widespread poverty, inadequate physical
and social infrastructure, limited employment opportunities, and insufficient
access to basic and higher education. Over the long-term, a growing population
and changing demographics will only exacerbate social, economic, and
environmental problems.
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OBJECTIVE OF THE STUDY:
This comparative study is aimed at determining the position of India in the scale
of economic development and to analyze the current status of India compared to
other countries.
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INDIAN ECONOMY HISTORY
The 12th largest economy in the world in terms of the market exchange rate, the
Indian economy has come a long way to become one of the fastest growing
economies. In order to have an idea of the various economic stages, one needsto make an analysis of the Indian economy history.
The pre colonial era of Indian economy
India is one of the world's oldest civilizations. The main source of economy and
income for the people in the ancient ages was agriculture. The fertile plains,
rivers and water bodies and a favorable climate provided a wonderful scope for
agricultural produce in the country. The ancient civilizations of India like Indus
Valley, the Aryan civilization, Mauryan Empire, Gupta Empire and most otherdynasties had a planned economic system. In some dynasties, even coins were
issued. However, the chief form of trading in those times was the barter system.
According to the economic rule, the farmers and villagers were required to
provide a part of their crops or produce to the kings or the landlords.
Even in the Muslim rule, the economy of India was mainly based on agricultural
produce. Towards the later part of the Mughal period, some trade relations were
established between the Mughal Empire and the British, French and Portuguesemerchants. Eventually, after the Battle of Plassey, the British East India
Company eventually came into power. Thus the colonial rule in India started.
The colonial era of India is a significant part of the India Economy history. It
brought a considerable change in the process of taxation from the revenue taxes
to the property taxes which resulted in large scale economic breakdown. In fact
a number of industries like the Indian handicrafts industry suffered huge losses.
During India's freedom struggle, the Indian Nationalists advocated for theSwadeshi Movement in which the British products were boycotted.
However, the British rule also developed the country to a great extent. The
financial and banking system as well as free trade was established, a single
currency system with exchange rates was brought into being, standardization of
weights and measures took place and also a capital market came into existence.
Stress was also given to the development of infrastructure and new telegraph
lines were laid, railway lines were constructed and roads were made.
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Post Independence to the 1990s
After India gained independence, stress was given to stabilize the economic
system of the country. Wide scale development was made in sectors such asagriculture, village industries, mining, defence and so on. New roads were built,
dams and bridges were constructed, and electricity was spread to the rural areas
to improve the standard of living.
In the subsequent Five Year Plans, a number of economic reforms and policies
were formulated. Public and rural sectors were developed, emphasis was given
to increase the quantity and quality of the export items, making the country self
sufficient and minimize imports and other related reforms. The political leaders
also put stress on business regulations, central planning and nationalization of
the industries in mining, electricity and infrastructure.
Another major economic reform that was initiated in the 1960s was to make
India self sufficient in food grain production. In this regard, the Green
Revolution' movement was initiated for aforestation, more irrigational projects,
improved seed usage, better farming techniques and use of fertilizers and lots
more.
In the 1980s, the first step towards market liberalization was undertaken by the
then government headed by Rajiv Gandhi. In his tenure, restrictions on a
number of sectors were eased, pricing regulations were abolished and efforts
were made to improve the GDP of the country.
From 1990s to the present times
India's economic condition in the initial stage of the 1990s was dismal. The
main trading partner, Soviet Union ,was dissolved and India faced huge balance
of payment problems. The loans kept on increasing and the IMF asked for a
bailout loan. In this situation, Manmohan Singh, the then Finance Minister
initiated the liberalization plan. This is one of the milestones in the history of
Indian Economy. In the liberalization plan, foreign direct investments (FDI)
were welcomed, public monopolies were abolished and banking, service and
tertiary sectors were developed. Boost was also given to develop the money and
capital market.
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Since the open market plan in the 1990s, India has experienced favorable
economic growth. Today it has become one of the fastest growing economies in
the world with a GDP growth rate of around 6-7 %. To complement the
growing GDP, the country has also experienced growth in per capita income,
standard of living and industrial development.
How the Indian economy changed in 1991-2011Manmohan Singh is not a renowned orator. He delivers his public speeches in a
monotonous undertone that one associates with college lecturers and bankers -
and India's prime minister has been both. But one of Singh's speeches, made
exactly twenty years ago, will go down in the annals of Indian history as the onethat changed India.
In his maiden budget speech as the finance minister of India, Singh presented
the finances of a country that was nearly bankrupt and slayed the licence raj,thereby changing the lives of not just India's 84 crore citizens then but those of
another 36 crore citizens who have been born since.
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How much has India changed since then? Since 1991, India's GDP has
quadrupled, its forex reserves have surged from $5.8 billion to $279 billion, and
exports from $18 billion to $178 billion.
But these are just numbers. The change in our lives and lifestyles is a lot more
fascinating. Back in 1991, owning a Maruti 800 (Rs 1.48 lakh in Delhi) was a
middle- class status symbol.
Scooters like Bajaj Chetak and Lambretta accounted for more than half of the
two-wheelers sold in the country. A bottle of soft drink, be it desi versions like
Gold Spot or Thums Up, cost just Rs 4.50.
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Challenges before Indian economy
Population explosion: This monster is eating up into the success ofIndia. According to 2001 census of India, population of India in 2001 was
1,028,610,328, growing at a rate of 2.11% approx. Such a vast populationputs lots of stress on economic infrastructure of the nation. Thus India has
to control its burgeoning population.
Poverty: As per records of National Planning Commission, 36% of theIndian population was living Below Poverty Line in 1993-94. Though
this figure has decreased in recent times but some major steps are needed
to be taken to eliminate poverty from India.
Unemployment: The increasing population is pressing hard on economicresources as well as job opportunities. Indian government has started
various schemes such as Jawahar RozgarYojna, and Self Employment
Scheme for Educated Unemployed Youth (SEEUY). But these are
proving to be a drop in an ocean.
Rural urban divide: It is said that India lies in villages, even today whenthere is lots of talk going about migration to cities, 70% of the Indian
population still lives in villages. There is a very stark difference in pace
of rural and urban growth. Unless there isn't a balanced development
Indian economy cannot grow.
These challenges can be overcome by the sustained and planned economicreforms.
These include
Maintaining fiscal discipline Orientation of public expenditure towards sectors in which India is faring
badly such as health and education. Introduction of reforms in labour laws to generate more employment
opportunities for the growing population of India. Reorganization of agricultural sector, introduction of new technology,
reducing agriculture's dependence on monsoon by developing means ofirrigation.
Introduction of financial reforms including privatization of some publicsector banks.
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Indian Economy Present Scenario
India is one of worlds fastest growing economies. Apart from China, no other
country has as high an economic growth rate as India. This country offers
several economic advantages to its nationals as well as foreign investors. Indiaseconomic boom has been made possible mainly through its information
technology and outsourcing business. Indias rise as an Asian economic
powerhouse has been quite remarkable. Economic conditions in India are now
favourable for a wider cross section of people.
While the situation of inflation is quite common for the developing economies
and most of the people are well versed with problem of inflation and know its
implications in general, the situation of deflation is rare. In developing
countries, deflation has entirely different connotations than those of the
inflation. In the common parlance deflation is an economic situation of falling
prices, but in economic theory there is much more to it than just the reducing
price level.
In economic terms, deflation can be termed as a situation of declining prices,
often caused by a reduction in the supply of money or credit. It can also be
caused by the direct contraction in expenditure, including the public
expenditure, personal spending or the investment expenditure. This is oppositeof inflation and often leads to lower effective demand and increasing
unemployment rate in the economy.
According to economic theory, price level is the result of functional relationship
between demand and supply. To put it simply, the supply being constant, if the
demand of the goods and services increases in an economy, the prices are likely
to go up and the economy is likely to encounter a situation of inflation. On the
other hand, if the supply increases with demand being constant, or the supply
increases more than the demand, the prices may fall and such a situation may be
referred to as deflation.
In addition to the above demand supply dynamics, the inflation or deflation can
also be caused by the reasons of the adequacy or lack of money supply in the
country. If the money supply is less, it is a situation of more money chasing
lesser goods and services, leading to general rise in prices. On the other hand, if
the money supply is more than the supply of goods and services, the situation of
fall in prices is generally experienced and is referred to as deflation.
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Deflation caused by rapid growth of production and manufacturing in the
country, causing the supply to go up is good for the economy, as with abundant
availability of all goods and services in the economy, the prices go down,
resulting in increase in the real income and wealth of all the consumers. Such a
situation does not harm the producers also, as they gain by increasing sales
volumes.
The Great Depression of 1930s was associated with deflation and it is said that
the recession coupled with deflation leads the economies to suffer. It is this very
concern which is causing anxiety among the economists and the policy makers.
But it must be clearly understood that deflation and depression are two different
words and situations and should not be taken as synonymous.
Effects on the Economy
Temporary fall in prices is not deflation and it is the sustained fall for a
considerably long period of time which is a matter of serious concern. It causes
the aggregate demand to fall, as due to the falling prices the consumers try to
delay the purchases, which in turn reduces economic activity in the economy,
thereby accentuating the spiral effect of deflation. The result is that the existing
manufacturing capacity of the economy becomes idle, leading to furtherreduction in aggregate demand and even more reduction in economic activity. If
the process continues without any interventions from the government, the
economies may move in to a situation of recession.
Theoretically speaking, the situation of deflation may also lead to a peculiar
economic condition known as the liquidity trap. Generally, the rate of interest
in an economy is linked to the rate of inflation. But the situation of deflation
may necessitate the interest rates to go down as low as zero. Deflationary times
and zero interest rates reduce the economic viability of most of the projects due
to tremendously reduced demand and the investors also tend to postpone their
new projects.
This worsens the situation further. Generally, the deflationary situation
encourages people to hold on to their money, mainly because of the reasons like
lower aggregate demand for newly produced goods and very low interest rates
that discourage the people from keeping money in bank deposits. This causes
substantial reduction in the velocity of money i.e. reduction in the number oftransactions, dramatically reducing the money supply in the economy, as one
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mans expenditure is the income of another. Reduced velocity of money results
in reduction of incomes.
Deflation results in fall of availability of hard currency per person. This further
results in increasing the purchasing power of each unit of currency, as theaverage price level goes down. Increase in purchasing power may sound
beneficial to a layman but actually it may cause hardship to those people whose
majority of wealth is kept in non-liquid assets such as real estate, land and
buildings.
It is thus evident that sustained deflation is a serious cause of worry to the
policy makers, as it may lead the economies to recession and, more seriously, to
a situation of depression.
Indian Fears
In India, the rate of inflation or deflation is measured on the basis of Wholesale
Price Index (WPI) on weekly basis and then computed for the fiscal years for
the purpose of policy monitoring, appraisal and decisions. WPI is an indicative
and representative index of the wholesale prices of various commodities
produced in the economy. Consumer Price Index (CPI), on the other hand, is an
index of the consumer prices that give 46 per cent weightage to the food items,
15 per cent weightage to the domestic facilities, 6.4 per cent to lighting and fuel
and 6.6 per cent to apparel and shoes.
The inflation rate in India has suddenly fallen to a level of less than half a per
cent and closer to zero in March 2009 onwards and the fears of the Indian
economy slipping into a precarious situation of deflation have been expressed
by many. But despite extremely lower inflation rate, the prices of food items are
still experiencing reasonably higher increase in prices. This, while putting theeconomically vulnerable sections of society in a disadvantageous position, has
also given a glimmer of hope to the policy makers because this phenomenon
may gradually stabilize the economy and help it come out of the deflationary
pressures early.
The economists are in a fix and do not know whether to call this economic
situation in the country as deflation or disinflation. While the deflation is
persistent fall in price level, disinflation is a situation where the inflation rate
goes down. The economic theory provides separate sets of solutions for both the
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situations and unless the situation is clearly identified and diagnosed, it would
be difficult to resolve it.
Government agencies in India vehemently deny that there is any fear of
deflation in the near future. The International Monetary Fund has projected theannual inflation rate of 1.7 per cent for the Indian economy for 2009-10. This
implies that for some part of the year, the economy may experience a
brief spell of deflation. Whether or not to call such a situation a deflationary
situation, is a matter of argument.
As per Mr P.K. Padhy, Economic Advisor in the Ministry of Commerce and
Industry, the current economic situation is that of disinflation in India. The basis
for such a belief is that the economy has grown at the rate of 5.3 per cent in the
third quarter of the previous fiscal. Economists like Suresh Tendulkar and
Pranab Sen also argue on the same lines. In one of its reports on the Indian
economy, the Citigroup has said that the deflationary patch in India is due to
high base effect and supply side issues and is likely to be temporary and short-
lived in nature. But persistence of such a situation may increase the problems of
the economy in the months to follow.
Many economists believe that the current situation can be termed as demand
deflation. Both production and the prices are falling down. This would requiremore targeted fiscal measures, along with stepped up direct government
purchases and increased scope of public distribution system.
The situation in India may not be as grave as that of sustained deflation. The
CPI is still positive and at around 10 per cent; the rural demand for FMCGs is
robust and food items are in great demand. The resilience of our economy may
not allow the typical deflationary situation to emerge and the current phase may
turn out to transient and temporary. Despite the above, the situation needs to betackled by the Government very carefully.
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Some economic facts about IndiaIndia GDP (purchasing power parity) stood at around $2965 billion, as per
CIAs 2007 estimates, of which services accounted for maximum percentage,
followed by industry and agriculture. As per CIA estimates, total Indian exports
totalled $140.8 billion and total imports totalled about $224 billion.
India inflationInflation in India rose to more than 11 percent in July 2008. But due to
government measures and role played Reserve Bank of India, inflation was
brought down to about 6 percent. Earlier in 2007, average inflation was around
5.3 percent.
Foreign direct investmentWith economic liberalization of India in 1990s, this nation began to generate a
lot of interest among foreign investors. A rapidly developing economy coupled
with national governments favourable attitude towards foreign investors, have
generated a lot of revenue for India vis--vis foreign direct investments.
Foreign direct investment dataIn 2007-08, foreign direct investment in India touched $25 billion. In previous
time period, this figure was around $15.7 billion. As of May 21, 2008 Indias
foreign exchange exceeded $341 billion. Ministry of Commerce and Industry
projections indicate that India is slated to attract more then $35 billion as
foreign direct investment. Ernst and Young had carried out a survey in June
2008, which identified India as fourth most attractive investment destination of
world. All this augurs well for economic condition of India.
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India & ChinaComparison of two Asian Giants
In the Indian cricket team, both Sehwag and Gambhir are prolific opening
batsmen. But, when Sehwag is on the song, Gambhirs performance is almost
over-shadowed by his partners fast-paced innings.
But, both the players gel-up very well while running between the wickets and
mutual understanding. They set the tone of the Indian innings by showing
controlled aggression between themselves and a building a firm base for the
Team India.
However, Gambhir immediately joins the party once he settles down and gets
the measure of the wicket. Furthermore, this provides opportunity to Sehwag to
calm down post power-play session and pace his innings for a longer haul.
This is how Indo-China relationship is currently stacked up. China led the way
(like Sehwag) with its decade of scorching growth rate; over-shadowing Indias
slow and steady growth prospects (like Gambhir).
However, just when the Chinese economy was getting over-heated, the
Peoples Bank of China slammed the brakes on its scoring rate; thus, passing on
the baton of illuminating the world economy to India by taking over the
drivers seat.
In a nutshell, both China and India have to gel-up to emerge as two giants that
will firmly buttress the worlds economy in the coming century by preparing
themselves for a second wave of growth in aftermath of the global financial
crisis, says a report on China-India Comparison An examination of 2011
Direction and Developments.
Key Findings of the Comparison Report between India and ChinaIndia catching up with Chinese economy
India is currently in the phase of growth as explained by Gambhirs position
above. The country has just started to come in lime-light and its growth patterns
have mirrored that of Chinas at an average of about 8% annually until the
financial crisis hit. Indias economy currently is in 12th position, and is likely to
break into global top 10 in terms of size. By 2030, India will have overtaken
China both in terms of population and GDP growth rates.
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The Indo-China bilateral trade has grown significantly since 2005, except for
the crisis-hit year 2009. Chinese imports of Indian goods fell 26.6% more than
Indian imports of Chinese goods. The inequality of trade has led to tension as
Indian manufacturers have to surpass the rout of low-cost Chinese goods.
Tax Structures
Both India and China have done fairly well when it comes to tax structures and
other central and regional levies within the country. Moreover, India is on the
cusp of landmark tax reform, especially in indirect taxes through introduction of
GST.
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While China did away with preferential tax incentives largely available to
foreign investors in free trade zones, with unification of tax base in 2008; India
has shored-up tax incentives in special economic zones to gives its
infrastructure sector a much-needed boost.
The Manufacturing Hub
Morgan Stanley had reported that Chinas rapidly aging population, followed by
its one-child policy, is set to dramatically shrink its workforce and effectively
pass the baton to India as the worlds manufacturing hub. Moreover, China is
becoming a consumer market to sell to, rather than a global manufacturing hub.
Also, the World Banks prediction that Chinas GDP growth will fall to 7.7% in
2015 and by 6.7% by 2020, highlights the cause of concerns that could
slowdown the dragons growth. Morgan Stanley expects Indias growth tosurpass Chinas growth two years from now.
The Government Intervention
While a vast majority of Chinas growth comes from state-owned companies,
Indias economic miracle can be largely attributed to its private sector story.
Having said this, even Indias state-owned companies are gradually logging
change from its conventional business model hit by red-tapism.
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Chinas state-owned and subsidized model has led to unfair competition and
frequent government interventions paving way for difference in decision
making and executive talent within the two countries.
The City to reckon with
The stage is set where India-China comparisons are inevitable in any form of
demographic analysis. The report finds that though Shanghai is referred as
Chinas financial center, it seriously lags Mumbai in terms of financial maturity,
profitability, and ability to deliver dividends to shareholders.
The Business Environment
In China, the business hubs are already established and running with efficient
administration in place. However, India isnt up to China standards yet when it
comes to development and execution of large-scale projects including
infrastructure solutions.
But, on the other hand, even China is facing certain headwinds such as increase
in labor unrest and strikes due to protectionist policies. The same also applies to
social media and internet interventions administered by the Chinese
government. Even the levels of corruption is different in both the places with
that at China being more of disguised as favors and connections; rather than in
the form of baksheesh that is prevalent in India.
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When the business people and economists make the inevitable comparison of
India vs China economy, the two rising giants of Asia, it is always China that
holds the top position. The economy of China has always outpaced the economy
of India in almost every measure. The Chinese government is very prompt at
making and implementing new effective policies whereas the government of
India always lags behind. The Indian political system always appears to be
chaotic and sluggish in this regard.
A contrast in the airports of Beijing along with Delhi and Mumbai would give
you the practical visuals of the infrastructure of these two countries. Wide
freeways and shiny new airport in Beijing have set the modern development
models. On the contrary, the sagging infrastructure of Mumbai and New Delhi
shows a sharp contrast. With the emerging global economy after the recession,India comes second to China. According to the trade reporters, the leadership
quality and well-planned economic strategy of China during the crisis period
have helped the entire Asian region to lift up from the economic downturn.
If you are interested to know China economy facts, you must go back to check
its history in the 18th century when its economy was the largest in the entire
world. At that time, 25% of global output came from China. However, it came
to be known as the the poor man of Asia in the first half of the 20th Century.
In 1949, Chinas population was quarter of the worlds population and hence, it
could produce only 5% of global output. With agricultural technology which
was developed about 1000 years ago, China helped about half a billion people
in the year 1850.
About 89% of the population of China lived in the countryside in the year 1949
and the agricultural product accounted for 60% of the economy output in total.
The economy of China had the tendency to double its size every eight years
since 1978. The GDP of China grew 9.6% every year between 1978 and 2005.
China has seen explosion in the international trade between 2000 and 2007 with
growth of imports about 425% and increase in exports almost 490%. The
comparison between India vs China economy 2011 has proved that China is
far ahead of India. India would really have to work hard on its policies and
strategies to reach or attain what China has achieved. The huge growth of
Chinas economy helped its people to come out of poverty.
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India & USA, A Brief Comparison
Interestingly, these two different economies are following divergent monetary
policies trying to solve their economic riddlesone is aiming to control high
levels of inflation and the other is trying to move accelerate from stall speed(it currently stands on the precipice of economic recession) and an unacceptably
high level of unemployment. The former is India; the latter is the U.S.
While the Reserve Bank of India (RBI) has been tightening the monetary screws
(12 rate hikes in the past 18 months) more than ever before, the U.S. Fed is
following ultra-expansionary monetary policy. However, success has been
steadfastly eluding both. So, what gives?
Even at the cost of sounding clichd, I am tempted to invoke a much abusedphrase: this time its different. Past sins are clearly catching up now,
rendering the monetary policy actions ineffective, when ordinarily they could
have had an impact. To add to the woes, external factors are conspiring against
success.
First lets focus on India, where the average inflation since January 2010 is
9.6%.
Figure 1: Inflation and Monetary Policy
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Source: Office of Economic Advisor (GoI), RBI
The very fact that such a long tightening phase has failed to affect prices to the
extent desired clearly indicates that inflation in India is mainly structural innature (not cyclical). Years of neglect suffered by the agriculture sector are
evident from the excessively low level of investment in the sector (Figure 2).
Figure 2: Gross Capital Formation (GCF)
Note: QE = quick estimate
Source: Economic survey, GoI
For a sector that supports about 65% of Indias population, there is a high price
to be paid for such neglect. Not surprisingly, agriculture productivity levels in
India are among the lowest in the world, as is evident from the yields shown in
Figure 3.
Figure 3: Comparison of Yields (hectogram per hectare)
Source: FAO
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Hugely inadequate physical infrastructure in agriculture (be it irrigation, cold
storage facility, transportation, etc.) not only leads to low levels of productivity,
but also to a huge loss of foodgrain due to improper storage. In India, more
than 10% of foodgrain production gets wasted every year. As per the report of
the 11th Planning Commission, preventable post-harvest losses of foodgrains
are estimated at about 20 million tonnes a year, which is nearly 10.5% of the
total production. To put things in perspective, India wastes close to 50% of
Australias annual foodgrain production. Even a bumper crop is a problem for
India and the country has had to resort to exporting foodgrains this year to tide
over the storage problem, while every day millions of Indians go to bed hungry.
Not surprisingly, food inflation has remained persistently high in India, which
has started to feed into overall inflation (Figure 4).
Figure 4: WPI/Food Inflation (%, y/y)
Source: Office of Economic Advisor
Moreover, as I have said inprevious posts, inflationary pressures are also
coming from the trade channel, as a result of the persistently high prices of oil
and other commodities. The problem has been further compounded by the
recent depreciation of the rupee (Figure 5), mainly on account of a perceptible
retreat of FX flows due to the decreasing appetite for emerging market risk
assets, as the European sovereign debt crisis continues to boil.
http://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/http://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/http://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/http://www.economonitor.com/analysts/files/2011/09/KunalFig4.jpghttp://www.economonitor.com/analysts/2011/09/29/2011/09/14/why-rbi-should-be-on-hold/ -
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Figure 5: USD/INR
Source: Bloomberg
This is leading to imports becoming even costlier (negating the effect of some
of the recent softening in commodity prices), further adding to inflationary
pressures and thereby rendering the RBIs monetary policy efforts futile. All
this, despite clear evidence of demand destruction in India.
At the other end of the monetary policy spectrum lies the U.S. Fed.
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Figure 6: Fed Funds Rate
Source: Fed
As the global crisis erupted, the Fed acted quickly and eased money policy as
fast as it could (Figure 6). However, with the Fed Funds rate at as close to zero
as possible (and having been so for a longish period of time), the Fed has no
more policy bullets, except for continuing to keep rates low, which is what it is
doing. Here again, an extended period of ultra-low interest rates has not
ratcheted up the economy.
With house prices yet to bottom out and unemployment levels remaining
stubbornly high, the excessively leveraged U.S. consumer seems to bethoroughly down and out. The Conference Board Consumer Confidence Index
stagnated at a two-year low in September (Figure 7), indicating that consumers
are deeply worried about the state of the economy, and hence about their
income and employment situations.
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Figure 7: Conference Board Consumer Confidence Index
Source: Bloomberg
With consumers retreating and the crisis of confidence becoming all pervasive,
the low interest rate regime has simply failed to spur the economy. The policylimitation that close-to-zero interest rates entailed forced the Fed to go for QE.
Unfortunately, even this did not help much. Credit growth did not perk up
materially and all that QE resulted in was rising excess reserves (rather than
further lending), as credit-worthy borrowers refrained from borrowing and
lending institutions also preferred to hold tight (Figure 8), given the crisis of
confidence and the fear of tighter regulations.
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Figure 8: Bank Credit (%, SAAR)
Source: St. Louis Fed
With corporate profits moving to record-high levels, most companies, especially
the nonfinancial ones, have preferred to use their cash to deleverage. The same
has gone for credit-worthy consumers. Even the tax breaks and transfers have
been, to a great extent, used to reduce debt. They have helped to arrest the slide
in consumer spending, but have not stimulated an increase. Even the vast sum
of money used for the cash for clunkers scheme or the second home buying
scheme helped the economy to perk up only in the short term and the positive
multiplier effect soon faded away. Of course, it did not help that Europe was
hurtling faster and deeper into trouble.
The fact also remains that both the RBI and the Fed have not necessarily alwaystaken the right decisions (though these been debated enough in the public
domain and are beyond the scope of this article). Moreover, the politicians of
both countries have played an important role in spoiling the partyin the U.S.
through one-upmanship, and in India through sheer inertia (policy paralysis for
some). This reminds me of what Charles Dickens wrote in A Tale of Two
Cities (it was the age of wisdom, it was the age of foolishness), though in a
slightly altered form: When the world needed wisdom, foolishness was more
readily on display)
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Indian Economy statsAmerican
Economy stats
Business efficiency 59.053 100
Ranked 33rd. Ranked 1st. 69% more than India
Economic freedom 1.5 3.2
Ranked 123rd. Ranked 7th. 113% more than India
Economic importance 2.1 197.9
Ranked 25th. Ranked 1st. 93 times more than
India
GDP $4,164,000,000,000.00 $13,060,000,000,000.00
Ranked 5th in 2006. Ranked 2nd in 2006. 2 times
more than India
GDP growth > annual % 9.23 annual % 3.2 annual %
Ranked 14th in 2005. 188%
more than United States
Ranked 119th in 2005.
GDP (per capita) $3,751.99 per capita $43,680.67 per capita
Ranked 121st in 2006. Ranked 3rd in 2006. 11 times
more than India
GDP per capita in 1820 $531.00 $1,287.00
Ranked 24th. Ranked 5th. 142% more than India
GDP per capita in 1900 $625.00 $4,096.00
Ranked 38th. Ranked 3rd. 6 times more than
India
GDP per capita in 1950 $597.00 $9,573.00
Ranked 49th. Ranked 1st. 15 times more than
India
GDP per capita in 1973 $853.00 $16,607.00
http://www.nationmaster.com/country/in-india/eco-economyhttp://www.nationmaster.com/country/in-india/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/graph/eco_bus_eff-economy-business-efficiencyhttp://www.nationmaster.com/graph/eco_eco_fre-economy-economic-freedomhttp://www.nationmaster.com/graph/eco_eco_imp-economy-economic-importancehttp://www.nationmaster.com/graph/eco_gdp-economy-gdphttp://www.nationmaster.com/graph/eco_gdp_gro_ann-economy-gdp-growth-annualhttp://www.nationmaster.com/graph/eco_gdp_percap-economy-gdp-per-capitahttp://www.nationmaster.com/graph/eco_gdp_per_cap_in_182-economy-gdp-per-capita-1820http://www.nationmaster.com/graph/eco_gdp_per_cap_in_190-economy-gdp-per-capita-1900http://www.nationmaster.com/graph/eco_gdp_per_cap_in_195-economy-gdp-per-capita-1950http://www.nationmaster.com/graph/eco_gdp_per_cap_in_197-economy-gdp-per-capita-1973http://www.nationmaster.com/graph/eco_gdp_per_cap_in_197-economy-gdp-per-capita-1973http://www.nationmaster.com/graph/eco_gdp_per_cap_in_195-economy-gdp-per-capita-1950http://www.nationmaster.com/graph/eco_gdp_per_cap_in_190-economy-gdp-per-capita-1900http://www.nationmaster.com/graph/eco_gdp_per_cap_in_182-economy-gdp-per-capita-1820http://www.nationmaster.com/graph/eco_gdp_percap-economy-gdp-per-capitahttp://www.nationmaster.com/graph/eco_gdp_gro_ann-economy-gdp-growth-annualhttp://www.nationmaster.com/graph/eco_gdp-economy-gdphttp://www.nationmaster.com/graph/eco_eco_imp-economy-economic-importancehttp://www.nationmaster.com/graph/eco_eco_fre-economy-economic-freedomhttp://www.nationmaster.com/graph/eco_bus_eff-economy-business-efficiencyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/us-united-states/eco-economyhttp://www.nationmaster.com/country/in-india/eco-economy -
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Ranked 50th. Ranked 2nd. 18 times more than
India
GDP > PPP $3,362,960,000,000.00 $11,628,083,000,000.00
Ranked 4th. Ranked 1st. 2 times more thanIndia
Gross National Income $477,000,000,000.00 $9,780,000,000,000.00
Ranked 12th. Ranked 1st. 20 times more than
India
Gross National Income
(per $ GDP)$14.37 per $100 $83.23 per $100
Ranked 160th. Ranked 20th. 5 times more than
India
Human Development
Index 0.602 0.944
Ranked 128th. Ranked 10th. 57% more than India
Income category Low income High income:OECD
Income distribution >
Poorest 10%3.5% 1.8%
Ranked 22nd. 94% more than United
States
Ranked 85th.
Income distribution >
Richest 10%33.5% 30.5%
Ranked 38th. 10% more than UnitedStates
Ranked 54th.
Technological
achievement 0.2 0.73
Ranked 59th. Ranked 2nd. 3 times more than
India
http://www.nationmaster.com/graph/eco_gdp_ppp-economy-gdp-ppphttp://www.nationmaster.com/graph/eco_gro_nat_inc-economy-gross-national-incomehttp://www.nationmaster.com/graph/eco_gro_nat_inc-economy-gross-national-incomehttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_inc_cat-economy-income-categoryhttp://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_tec_ach-economy-technological-achievementhttp://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_inc_dis_ric_10-economy-income-distribution-richest-10http://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/graph/eco_inc_dis_poo_10-economy-income-distribution-poorest-10http://www.nationmaster.com/region/OECDhttp://www.nationmaster.com/graph/eco_inc_cat-economy-income-categoryhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_hum_dev_ind-economy-human-development-indexhttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_gro_nat_inc_pergdp-gross-national-income-per-gdphttp://www.nationmaster.com/graph/eco_gro_nat_inc-economy-gross-national-incomehttp://www.nationmaster.com/graph/eco_gdp_ppp-economy-gdp-ppp -
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A Multipolar C-I-A World
C-I-A (China, India and America) are compared to understand relative strengths
of emerging powers. To be a global or a regional power depends on three
factors: a strong economy, a powerful military and a deep rooted political
capacity. Metaphorically, any global or regional power is three legged. Three
legged stools on one (Pakistan) and two (China) legs by nature are unstable.
With three relatively stable legs India at best an aspiring global power.
In a unipolar world, since the end of the Cold War in 1989, America became
uncontested super power standing on three powerful legs. American supremacy
in 21st
century is challenged by two emerging powers. America has adeteriorating economy compared to peaks in the Clinton (1992 2000) and the
Bush (200008) eras.
Important factor to note is that these three nations are achieving sustained
growth through peaceful competitive process, not through imperial designs.
Until mid-20th century, some Western democracies and Islamic dictatorships
were engaged in building imperial powers through extraterritorial expansions
and colonization. Muslim invaders colonized South Asia for about 900 years
(950 to 1857). Proselytizers and religious fanatics seeking to build an Islamist
Caliphate were looters and plunderers seeking riches in lands of non-believers.
Industrializing European nations for about 500 years (16 th to 20th century)
colonized many poor nations of Middle East, Africa, Latin America and South
and East Asia rich in commodities supplies. India was a British colony from
1857 to 1947.
The blog presents select data on the growth of India relative to other two
nations. In my opinion contrary to projections otherwise China is not likely tomatch or surpass America in less than two decades and in same period India is
likely to be closing in on China.
Comparison of select parameters for C-I-A
Commentaries on China: China accounts for up to 60% of most and 90% of
some industrially important globally produced commodities. Some hard facts
about China touting its economic strength follow:
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1. Chinas 19% of the worlds population; it consumes the worlds 53% ofcement, 48% of iron ore and 47% of coal and the majority of just about
every major commodity. By March 2011, China had
accumulated US$3.04 trillion in foreign currency reserves the largest
stockpile on the entire globe.
2. China set several new records: in 2010, China produced 11 timesmore steel than the US; it made and sold 18 million vehicles and for food
supply it had more pigs than in the next 43 pork producing nations
combined.
3. In industrial sectors, China has the worlds fastest train and the largesthigh-speed rail network; it is worlds numberone producer of wind and
solar power and it controls more than 90% of the total global supply of
rare earth elements.
4. In technology and intellectual property, China possesses thefastest supercomputer on the entire globe and in the past 15 years, it has
moved from 14th to 2nd place in the world in published scientific
research articles.
5. It also has dubious distinctions, e.g., Chinese consume 50,000 cigarettesper second.
Listed in references and notes are several recent commentaries on the impacts of
Chinas growth on global powers. The analysts are Fareed Zakaria (moderator
of the GPS, a CNN weekly program),Ian Bremmer(an executive at
Microsoft),Robert J. Herbold(WSJ, Op-ed) and Dr. Vikram Dalal (Professor of
electrical and computer engineering, Iowa State University). Collectively, these
authors present a picture of China that evaluates Chinas progress and how it
compares to that of America. As China continues to grow and the US continuesto decline economically, speculators ask: when will China match or surpass
American global dominance?
All analysts are well intentioned. Individually they presented a skewed picture
of Chinas growth. There is a need to develop a comprehensive picture that
compares progress, or lack of it, by each of three nations. To put it in relative
context the following data were assembled using Google searches.
http://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=ROBERT+J.+HERBOLD&bylinesearch=truehttp://online.wsj.com/search/term.html?KEYWORDS=IAN+BREMMER&bylinesearch=true -
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Comparison of Select Data for C-I-A
In 2010 the populations of China at 1.3 billion and India with 1.2 billion were
about 4 times higher than that of America at 310+ million, the third populous
nation in the world. China also had largest workforce and America had thelargest economy. Chinas labor force was more than 5 times that of America
and 1.7 times of India. Additional select facts are compared in the following
table.
Select Facts for two emerging and one developed Global powers 0712 2011
Facts China
(C)
India (I) America (A)
2010 GDP (PPP), $
Trillions.Bracketed are PPP estimates
for 2020
9.71
(22.6)
4.07
(10.2)
14.8
(28.1)
Per Capita GDP, $ NominalPPP $PPP
Factor (PPP/Nominal)
4,743
7,400
1.56
1,265
3,339
2.65
45,989
45,989
1.00
GDP Growth, % 9.1 8.5 2.4
Inflation, % 6.4 8.7 3.6
Labor Force, million 820 478 153
Unemployment, % 4.3 9.4 9.2
Fiscal Deficit, % of GDP 1.6 5.5 10.7
Gold Reserves, tonnes 1,054 615 8,134
Foreign Exchange Reserves $3.2
trillion
$310
billion
NA
World Prosperity Index, 58th 88th 1st
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position
Mobil Users, million 896 840 303
Internet Users 420 81 240
Life Expectancy, years 73 65 79
Literacy Rate, % 96 74 99
Infant Mortality Rate,% 20 50 6
Under 5 Mortality rate 21 66 8
Using nominal GDP numbers for each nation and its labor force in 2010
annually goods produced by each worker in China were worth $7,500, that for
India $3,200 and Americans produced $96,730 per worker. For wealth
generation Americans compared to Chinese were 13 times more productive and
Chinese compared Indians were 2.3 times more productive.
Health in India has improved, but compares poorly not only to China andAmerica but also to some economic peers (Brazil and Russia) and neighbors
(Sri Lanka and Bangladesh).
Chinese are expected to experience a 30% demographic decline by 2050. Unless
China improves its productivity by more than 30% and American suffers an
additional significant economic decline it would be unlikely for China to catch
up with American GDP by 2050.
ChinaIndia at a Glance
The following data suggests that India may substantially narrow the gap with
China in about two decades. Labor force of India in 2010 was about 58% of
China. Since population of India and China are comparable and China is
expected to experience a demographic decline in next few decades, India can
narrow the economic gap by accelerating its economic growth rate. It will have
to increase its labor force and improve productivity comparable to that of China
by adding more skilled and highly skilled workers to its manufacturing and highvalue added product sectors. The following data sizes up India and China.
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ChinaIndia at a Glance
Source: Sizing up Indiaand China, IIFL via Thomson Research, 1 November
2010
Parameters China to India ratio Indias lag
in years
GDP 3.8 11.0
Industrial
output
8.0 18.0
Steelproduction
12.3 18.0
Car
sales
5.0 6.0
Democracy vs Autocracy: A contention appears to be that a middle class
dominated society has a tendency to become politically democratic. May be,there is no guarantee that in long term democratic societies are any more
stable than autocratic societies.
Most of todays democracies were mostly autocratic societies; Europeanscolonized many autocratic nations for part or all of last few centuries.
Autocratic societies were mostly poor, up to 90% ruled by 10+% of
ruling establishments of royalty, warlords, clerics and merchant/landed-
gentry classes. Collectively the ruling BACWAS (bureaucrats, army,
clerics, warlords and scholars) establishment grew to be imperial powers
through extra territorial expansions. European nations through
colonization built imperial powers that lasted a few centuries and so did
the Muslim Caliphates. Each of these societies to varying degrees
managed with one or two of the three legs. In most cases they lacked
adequate political capacity. Demise of a strong autocratic
leader invariably led to political vacuum and chaos until the next
savior arrived.
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Chinas GDP was around $5 trillion in 2010 and it was less than $1trillion before 1980s. With a double digit GDP growth rates it took China
three decades to have a $5 trillion economy by concentrating on low paid
manufacturing jobs.
America:Dr Dalal in a diagnosis of the American decline offered a credible
description of the economic activity cycle per decade. How likely is American
economic decline to continue? According to Dalal the cycle has a life span of 10
years. With the market crash of 2007 08 the decline precipitated and it may
last through most of current decade.
The following are my observation on diminishing political capacity of America.
It is interesting to note that America has technological capacity to reverse trends
of its economic decline seen in last few years. However for next few years its
economy is likely to decline due to shrinkage of its manufacturing base and
high employment rates.
Starting 2001, two wars in three Muslims heart lands (Iraq and the Af-Pak region of Afghanistan and Pakistan) have strained American
economy. The decade long wars have cost America $4 trillion and it still
has a few more years (2014 and beyond) to go to neutralize the hub of
terrorism in the Af-Pak region by destroying the safe heavens protectedby Pakistan army. Its economic growth is stagnating and may even be
diminishing as it continues to struggle to extricate itself from the Af-Pak
quick sand.
America started shifting jobs to China during Reagan administration in1980s. Did we have a steady economic activity decline for 30 years? Not
exactly as America successfully replaced low paying jobs with high value
added technology products and services. In last 30 years, technology and
housing market bubbles appeared and were busted. With both
bubbles there were associated financial activities bubbles. It all came
crashing down in 2008.
Given 9+% unemployment rates it is reasonable to assume a steadydecline in American GDP. It would be interesting if Dr Dalal could
or would predict Americas GDP, both annual rates and cumulative for a
decade of 2011 21. In 2011 American economy is around $14.5
trillion.
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India: India built its political capacity over last 64 years and now it is focused
on building strong economy. India with 7% 9% economic growth for two
decades, overall as a global power is a distant third. For next few decades the
best India can hope for is to be a regional power provided it effectively manages
border disputes with China and Pakistan. It also needs to build economic
interests with commodities rich nations, especially for an assured steady supply
of energy and other raw materials to attain a double digit growth needed for
augmenting capacity for steel, cement, technology and intellectual property
based electronic industry.
India has been concentrating on building technology base andmanufacture of high value added products. Indian economy being focused
on high (up to 70%) internal consumption is less exposed to externalpolitical pressures.
To sustain its supply chains for exports of technology and high valueadded manufactured products and imports of raw materials it is building
up its navy to assert a dominance in waters all around India (Bay of
Bengal, Indian ocean and Arabian Sea, etc).
Except in software developments the growth of manufacturing of highvalue products has been slow but steadily rising. It has moved up fromthe out sourcing services provider to technology dominated R&D
activities in many industrial products.
In addition to being a major global generic drug provider itsmanufacturing industries include deployment of communications
satellites and many advanced military products.
With 20 operating nuclear plants (4,780 MW in 2011) and more thandozen large plants at various stages of constructions (20,000 MW by2020 and 63,000 MW by 2032) for completion in about two decades,
India is getting ready to export indigenous designed and developed 220
and 540 MW heavy water nuclear power plants.
It is marketing Pratham series super computers. Its economy in two decades grew to about $1.5 trillion.
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India v. China: Both India and China have net job gains whereas America and
Western nations have suffered job declines judging from near double digit
unemployment rates.
Chinas projected to suffer a demographic decline from 1.4 billion (2020)to less than a billion from 2020 to 2050. India added 180+ million
populations in first decade of 21st century and at this rate of population
growth it will be most populous nation after 2030. America has
maintained its population growth rates by allowing immigrants to enter. If
jobs decline in America is not arrested in near future, it may not
see technology savvy immigrants coming to its shores to help it continue
on with its established business plan of attracting skilled foreign workers.
For China demographic decline means its low paying jobs may disappearand to maintain production consistent with consumer demands it will be
forced to improve productivity by offering better salaries
to manufacturing workers. Without an edge in R&D, productivity can
not rise. There may be all kinds of pressures and chief among it would
be political capacity. As the numbers of middle class go up, its
political structure may come under additional social pressures.
In 25 years (1990 -2015) poverty in India is expected to decline by 22%or about 1% a year assuming a 7% to 9% annual GDP growth. The
poverty data represents declining population of illiterate old people due to
natural attrition and increasing level of literacy as more and more youth
get educated.
If the education system for youth is reformed to incorporate skills basededucation such as introduction to basic rural technology engineering,
math, and agricultural science there is a possibility that with a rapid
decline in poverty rate economic growth may accelerate.
It is fallacious to claim that corruption and asymetric distribution ofwealth is responsible for high poverty levels in India. Such claims ignore
facts that generational cycle of poverty requires skilled based education
for the poor to generate wealth.
Issues like Lokpal bill may bring down corruption but it may not havemuch influence on poverty reduction as with implementation of RTE
(right to education) by nature takes about a decade to show improved
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results. The RTE was implemented a few years ago and there are many
states that have resisted implementing the RTE reforms.
It took India two generations (40 years) of IIT and higher education toreap benefits of wealth generation. RTE presumably will have sameeffect in helping those who want to get in job market as soon as they
complete 7th to 10th level high school education.
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Conclusion
China and India have come a long way since they fought a brief border war in
1962. Both countries are not only developing economically at rapid speed, but
they are also making extraordinary efforts to increase mutual trade and toimprove bilateral relations. Chinese President Hu Jintao's state visit to India last
November reflects the progress of bilateral dialogue on a range of issues over
the past few years. Rapid economic growth and the expansion of bilateral trade
have fuelled the development of closer relations.
Trade between India and China reached 18 point 4 billion dollars last year -- up
from only 338 million dollars in 1992. Both countries pledged to double trade to
40 billion dollars a year during talks in New Delhi between Indian Prime
Minister Manmohan Singh and Chinese President Hu Jintao.
Despite these developments, several analysts say India remains suspicious of
China's relationship with its long-time rival, Pakistan. And China is concerned
about New Delhi's growing ties with Washington, especially their landmark
nuclear agreement allowing India access to civilian nuclear technology. Some
expect the United States to deepen ties with India - a democracy it views as less
threatening - as a counterbalance.
However, Prof. Bottellier says concerns that the Chinese are worried about
India's relationship with the United States are overblown: I am very pleased
that the United States and India are developing good, constructive friendly
relations. That is very important for both countries, says Prof. Bottellier. I do
not think that the proposed civilian nuclear agreement between the United
States and India is resented or rejected by China. In fact, the Chinese
government has been remarkably silent on that subject. One would have
expected the Chinese to have protested, but they have not done so. Even during
the visit of Chinese President Hu to India in the latter part of last year, this was
not the subject of discussion.
Although the vast majority of the rural population in both countries remains
illiterate and impoverished -- and many structural and institutional problems lie
ahead -- many analysts say there is no doubt about the enormous economic
potential of China and India in the 21st century.