Crouching Tiger Hidden Dragon

Cat and Mouse Race: India vs China

For past many years there has been a question whether India will be a next China?

China and India both started the journey at same time but today the GDP of China is about 5 times that of its Indian counterpart. Over the last two decades the world has witnessed a tremendous growth of China surpassing the two digit growth mark only to slow down for past few years.

India currently the fastest growing economy of the world is growing at a steady rate of near to 7.0 per year but still not able to catch up the double digit mark as China did.

The biggest period of difference came between 1978 - 2000. Before that India and China went quite parallel. Even as late as 1991, India and China were equal in Per Capita incomes. After 2000, India's growth rate has come close to China's levels. It is the inbetween 25 years where China rocketed beyond the reach of India.

Now some would suggest that the difference in the growth that both countries have witnessed is because India is Democratic and China is not, which make it difficult to implement policies in favour of the country faster unlike China where the government have the ultimate power.

Yeah democracy isn't considered good for economic development but then too this isn't the right case.

Let's look at some of the few other aspects.

1. The one-child policy enacted in 1979 drastically lowered the population growth rate, thus producing a temporary period of fewer kids, few old people & a lot of workers. There was a rapid bulge in working population & they got the new jobs in building the infrastructure. This was a big factor in the GDP growth. This demographic dividend thing is once-in-a-lifetime thing and China cashed this check in 80's and 90's. India is expected to see this change in 2020's.

2. Mao was worse in a lot of things. But, he rapidly increased literacy rates. By 1981, Chinese females were twice more likely to be literate than Indian females. This gap continues to this day. This was a huge advantage for industries that came in with the opening up. 

3. India never had an equivalent of Deng Xiaoping who made all the difference in the 1980s. India's PV Narasimha Rao came 13 years late and lost his mojo within 3 years of opening up the economy in 1991.

4. In 80s, 90s China had a rapid infrastructure push. Roads, railways and airports were built at a record pace. China's government structure allows for quick land acquisition. India's democratic structure and outdated land laws don't allows for rapid land acquisition. 

But for Past few years India is catching up slowly and steadily. In 2015, India surpassed its neighbor to attract more FDI. India was the top destination for foreign direct investment (FDI) in 2015. Asia’s third largest economy raced past China—which was at the top for many years—with $63 billion worth of foreign investment, according to FDI Intelligence , a unit of the Financial Times group.

An increase in the number of investment projects in coal and power in India helped the country surpass China. The number of projects in the country rose 8% to 697 in 2015 over the previous year. This is still lower than China’s (789 projects) which indicates that the value of investments was much higher in India.

India is one of the fastest growing major economies in the world and is considered to be a bright spot by international agencies, including the International Monetary Fund. Prime minister Narendra Modi is also pushing to increase manufacturing in the country. China, on the other hand, is battling slow economic growth, overcapacity, and high debt. Beijing is adding to the debt to ease the slowdown. In February, the country announced a massive layoff of 1.8 million workers to downsize its coal and steel industries. Because of a weaker yuan and a slowing economy, an estimated $1 trillion moved out of the country in 2015, the highest in the past decade.

With Modi government taking good initiatives like "Make in India" and "StartUp India" and trying to boost the Tourism industries it is highly likely to become a regional superpower.