Question

India and China are both huge countries that have enjoyed dramatic levels of economic development in the current age of globalization. Give two examples of how China and India’s respective economic booms are similar, and two ways they differ from one another.

Answer 1

India and China are two countries which have experienced growth simultaneously due to globalisation, not just on economic parameters but also other aspects like population, literacy, infrastructure and so on.

Two ways in which their respective economic booms are similar are :

1. Structural changes to basic economic system :

     Both the countries have embraced the ‘open economy’ system. Open economy is a country that has trade relations with other countries of the world. This has led to a greater and faster economic growth in terms of an inflow of foreign investment, technology and a rise in exports , growth of a and larger participation of private sector in the overall economic process, the modern liberal policy has lead to to a rise in competition and efficiency as well as a reduction in the burden of the government in financing the huge -investments of public sector.

       The deregulations adopted by India and China have had a tremendous impact on the growth of private sectors which have been able to allocate resources in a more efficient manner, given the new economic freedom by the governments, such a strategic move , especially on the exports and have catapulted India and China onto the international arena as forces to reckon with.

2. Financial Sector:

      India and China have actively focussed on the improvement of financial sector through appropriate financial reforms that are in line with the policy of liberalisation. Focus has been given to a rise in investment and capital formation , the domestic savings in both India and China have increased primarily due to an increase in the average per capita incomes of both the nations. Inflow of foreign capital has led to a high rate sizeable rise in foreign direct investments and rapid growth of the capital market. The financial sector has been largely benefitted by the growth of banking sector in India and China. The banks have manifested themselves as more than mere accepting deposits and lending agents—banks have grown to become mobilisers of savings and have actively contributed to capital formation in both India and China.

Two ways in which they differ from each other are :

1. Pattern of economic system:

India is essentially ‘a mixed economy’ which functions with the coordination of the state owned public sector and the free market guided –private sector. The government however seeks to regulate the private sector , in a bid to control any restrictive practices that it adopts that may lead to curtailment of output or artificial rise in prices and so on. Economic planning was the policy tool that was actively implemented to promote the objectives of consistent economic growth and stability in general price level combined with a stable balance of payments equilibrium. The Indian economic growth has been dominated by ‘service’ sector.

   China, has been a ‘planned economy’ or a command economy , where the state is having higher command over the nation’s economic system. Chinese private sector is typically a smaller proportion as compared to the larger size of the state owned public sector. The Chinese economic growth has been largely dominated by ‘large scale industrialisation’ that accelerated the economic growth at a much faster pace.

2. Foreign Trade:

An important difference between China and India has been the ‘foreign trade ‘ sector. China has experienced more than 30 % rise in its exports within a few years of implementing foreign reforms !!! The export sector has led to a rapid rise in its overall economic growth rate. The Chinese share of total world exports rapidly rose . A chief factor being a state controlled financial sector and focus on building infrastructure and rapid industrialisation policy.

The Indian exports have however risen consistently but more in terms of global linkage rather than Chinese exports driven policies. There has been a rise in both exports and imports in Indian economy than merely a rise in exports . The ‘open’ Indian market especially its vast population and more importantly a liberal governmental policy has made it more accessible for other countries to offer a wider variety of goods and services and this has had a positive impact on the overall income and employment opportunities.

The globalisation process pursued by India and China is however subjected to constant challenges from the developed nations. India and China have similar geographical and demographical endowments—both are large and hugely populated countries, both nations are target market segments for many western countries who aim to sell their goods and services in these markets which pose a stiff competition to the domestic industries in Indian and Chinese markets.