Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Learning from China

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Lessons from China's economic progress

Context

As we look back on our own journey after independence and feel proud of our achievements, wisdom lies in also looking around to evaluate how other nations have performed, especially those which started with a similar base or even worse conditions than us.

How India’s neighbouring countries have performed?

  • Independent India has done better than Pakistan if measured on a per capita income basis:
  • Comparison with Pakistan: India’s per capita income stood at $1,960 (in current PPP terms, it was $6,460) in 2020, as per the IMF estimates, while Pakistan’s per capita income was just $1,260 (in PPP terms $5,150).
  • Comparison with Bangladesh: Bangladesh, whose journey as an independent nation began in 1971, had a per capita income of $2,000 (though $5,310 in PPP terms), marginally higher than India, and certainly much higher than Pakistan in 2020.
  • Comparison with China: The real comparison of India should be with China, given the size of the population of the two countries and the fact that both countries started their journey in the late 1940s.
  • By 2020, China’s overall GDP was $14.7 trillion ($24.1 trillion in current PPP terms), competing with the USA at $20.9 trillion.
  • India, however, lags way behind with its overall GDP at $2.7 trillion ($8.9 trillion in PPP terms).
  • The quality of life, however, depends on per capita income in PPP terms, with the USA at $63,420, China at $17,190 and India at $6,460.

What made the difference between India and China?

  • India adopted a socialist strategy while China took to communism to provide people food, good health, education, and prosperity.
  • China, having performed dismally on the economic front from 1949 to 1977, started changing track to more market-oriented policies, beginning with agriculture.
  • Agriculture reforms: Economic reforms that included the Household Responsibility System and liberation of agri-markets led to an annual average agri-GDP growth of 7.1 percent during 1978-1984.
  • Reform in the non-Agri sector: Success in agriculture reforms gave political legitimacy to carry out reforms in the non-agriculture sector.
  • Manufacturing revolution: The success of reforms in agriculture created a huge demand for manufactured products, triggering a manufacturing revolution in China’s town and village enterprises.
  • Population control measures: China adopted the one-child norm from 1979-2015.
  • As a result, its per capita income grew much faster.
  • India’s attempts to control its population succeeded only partially and very slowly.
  • India’s sluggish performance when compared to China raises doubts about its flawed democratic structure that makes economic reforms and implementation of policy changes more challenging, unlike China.

Way forward for India

  • Liberating agri-markets is part of the reform package that China followed. That’s the first lesson.
  • Increase purchasing power of rural areas: Even for manufacturing to grow on a sustainable basis, we have to increase the purchasing power of people in rural areas.
  • This has to be done by raising their productivity and not by distributing freebies.
  • Investment in various areas: Increasing productivity requires investments in education, skills, health and physical infrastructure, besides much higher R&D in agriculture, both by the government as well as by the private sector.
  • Create institutional setup: This requires a different institutional setup than the one we currently have.

Conclusion

India’s sluggish performance when compared to China raises doubts about its flawed democratic structure that makes economic reforms and implementation of policy changes more challenging, unlike China. But India has lessons to learn from China.

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