Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Wednesday, December 03, 2003

Is India really shining?

Mohan Guruswamy, Abhishek Kaul & Vishal Handa of the Centre for Policy Alternatives, an independent think tank in New Delhi, present a sobering perspective in an op-ed piece in The Hindu. The main points being a. India is behind China on most development indicators - catching up on growth rate alone isn't enough and b. China is an industrialising country whereas India seems to be entering the post-industrial phase without having industrialised.

A comparison of the first ten years of the economic performances of India and China after reforms (1992-2001 for India and 1979-88 for China) is instructive. China entered the first decade of the reforms as a fast developing and modernising country with an average decadal growth rate of 5.52 per cent. But more important than this was the performance (1980) of reducing infant mortality to 42 per 1000; elevating life expectancy to 67 years; raising adult literacy to 66 per cent. India by contrast had a better growth rate of 5.7 per cent in the 1980s but came burdened with an infant mortality of 119 per 1000; life expectancy of 59.2 years; and adult literacy of 48.41 per cent. Many reasons have been advanced for China's stupendous performance. Few are as valid as what Amartya Sen wrote: "China's relative advantage over India is a product of its pre reform (pre 1979) groundwork rather than its post reform redirection."

Yet another comparison would be even more instructive. In 1978, at the inception of its reforms, China's per capita GDP (in constant 1995 U.S.$) was $148, whereas that of India in the same year was $236. Seven years after it began its reforms, in 1986, China caught up with India in per capita GDP terms ($278 vs. $273) and a decade after reforms in 1988 was comfortably ahead of India with a per capita GDP of $342 compared with India's $312. In the first post-reform decade, the Chinese economy grew at 10.1 per cent while the Indian economy grew at 5.7 per cent in the corresponding decade. Quite clearly that was India's lost decade.

But what did we achieve in the first decade of our reforms? In 1992, the first year of its reforms, India's per capita GDP was $331. This grew to $477 in 2001. In the same period the Chinese per capita GDP surged from $426 to $878 in 2001. In the 1990s China grew at the rate of 9.7 per cent while India grew at 5.9 per cent. Quite clearly far from beginning to catch up, we fell well behind.

It is true both countries have transformed themselves after they embarked on the path of economic reforms. But the transformations were entirely different. In 1980 the sectoral break-up of China's economy was as follows: agriculture 30 per cent, industry 49 per cent, and services 21per cent. In 1990 that changed to agriculture 27 per cent, industry 42 per cent, and services 31 per cent. In 2000 that picture transformed further. Agriculture fell to 16 per cent; industry grew further to 51 per cent while services steadied at 33 per cent. Note the growth in the share of industry now. This was primarily made possible by overseas investment, which amounted to $293 billion during the decade, which also created millions of new jobs. Apart from the millions of new jobs created, the role of FDI in making China a major world-manufacturing centre is seen in the share of FDI enterprises in total exports. This rose from under 2 per cent in 1978 to 45.5 per cent in 1999. Today China accounts for 3.79 per cent of world trade while India's share is just 0.93 per cent. Consequently, China foreign reserves have burgeoned to $383 billion while India's is $92 billion.

The Indian picture makes for a study in contrasts. The share of agriculture fell somewhat from 31 per cent in 1990 to 28 per cent in 2000. The share of industry too fell from 28 per cent to 26 per cent. Services grew from 41 per cent to 46 per cent. Software exports apart, the biggest contributing factor to the growth of India's services sector has been the growth of public administration, which has been bounding at an average rate of 32.5 per cent each year from 1993-94 onwards. In 2001 Central, State and local government salaries together topped Rs.167, 715 crores. This kind of spending was not what Keynes had in mind when he advocated public spending to stimulate the economy!

No comments: