India-China Economic Models: Reviews and Overviews

BY DR. RAJKUMAR SINGH | Published: 2:00 AM Jul 28 2021
Columns India-China Economic Models: Reviews and Overviews


The last three decades have been very significant from economic points of view for the globe in general, but for India and China in particular because these two economic giants of Asia adopted slightly different models of economic development based on politico-social perceptions and geographical situations of their countries but surprised the world through its growth and overall progress which threatened the economic supremacy of United States of America by China becoming the second largest economy of the world. For a long period, following their independence, both suffered from poverty, backwardness, and a hub of failed policies, along with having the most populous nations on the planet. 

From the beginning India adopted a model of growth which was a slow and gradual process with strong economic base with development of a well-developed institutional mechanism and establishment of democracy that paved the way for strong macrostability and reduced volatility in output.

 In the Same way, before going for the fast track growth India reformed its market regulation, rule of law, business investment and foreign capital investment which gave India the Gross Domestic Products (GDP) of about 8% for the last 10 years. 

In contrast to India, China adopted a model of fast track growth and achieved 9.4% GDP growth in previous decades after making several major structural reforms like improving the human capital. Aggressive labour reforms, high level of domestic savings, coupled with positive demographic changes and by attracting a huge amount of FDI and focusing on building infrastructure and improving the cost effectiveness of country’s businesses. 

In addition, China made regular investment in infrastructure that helped support in all areas for a fixed period, while India believed in both public and private sectors to motivate business environment by making some key structural reforms but despite these domestic financial risks remained potential barriers to the continued growth of India. 

Basics of Indian model

 Indian economy since Independence of the country has witnessed various ups and downs due to several national and global factors beyond its control, it however, became close to the world economic trends and existing changes that took place in early 1990s when the waves of globalisation came and a large re-setting in continuing economic policy was realised urgently. In the light of new challenges facing the country, as a result of protectionist approach which include extensive State intervention and economic regulation and which promoted the Licence Raj, making the whole process difficult and impractical too, was replaced in the beginning years of 1990s.

 The end of Cold War, globalisation acted as outside factors while imbalances in payment of foreign exchanges necessitated the imminent changes in Indian economy which the country adopted and moved further in the 21st century. As a result of the liberalisation steps undertaken by India, it registered an average growth of GDP between 6 to 7%, while from 2013 to 2018 it was the world’s fastest growing major economy, surpassing China. 

The Indian economy registered its slowing down in 2017 due to demonetisation in 2016 and implementation of Goods and Services Tax, followed by the world wide COVID-19 pandemic, which marred the growth of world economy including its several waves as continuing in 2021. 

Despite these odds, it is characterised as middle-income developing market economy and still holds the position of sixth largest economy by nominal GDP and third largest by purchasing power parity (PPP). The negative impacts of COVID-19 remained visible everywhere and the economy of South Asia in this period in terms of GDP slashed to 8.9 per cent in 2020 while Indian economy had fallen from 4.7% in 2019 to 9.6 per cent in 2020 only because lockdowns and other containment efforts had slashed domestic consumption, but it is likely to recover once the effects of pandemic have gone and the economy gets back to normal. 

Features of Chinese economy 

The economic reforms and liberalisation in the Chinese economy began in the year 1978, including the opening of the sector for foreign investment at large, as a result of which a parallel economy was erected with strict State control. The current system of developing market-oriented economy is dominated by both- State-owned enterprises and a large number of domestic private sector that are opened to foreign businesses. 

This mixture of both has made China, since 2014, the world’s second largest economy in terms of nominal GDP and purchasing power parity (PPP) and according to an estimation by 2028, it would become the world’s largest economy as measured on the basis of annual growth rate of over 10% in the last 30 years and still it is the largest recipient of Foreign Direct Investment (FDI). 

In the context, China has a wide variety of economic set up which includes its being the largest in foreign reserve, export, second largest in import, fastest growing consumer market and an importer in other services products. The economic development of China has accommodated a large number of middleclass populations which is largest in the world since 2015 and projected to be 1.2 billion by 2027 when Beijing would be the country of one fourth of world’s population. Today we can hardly believe the economy of China before reforms when its theme was State ownership and central planning with an average GDP at the rate of 2.9 % between 1950 and 1973. 

Economies in comparison 

The present status of the Indian and Chinese economies, the two emerging economies of the world and Asia as well, deserve our attention and attraction, especially the position of China which has registered a tremendous growth in the last three decades. 

With surprise to none in the year 1987, in terms of normal GDP India and China were almost equal, but today it is 4.78 times greater than India and while China crossed the $ 1 trillion mark in 1998, India achieved it after nine years in 2007. This wide gap in their economy made China the second largest economy of the world after the US and has fixed India at number five, although they both together share 19.46% and 27.18% of total global wealth in normal GDP and PPP.

 Over the years, the semi-capitalist economy of China has surpassed the economies of France, Germany, and Japan to become the second largest behind USA, despite the fact that India is growing at faster rate and has a young population where a lot has to be done in responding to changing work force needs and the power sector as well, the greatest bottlenecks to the growth of a country’s economy.

About the Author: Dr. Rajkumar Singh Professor and Head Department of Political Science, Dean, Faculty of Social Sciences, Bhupendra Narayan Mandal University Madhepura-852113. Bihar, India. [email protected]  

BY DR. RAJKUMAR SINGH | Published: 2:00 AM Jul 28 2021

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