Difference between the current economic scenarios of India and China

The following article is based on my own interpretation of the said events. Any material borrowed from published as well as unpublished sources has been appropriately referenced. I will bear the sole responsibility of anything that has been found to have been copied or misappropriated or misrepresented in the following post.

Vinay Yadav, MBA  2015-2017, Vinod Gupta School of Management,  IIT Kharagpur.

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In the current scenario India seems to be in a better position. Economy of China is majorly supported by its Manufacturing sector. And that happened because of low cost of manufacturing there and several measures taken by its government to improve in that sector. But as the Chinese economy has grown, its no longer so cheap to manufacture there. The hourly labour cost in India for manufacturing averages 92¢, compared with $3.52 in China.

On the flip side, India lacks the proper infrastructure to bring that widely available labour to use. But the government is trying to improve in that front. In Madhya Pradesh it is creating 27 new industrial areas and land acquisition and labour laws are going to be amended to encourage manufacturing.

China is supposed to go into an economic slowdown in the coming years while investments in India are booming. Also globally, trust in Indian economy is improving due to large scale efforts like Make in India campaign. Recently Japan committed a whopping $57 billion in investments while china pledged $35.5 billions. Much of this money will be used to build a giant industrial corridor between Delhi and Mumbai featuring high-speed trains and superhighways.

Another big advantage India has is its huge young population. Sixty five percent of India’s population is less than thirty five years old. On the other hand due to long term effects of China’s one-child policy, its population is rapidly ageing. Soon it will become difficult for China’s youth to support unproductive aged population.

For a long time, China’s authoritarian model has been credited for its rapid growth in the last few decades while India’s decentralized model has been held responsible for its staling growth. A reappraisal of that view may soon be in order. But this doesn’t mean that India will soon overtake China. India has a long way to go for that. India’s GDP per capita is just US$1,250, while China has a huge US$6,700 in comparison. What I’m trying to demonstrate is that India has much more potential to grow as compared to China. And in the next few decades India might take the world by a big surprise on the economic front.

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