A Comprehensive Analysis of How Exactly Did India Falter in Tackling China and Let Them Surge Ahead??

We feel very disappointed to see that China is an economic superpower today, while we are still on the track to achieving that status. China uses its might to influence institutions against India, yet all we can do is seek help from other powers.

There isn’t any doubt that we are on the path of becoming an economic superpower, yet there still remains so much to be done. So much that should have been done for the past few decades, but the previous government never worked in right direction with conceivable goals in mind.

Here we compare in detail how India & China have grown together on the basis of facts & figures, but first let’s see where the two countries stand in comparison (as of 12/9/2015) –

  • Nominal GDP of China is 5.06 times more than India’s.
  • GDP on PPP terms of China is 2.39 times more than India’s.
  • Nominal GDP per capita of China is $7,589 while India’s is $1,627.
  • Per capita GDP on PPP terms of China is $12,880 while India’s is $5,855.
  • China’s industry sector is 43.9% of its GDP while India’s is 24.2%.
  • From 1980-2014, China attained a 10%+ growth rate in 16 years while India in only one.

The comparison will be on 4 parameters – Investment, technology, FDI, & labour productivity.

Factor 1 – Business Investment as % of GDP –

  • 1990 – China (24.9%) India (21.8%)
  • 2000 – China (35.1%) India (24.3%)
  • 2008 – China (44%) India (34.9%)
  • 2010 – China (48.2%) India (36.8%)

Analysis –

This stat is about non-residential investment (factories, equipment, & other such infrastructure). As can clearly be seen that since 1990 India has always fallen behind in terms of investing in infrastructure that directly or indirectly generates employment. The gap has gone on increasing between the two. Private & mainly public spending in investment has been much lower in India resulting in lower & even sub-par employment opportunities. This has had an unprecedented effect on our GDP. For developing countries like these two, capital insertion into such investments has the biggest impact on GDP, followed by technological growth.

Factor 2 – R&D as a % of GDP –

  • 2000 – China (1%) India (0.8%)
  • 2009 – China (1.7%) India (0.8%)

Analysis –

The difference wasn’t much in 2000, but our technological expansion was nil in a span of 10 years, while China’s grew by 0.7%. Capital expenditure & technology are two prime factors that are responsible for an expanding GDP, & India hasn’t matched China’s growth in any of these factors. The disappointing aspect is that India’s IT industry dominates the world’s yet its growth in the sector was nil. Technological growth results in better & more efficient ways to produce goods & services which in turn reduces use of resources also. It elevates the knowledge base of workers which leads to raised standards of living as well.

Factor 3 – FDI –

  • 2000 – China ($38.4 billion) India ($3.6 billion)
  • 2010 – China ($185 billion) India ($24.6 billion)

Analysis –

This is not even worth comparing. In fact, India’s FDI was less than even Brazil’s ($32.8 billion & $48.5 billion respectively). As mentioned earlier developing countries need extensive capital expenditure to expand their economies. Also, as these countries are limited in terms of funds available with the governments & entrepreneurs, FDI becomes the most important source of capital investment. It is also considered a major factor in raising the per capital GDP as the capital investment on one unit of labour rises with rising FDI leading to more output. This stat shows why it’s of no surprise that China has galloped ahead of India.

Factor 4 – Growth in % in labour productivity –

  • 1995-2005 – China (6.7%) India (4.2%)
  • 2005-2008 – China (10.3%) India (6%)

Analysis –

Labour productivity is the amount of goods & services produced by one hour of labour. China’s productivityexpanded rapidly, whereas India’s didn’t see the growth it needed considering its huge population base. The productivity level in 2010 (GDP contribution/hour worked) was $8.6 for China & $5.3 for India. So, keeping aside relative comparisons, even in absolute measures India didn’t match up to China. USA’s productivity level is the highest at $60.3. This shows that ultimately becoming efficient is crucial to long-term economic success. But this productivity can only rise if a nation concentrates on raising the capital to labour ratio & making strides in providing better technology to industries.

It is clear that in the 4 most important economic aspects India has lagged behind considerably, & this has compounded over decades & resulted in today – a situation where China is an economic superpower whereas India isn’t even though it did possess all the means to achieve it.

This is not to say that India didn’t have an advantage in terms of real GDP per capita (real GDP is GDP that’s adjusted for inflation/deflation).

  • During 1970-1980 India’s was $658 whereas China’s was $402 (64% higher) &
  • During 1980-1990 India’s was $922 whereas China’s was $698 (still 32% higher)

How Narendra Modi is Changing This

  • Investment – His focus is on making India a manufacturing hub, & the ‘Make in India’ program has done wonders in just under 3 years. Numerous companies have raised investments in India & many have started theirs for the first time. Also, he is pushing for greater investment in roads, electricity & railways – all that can become engines of growth for the Indian economy.
  • Technology – A significant factor in technological growth in innovation. His ‘Start Up India’ campaign has already elevated India into being the 3rd ranked country in terms of the most number of start-ups in a year. Also, his deep interest in collaborations with Silicon Valley will prove to be a huge boost to India & its technological factor.
  • FDI – India beat China as the most attractive FDI destination in the world in 2015. One can see how impressive an achievement that is considering China has always been the favourite investment destination for foreign investors, & also a place which has given investors great returns.
  • Labour productivity – Along with greater capital & technological inputs, his ‘Skill India’ campaign in vital in raising the productivity levels of the employees. Educating & then training them specifically for the task they’re assigned to can really boost their productivity levels. This also means gainful & appropriate employment for people with time.

    Vinayak Jain