Managerial Economics: A 30-Year Economic Comparison of India and China

This report provides a comparative analysis of the economies of India and China over the past 30 years, focusing on GDP per capita, economic growth rates, and the factors driving their respective expansions. It examines the reasons behind China's more rapid economic growth compared to India, incl...Read More

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Managerial Economics
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Introduction
India and China are two largest economies of the world. According to World Bank
(2019), China and India hold the 2nd and 5th positions among the biggest nations of the world as
of 2019. The countries are emerging economies and together they share around 19.46% and
27.18% of the total global wealth in nominal and PPP terms, respectively (Naseem, 2017). In the
past 30 years, there have been significant changes in these Asian economies and China has made
exceptional progress than India. The paper will present a discussion on the comparison of the
GDP per capita and economic growth rates of these two countries over the past 30 years, reasons
for rapid expansion of Chinese economy compared to India for the past 30 years, important
factors distinguishing these two economies from population growth, human capital, political
systems and so forth and the future potentials.
Comparison between the Chinese and Indian economy
According to the data from World Bank (2019), the nominal GDP and GDP per capita in
current USD were almost equal for both India and China. However, in 2019, GDP of China is
4.78 times more than that of India. In terms of PPP, China’s GDP is 2.38 times higher than GDP
of India (Siddiqui, 2019). In 1998, China achieved more than $1 trillion worth of GDP, while
India was able to achieve that in 2007 at the basis of exchange rate. The following images show
the changes in the GDP per capita (current USD) and economic growth rates for India and China
over the past 30 years.

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Figure 1: GDP per capita, India and China, 1988-2018
(Source: World Bank, 2019)
Both the nations had almost same GDP per capita before 1990s. However, China
improved 1993-94 onwards and since 2004-05, the rate of increase in GDP per capita was
exponentially higher for China. In 2019, China’s nominal GDP per capita was almost 4.61 times
and in PPP terms, 2.30 times more than India (Siddiqui, 2019).
Figure 2: Economic Growth comparison, India and China, 1988-2018
(Source: World Bank, 2019)

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Regarding economic growth, both the nations have displayed much fluctuations,
however, the level of overall growth in China has been much higher, more 10%, in the last 30
years. The growth has fallen for China in 2018 due to the US-China trade war, which is threating
for China’s recovery in the near future.
Reasons for rapid expansion of Chinese economy compared to India for the past 30 years
can be attributed to the liberalization policies and successful transformation of China’s economy
from agricultural to industrial (Siddiqui, 2019). China has emerged as the giant of the world’s
manufacturing industries and the largest exporter of the manufactured goods ranging from
electrical machineries and equipment, furniture, plastic goods, automobile and parts, iron and
steel products, optical and medical equipment to clothing, accessories and toys, which boosted its
economic growth considerably (Hsieh & Ossa, 2016). On the other hand, Indian economy is still
largely dependent on the agricultural sector as its primary economic sector and exports-to-GDP
ratio has been quite low (Gollin, Jedwab & Vollrath, 2016). The service industry in India has
emerged prosperous for growth, however, it faces tough competition globally.
As stated by Dr. Amartya Sen (2017), the huge success of China can be majorly
attributed to its significant investment in education and health sector, and the difference in the
quality of human capital between India and China has pushed the economic growth higher in
China. Both the nations have highest population growth, however, the average working
population in China is ageing, while that in India is much younger, and this could be useful for
economic growth in future. Although, to utilize this large workforce most efficiently, India must
invest more in education and health. Furthermore, India’s R&D expenditure is less than 1% but
in China it is 1.4%, improving the quality of resources and production (Zhang et al., 2019).

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Other challenges for India over the 30 years have been highlighted as the high labor
market restrictions and rigidity and higher dependence on the public sector, while in China,
dependence has been more on the highly productive private sector (Zhang, 2017). Lower
restrictions in the economy has enabled China to support new and riskier technological
innovations and development, which has contributed in massive economic growth in the past two
decades for China (Wei, Xie & Zhang, 2017).
Conclusion: Future growth potentials
It is observed that both the countries have achieved a similar economic growth in 2018.
The impact of US-China trade war is not only slowing down the Chinese economy, but is also
negatively affecting the world economy. While India is taking measures to improve its quality of
human capital and reducing regulations and restrictions for better trade, it still needs to invest
more on privatization and improving the structure. On the other hand, the Chinese government
must settle its tariff disputes and trade policies with the USA for implementing recovery
measures to have economic growth in the long run.

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References
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