With similar backgrounds to start with, both the nations have captured the attention of world due to their stellar performance and future potential. But the journey of growth and development had different pace and direction. China, since 1978 has used administrative and political power to reform agricultural and industrial sectors, modernize infrastructure and improve human capital. India, on the other hand, since 1990s, has adopted a gradualist model. It has developed a well-functioning institutional framework (rule of law, protection of property, market regulation and a democratic political setup), letting the private sector drive the turnaround. China is also criticized for having a dual economy.
India and China population accounts for nearly two-fifths of the total world’s population. There are many similarities in the history of two countries. As during the most part of the 19th and 20th centuries, both countries were besieged by internal domestic turbulences and foreign invasions. Since after their independence both countries had preferred self-sufficient economies with strong government controls in the public sector, agricultures, industries and many other economic areas.
China has emerged as a low-cost manufacturing juggernaut invading global markets in a sizeable array of products, with a high and rapidly rising level merchandise exports and imports. In comparison, India’s post-1991 growth performance has shown improvement. Although its success in the services sector exports is noteworthy, its economic performance did not match that of China.
To sustain rapid economic growth, China and India must redress a multitude of imbalances and challenges. Manufacturing and services have been the growth engines of the two countries respectively. China needs to boost the service sector in order to generate jobs and expand domestic demand, while India needs the manufacturing sector to stimulate economic growth. Balancing consumption and savings is also crucial as investment generated demand may lose its effectiveness if domestic consumption is sluggish. To shift fiscal spending towards health, education and social security could reduce precautionary savings. It is therefore important to allow wage levels to keep pace with productivity growth. The declining dependency ratio, particularly in China, appeals for policy initiatives to avoid a scenario of becoming old before getting rich. With the pace of growth and development happening in India and China, it is widely believed that these Asian tigers will emerge as super powers. As both nations are strengthening their weak frontiers it is debatable as to who will be a bigger force to reckon with in the near future.
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