Unsurmountable Chinese Economy For India To Overcome

The Chinese economy has gone way far beyond for India to attempt even catching up with it. In future this gap will continue to grow. Indian economy will have to grow at very high rates even to reach where China is today. A difficult task indeed.

According to World Bank sources, in the year 2014, the GDP of USA was $17.4 trillion, the annual growth rate was 2.4% and per capita GDP was $54,630. China with a GDP of 10.4 trillion had a high growth rate of 7.4% but a lower per capita GDP of $7,594. The much higher population of China explains for the lower per capita GDP.

India with an equally large population, has a relatively very low GDP of $2.1 trillion and even with a high growth rate of 7.4%  has a dismal per capita GDP of $1,596. Among the top twelve GDP countries,

India has the lowest per capita GDP. Brazil with a comparable GDP of $2.3 trillion has a per capita GDP of $11,385 even when its economy is stagnant at 0.1% growth rate. Russia with a GDP of $1.9 trillion has per capita of $12,736  although its growth rate is only 0.6%. Even South Africa scores over India with a per capita GDP of $6,578, when its GDP is only $0.4 trillion and growth rate is 1.5%.

At a growth rate of 7.4% India’s GDP can be expected to double to $4.2 trillion in next ten years.   Even if population were to remain constant at 2014 levels, the per capita GDP would rise to $3,192, which would then match with the 2014 Indonesian per capita GDP figure of $3,492 with a GDP of $0.9 trillion and a growth rate of 5%

In order to reach the 2014 GDP figure of China, the Indian economy must reach a GDP of $ 9.99 trillion, which at present growth rate it can do so in next 24 years, and population remaining constant at 2014 level. That population will remain constant is an invalid assumption. So in reality even if GDP were to constantly grow at 7.4% but the population will keep also growing and thus the per capita GDP will in reality be lower than $3,192 diluted by the rate at which population grows.

Assuming Indian population goes up by 2% per year then it will double in 35 years from now. But it will reach 160 crores in next ten years and the estimated GD is $4.2 trillion giving a per capita GDP of $2,625. This GDP would still qualify India to be a poor country because the GDP of the other countries, already much ahead of us would also grow similarly. However on a standalone basis, India would be a much richer country than it is today.

One important factor depressing the Indian per capita GDP figure is its large population of 1.25 billion and growing. There is no government effort to curb it as it is a very sensitive issue especially after the crude efforts in this direction during the infamous emergency period of 1975 – 1977.

Another factor is the imbalance in income generation. It is estimated that nearly 60% of the population is agriculture based and its share of the GDP is around 15% only.

The balance 40% generates 85% of the GDP.

The low purchasing power of the population also acts as a restrictive factor in attaining higher GDP growth rate. Per capita consumption figures of average Indians are relatively lower compared to higher GDP economies. Today also around 30% of the population is living below poverty levels.

The Indian economy is a predominantly a consumptive economy and exports much less compared to its size, potential and requirement. It exports around 14% of its GDP but imports around 21%, thus leaving a negative gap of 7% of its GDP. This does not leave adequate scope for the expansion of the economy.

The socialist model of economy adopted by the country was continued for longer than necessary and the economy was allowed to grow in real terms only after the 1991-92 budget wherein liberalization and globalisation were introduced and promoted.

How has China leap frogged from a comparable economy with India till the 1980’s to become the second largest economy today? An ‘advantage’ is its political system. It is a totalitarian state with a single party- the Communist party- in control since the 1949 Mao led revolution. With no opposition the government is able to push its development programs with tremendous speed and ruthlessness, unlike a democratic India where every reform has to overcome stiff opposition. The Chinese are thus able to plan, execute and implement almost all their development programs within stipulated time. This has led to speedier transformation of the country.

China has brilliantly amalgamated its low cost labor with high volume production capacities from latest technologies to emerge as the lowest cost producer in the world giving its products a tremendous advantage in the world markets. China exports nearly 40% of its production boosting its  foreign exchange earnings. It exports approximately $2000 billion worth of products and imports app. $1500 billion, leaving a surplus of #500 billion every year. Its foreign exchange reserves are anywhere between $3,500 to $4,500 billion.

In contrast India is struggling to induce both local and foreign industries to manufacture products in India to boost production and also create jobs for its young population. Education explosion has raised the expectation level in the youth for better jobs. Inflation continues to be relatively high and thus interest rates also remain high which makes capital costly. Public sector banks are saddled with a massive debt of billions of rupees which are now classified as Non Performing Assets (NPA). This has created a massive strain in the banking sector and lending has become very restricted. Food prices inflation is eating away the saving potential of the vast number of middle and lower classes.

Thus high GDP growth rate perhaps will not improve the financial condition of the Indian population even though the country will be much richer in the coming years. Purchasing power will improve but will be relatively much lower than those of developed countries. For many decades Indian economy will continue to be a challenge to planners, government and to the teeming millions.

Article Written By vks1000

Am a retired professional who is now into education of International Business and management topics. I enjoy writing and like reading on politics,economics,management and films. I take life as it comes and try to keep myself busy with a variety of activities.

Last updated on 22-06-2016 13 0

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