Indian Economy A Comparative Overview with China From

Indian Economy : A Comparative Overview with China From, Dr. Deshmukh V. V, .

Some General Facts India is the world’s second most populous country of over 1 billion people after China. Urban population 28% of total. (China 39%) More than half of its population is 25 years of age. ‘Demographic dividend’. Measured in USD exchange rate terms, 12 th largest in the world, with a GDP of $3. 32 trillion (PPP) , China ranked 2 nd largest with GDP of $7. 8 trillion. (2008) PCI $2, 900 at PPP and that of China $6100 (2008) Population below poverty line is 27. 5% (2008 est. ) China 10% World Bank classifies India as a low income economy

• The contribution of Agriculture, industrial and service sector (2007 -8) in GDP has been 21, 24 and 55%. ( In China the corresponding percentages are 11. 3, 48. 6 and 40 % in GDP 2008) • Agriculture is the predominant occupation in India, accounting for about 60% of employment ( China 43%). The service sector makes up a further 28% (China 32%) , and industrial sector around 12% (China 25%). • Organized sector employs 8% of workforce (two thirds of which are in public sector), and produces about 40% of GDP. Rest in informal sector --with predominance of ‘women. ’ Urban informal sector is a fast growing sector. • 30% of total labour is constituted by casual labour and only 10% are in regular employment. • Major problem not of open unemployment but of underemployment and disguised unemployment. • Unemployment rate 6. 8% (2008 est. , in China 4. 3% is official and 17% unofficial UR).

Why India? GDP growth rate 9% in 2007 -2008, slowed down to 7. 3% in 2008 -9. Major industries are Textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software. Services are a growing sector and play an important role in Indian economy. India is an imp. ‘back office’ destination for global outsourcing of customer services and technical support. Major exporter of highly skilled workers in financial, software eng. Potentials are in , manufacturing, pharmaceuticals, biotechnology, nanotechnology, telecommunication, shipbuilding, aviation, tourism and retailing.

Composition of India’s GDP (at Factor Cost by Economic Activity – at 1999 -2000 prices, in%) 2000 -01 1)Agriculture etc 2)Industry 2. 1 Manufacturing 2. 2 Construction 3) Services 3. 1 Trade, hotel, Restaurants 3. 2 Transport, storage & communica. 3. 2 Finance, insurance, etc 3. 3 Community, social and per. service 23. 89 25. 80 15. 30 05. 81 50. 30 14. 34 07. 96 13. 04 14. 98 2007 -08 20. 55 24. 71* 54. 74 26. 80** 14. 32 13. 62 * Inclusive of 2. 1, 2. 2, ** of 3. 2. Source : EPW 14 TH June , 2008 and Economic Survey of India 2007 -8 Source: EPW June 14, 2008

India- Structural Transformation-? Economic policy: Approach i) Since independence (1947) – till almost late eighties followed a socialist inspired approach- strict govt. control over -private sector participation, foreign trade and FDI (Approach-import substituting rather than export promoting). ii) India’s low average growth rate ( 3%) from 1947 -80 was referred as ‘Hindu rate of growth’, because of the unfavorable comparison with the other Asia countries, especially the ‘East Asian Tigers’.

A period of import tariff, export taxes, quantitative restrictions , approvals needed for 60% of new FDI in the industrial sector. FDI averaged only $200 M between 1985 -1991. In 2004, net FDI inflow was about 7 -8 USD bn. ( China, 52 USD bn) A large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non resident Indians. Largely and intentionally isolated from world markets.

Late eighties: the govt. led by Rajiv Gandhi eased restrictions on capacity expansion for incumbents, removed price control and reduced corporate taxes. Phase of high growth with high fiscal deficit and worsening current account Collapse of soviet union – a major trading partner, first Gulf war causing spike in oil prices led to major balance of payment crisis with the prospects of defaulting on its loan. Prime Minister Narasimha Rao with Finance Minister Manmohan Singh initiated the economic liberalization of 1991. Reforms did away with license Raj in investment, industrial and import licensing-ended many public monopolies, introduced automatic approvals of FDI in many sectors.

Agriculture India ranks second world wide in farm output. In 2007, accounted for 17% in GDP employing 60% of the total workforce. After having growth rate of 2% for many years- now the growth rate is about 4. 5%. Two thirds of India’s workforce still earn their livelihood directly or indirectly through agriculture. High level of disguised unemployment. Despite improvements, average yield in India ranges from 30 -50% of the highest average yield in the world. Major agricultural products include rice, wheat, oilseed, cotton jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep goats, poultry and fish. India is the largest producer in the world of milk cashew nuts coconuts tea, gingerturmericand black pepper. It also has the world's largest cattle population (193 million). It is the second largest producer of wheat rice sugar groundnutand inland fish. It is the third largest producer of tobacco India accounts for 10% of the world fruit production with first rank in the production of banana and sapota.

Industry India ranks 14 th in the world in factory output. Industry accounts for 27. 6% of the GDP and employs 17% of the work force. Manufacturing growth rate 8. 4%. high-skill sectors account for almost 40 percent of the manufacturing output of India. Textile manufacturing is the second largest source for employment after agriculture and accounts for 26% of manufacturing output One third of industrial labour force is engaged in simple household manufacturing only. Economic reforms led to more private sector participation, an expansion in the production of consumer goods and both domestic and foreign competition.

Services India is fifteenth in services output. With largest share in GDP of 55%, it employs 23% of workforce. The growth rate which was 4. 5% in 1951 -80 increased to 7. 5% in 1991 - 2000. Recent growth rate 10. 7%. Fastest growing services are –business services, information technology enabled services, business process outsourcing contributing about one third of total output of services in 2000. India’s IT industry an important contributor to BOP, accounts for only about 1% of total GDP and 1/50 th of the total services. India leads the market in offshored back-office services, but as a manufacturing center it lags behind China, Thailand, and the rest of Asia.

External Sector Exports $175. 7 billion f. o. b (2008 est. ) Export goods petroleum products, textile goods, gems and jewelry, engineering goods, chemicals, leather manufactures Main export partners Import goods Main import partners US 15%, the People's Republic of China 8. 7%, UAE 8. 7%, UK 4. 4% (2007) $287. 5 billion f. o. b. (2008 est. ) crude oil, machinery, gems, fertilizer, chemicals People's Republic of China 10. 6%, US 7. 8%, Germany 4. 4%, Singapore 4. 4%

Almost stagnant export for the first 15 years after independence. Dominated by products like tea, jute and cotton manufacturers having generally inelastic demand. Since liberalization ex-im have become much broad based. India’s exports are consistently rising, covering about 80% of its imports. Merchandise trade of India about 31% of GDP in 2007 (China 68%) High technology exports as % of total manufacturing exports are 5% in case of India and 30% in case of China. FDI in India has reached 2% of GDP (China 3%, 2006), compared with 0. 1% in 1990 The top five countries in FDI inflows (2000 -2007) are Mauritius (44%), United States(9. 4%), UK( 8%), Netherlands(6%)and Singapore(5%).

Sectoral Employment Share by Current Daily Status Industry Division 1993 -4 2004 -5 Agriculture and allied activities 61. 03 52. 06 0. 78 0. 63 11. 10 12. 90 Electricity, gas and water supply 0. 41 0. 35 Construction 3. 63 5. 57 Trade , hotels and restaurants 8. 26 12. 62 Transport, Storage & communication 3. 22 4. 61 Finance, insurance, real estate and business services 1. 08 2. 00 Social, community and personal services 10. 50 9. 24 Mining & Quarrying Manufacturing Source: Economic Survey of India 2007 -08

Economically Active Adult population (%) 2004 -2005 1993 2005 -----------------------------------------------Agriculture 74. 8 68. 5 Labour Cultivator Farm regular 34. 4 39. 3 1. 1 30. 3 37. 3 0. 9 Non Farm Sector 25. 2 31. 5 Casual 6. 3 7. 3 Regular 7. 0 9. 3 Self employed 11. 9 14. 9 -----------------------------------------------100 Source: NSSO, 62 th Round

Structure of Employment

Growth of working class

Rural workers Workers in the countryside have also increased in numbers. There were 144 million rural workers in 2005 -06. There is a high proportion of casualisation in rural areas.

Urban workers There were nearly 63 million urban workers in 2005 -06. Proportion of regular workers is more among urban workers when compared to rural areas

Wages Wage rates defer between rural and urban areas and between males and females

Working age population A big majority of India’s population is in the working age group. Share of working age population (15 -59) will increase from 58% in 2001 to 63% in 2011. In 2005 -06, about 60% of the population was in the working age group. Of the working age group population, roughly 460 million people were in the workforce in 2005 -06. Of these about 206 million (45%) were regular/casual workers.

Youth workers India has among the largest number of youth workers in the world. In 2005 -06, in the 15 -34 age group there were 390 million youth (35% of population) Of these 40. 4% were engaged in gainful activity – i. e, nearly 160 million. Nearly half of them were workers.

Rate of growth of employment in Organized Sector (% per annum) 1983 -1994 -2005 Public Sector Private Sector 1. 53 0. 44 -0. 70 0. 58 Total Organized 1. 20 -0. 31 Source: Eleventh Plan Document.

Public-Private organized sector Total no. of public and private sector workers stagnated between 1991 -2001 and slightly decreased in recent times.

Public sector workers

Private sector workers

Is development inclusive?

Labour Market v Growing employment but poor in qualitative terms with low regular employment, underemployment and mismatch between education and employment. v A huge section of the working class lives in rural areas, is unskilled and condemned to low wages. In non-agriculture sector growth in employment is in informal sector. v Even in the urban areas there is a high degree of casualisation, contract labour working in deplorable conditions with no security of work. v Although regular employment has risen, its growth has been almost exclusively in the smaller, least productive enterprises. v About 87% of manufacturing employment taking place in micro enterprises(<10 persons) producing just a third of manufacturing output.

v Employment in firms with more than ten employees accounts for only around 3. 75 per cent of total employment (one quarter of regular employment) and has been falling. Indeed, India has a much smaller proportion of employment in enterprises with ten or more employees than any OECD country. v 70% of Indians(800 million), lived on less than 20 rupees( slightly less than C 50 cents) per day with most working in informal sector with no social security. (2007 Report on National Commission for Enterprises in the unorganized sector)

Sex Ratio in Population with Rural-Urban break up Year 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 Sex Ratio Rural Urban Total 979 910 972 975 872 964 970 966 965 963 949 951 938 946 838 831 860 845 858 879 894 901 955 950 945 946 941 930 934 927 933 Source : Office of the Registrar General, India Sex Ratio 1901 -91 (Total, Rural and Urban) from Brief Analysis of PCA paper-2 of 1992 1961 Population from PCA 1961 1971 Population from Social and Cultural Tables 1981 figures from Series Part-II A(I), General Population Tables – Census of India 1981. Figures of 1991 (including interpolated data for JK-1991 based on 2001 census) and 2001 from PCA census of India -2001

Trends in Gender Disparity in Literacy Rate Male Female Male/Female Literacy rate disparity 40. 4 39. 5 56. 3 63. 8 75. 8 15. 3 18. 4 29. 7 39. 4 54. 1 0. 45 0. 38 0. 35 0. 28 0. 21 Year 1961 1971 1981 1991 2001 Slightly more than half of total women are literate. Male-Female LR disparity is on decline. Source: Census of India various years

Area and Gender based Labor and Work Force Participation Rate (%) Labor force participation rates 1993 -94 Rural male 2004 -05 Work force participation rates 1993 -94 2004 -05 53. 4 53. 1 50. 4 48. 8 Rural female 23. 2 23. 7 21. 9 21. 6 Urban male 53. 2 56. 1 49. 6 51. 9 Urban female 13. 2 15. 0 12. 0 13. 3 Source: Economic Survey of India: 2007 -08

Area and Gender based Structure of Employment 2004 -2005 Particulars Rural Male Female Urban Male Female Labour Force 56% 31% 57% 15% Self empl. 57% 62% 44% Regular Wage and Salaried 10% 4% 42% 40% 3% 2% 5% 8% Unempl. Rate Source: NSSO 62 Round

Gender based Distribution of Occupation in Rural India (%) 2004 Sector Male Female ---------------------------------------------------Agriculture 54. 7 30. 4 Casual 21. 8 15. 5 Cultivators 31. 8 14. 7 Regular 1. 1 0. 2 Non Farm 31. 3 7. 7 Casual 9. 6 2. 0 Self empl. 14. 4 4. 1 Regular 7. 3 1. 6 ------------------------------------------------------Total 86. 0 38. 1 ------------------------------------------------------Not working 14. 3 62. 0 ------------------------------------------------------Casual 31. 4 17. 5 Self emp/cultivators 46. 2 18. 8 Regular 8. 4 1. 4 --------------------------------------------------------

Share of women employment out of total employment organized sector in India Year % of women in Public sector % of women in Private sector in % of women in Total 1995 2000 2001 2002 2003 2004 13. 4 14. 8 14. 9 15. 4 15. 6 15. 9 20. 2 23. 9 24. 2 24. 3 24. 5 24. 8 15. 4 17. 6 17. 8 18. 1 18. 4 18. 7 2005 16. 2 24. 8 18. 9 Source : Quarterly Employment Review, Directorate General of Employment & Training, Ministry of Labor

Women wage lower than men by 33 -40 points. Women- men wage differential is 0. 75: 1. The gender based wage differential though has narrowed down with increase in education level. It is still high. Urban wage differential persists but narrower than in rural area.

INDIA AND CHINA India China GDP (current US$billion) 1176. 9 3205. 5 GNP PC (current US$) 950 2370. 0 GDP growth Annual % 9. 1% 13% Population growth rate (annual %) 1. 3 0. 6 2007 Mobile and cellular subscription Per ‘ooo population 21 42 Internet user per ‘ 000 population 7 16 Source: World Bank: World Development Indicators: Country Profile April 2009

Situating India and China in World Trade (2007) Particulars Unit China India Share in Merchandise Exports Imports (%) Rank 8. 71 2 6. 70 3 1. 05 26 1. 52 18 3. 63 7 4. 14 6 2. 74 10 2. 49 13 Share in Commercial Services Exports Imports (%) Rank Source: WTO- World Trade Statistics, April 2009 Source: WTO, World Trade Statistics, April 2009

China India world Trade highlights 2007 Particulars Exports of good & services % of GDP Imports of goods & services % to GDP China India 42 21 32 24 Trade per capita ($US, 2005 -07) 1483 391 Patents granted 67948 4320

China- Merchandise Trade 2007 Breakdown in economy's in total exports: total imports By main commodity group (ITS) 1. Agricultural products 2. Fuels and mining products 3. Manufactures: (%) 3. 2 3. 4 93. 2 6. 8 22. 0 70. 9 By main destination 1 European Union (27) 2. United States 3. Hong Kong, China 4. Japan 5. Korea, Republic of By main origin 20. 1 19. 1 15. 1 8. 4 4. 6 1. Japan 2. European Union (27) 3. Korea, Rep. of 4. Taipei, Chinese 5. China 14. 0 11. 6 10. 9 10. 6 9. 0

India’s- Merchandise Trade 2007 Breakdown in economy's in total exports: total imports -------------------------------------------------------------By main commodity group (ITS) 1. Agricultural products 2. Fuels and mining products 3. Manufactures: (%) 11. 0 24. 3 63. 6 4. 4 40. 2 46. 3 By main destination 1 European Union (27) 2. United States 3. United Arab Emirates 4. China 5. Singapore By main origin 21. 7 13. 8 9. 9 6. 5 4. 4 1. European Union (27) 2. China 3. Saudi Arabia 4. USA 5. United Arab Emi. 14. 8 11. 2 7. 6 6. 5 5. 4

Trade in Commercial Services-2007 Breakdown in economy's total exports (%) total imports (%) China: 1. Transportation 2. Travel 3. Other commercial services 25. 7 30. 6 43. 6 33. 5 23. 0 43. 5 India: 1. Transportation 2. Travel 3. Other commercial services 9. 7 12. 1 78. 2 40. 1 11. 3 48. 6

Cross Country Comparison

Composition of Manufacturing Sector Across Countries

Manufacturing Exports: Cross Country Comparison

Levels of Manufactured Exports Across Countries

Size of Labor Force in Manufacturing Sector

Spending on R & D as a percentage of GDP (2003)

HUMAN DEVELOPMENT INDICATORS(2006) -------------------------------------------------------------Human Development Index ( Position among 179 countries) Particulars HDI INDIA CHINA Rank Value Rank 132 0. 609 94 Value 0. 762 Life expectancy at birth( yrs) 127 64. 1 69 72. 7 Adult literacy rate (%) 118 65. 2 53 93 Combined(pri—ter)enrolment ratio 134 61 113 68. 7 GDP PC($PPP) 126 2489 104 4682 -------------------------------------------------------------- Source: Human Development Report 2008

HUMAN POVERTY INDEX (HPI-1) -2006 Particulars HPI-1 India Rank Value(%) 87 28. 5 Rank 35 China Value(%) 7. 9 Probability of Not surviving to Age 40 (% of cohort) 2000 -05 16. 8 Adult Illiteracy Rate 1999 -2001 34. 8 7. 8 contd.

HUMAN POVERTY INDEX (HPI-1) -2006 Particulars Children Under Weight for age (% aged under 6, 2005 -6) Rank 46 Population below Income Poverty line $1. 25 a day $2 a day Rank 15. 9 36. 3 28. 6 -11 Source: Human Development Report-2008 China Value(%) 7 41. 6 75. 6 National poverty line HPI-1 rank minus income Poverty Rank India Value(%) 2. 8 -19

Gender Related Development Index (GDI) Particulars India China --------------------------------------------------GDI Rank Value % of HDI 116 0. 591 97. 1 79 0. 760 99. 8 ---------------------------------------------------Life Expectancy At birth (2006) Adult literate (1999 -2006) Combined gross Enrol. Ratio (%) 2006 Male Female 66. 5 97. 1 71. 0 74. 5 76. 4 53. 4 96. 3 89. 5 68. 9 68. 5 63. 3 57. 4 Estimated Earned Income (PPP US$) 3698 1185 5646 3644 ---------------------------------------------------HDI rank minus GDI -1 1

Gender Empowerment Measure (GEM) 2007 Particulars India China GEM Rank 72 -----------------------------------------------------Ratio of estimated Female to male earnings 0. 32 0. 65 -----------------------------------------------------% to total Seats in parliament held by women 9. 2 Female legislatures, Senior officials & Managers - 17 Female professional And tech. workers - 52 21. 3

India-China comparative Business Scenario-2007 Particulars India China ----------------------------------------------------------------------(Rank out of 183 countries-2008) ----------------------------------------------------------------------Corruption perception index 85 72 ---------------------------------------------------------------------1) Procedure (no) duration cost (% GNP) Procd. Duration Cost Starting a business 13 30 days 70. 1 14 40 days 7. 5 ---------------------------------------------------------------------2) duration cost (as % of estate) Recovery rate (cents per dollar) duration cost recovery rate Closing a business 10 yrs 9 10. 4 1. 7 yrs 22 35. 3 ----------------------------------------------------------------------3) Source: Transparency international 2008

GLOBAL COMPETITIVENESS RANKING 2008 -9: India and China (Rank out of 134 countries) Pillars Components India China -----------------------------------------------------------GCI Global Competitiveness Index 50 30 -----------------------------------------------------------1 2 3 4 5 6 7 7 8 9 11 12 Basic requirements 80 Institutions Infrastructure Macroeconomic stability Health and primary education Efficiency Enhancer 33 Higher education and training Goods market efficiency Labour market efficiency Financial market sophistication Technological readiness Market Size Innovation and Sophistication factors 27 Business sophistication Innovation Source: Global Competitiveness Report 2008 42 53 72 109 100 56 47 11 50 40 63 47 89 34 69 5 64 51 51 109 77 2 32 27 32 43 28

Major Areas of Reforms Needed Labour market: Stringent labour laws should be relaxed Business environment: Lowering the barriers to entrepreneurship Ending reservation of products fro SSI Need for Bankruptcy law Dispersion of tariff rates Easing of Service sector FDI restrictions More privatization of public sector enterprises. Financial sector: More liberalization Privatization of public sector banks Infrastructure : Electricity reforms to be speeded up transport: More private sector involvement Public Finances: Better targeting of subsidies, GST Education: Higher public expenditure on primary and education, Addressing financing of higher edu. India can learn from China in: Social and Physical Infrastructure Improving manufacturing sector’s productivity

In Conclusion India and China – non comparable: India-- Democracy (messy) Highly diverse social structure Reforms reactionary in nature- a late starter Less integrated to Global market (including East Asia) Dissimilar trade pattern Lagging behind in FDI and infrastructure Weak link between economic development and social welfare at regional level compared to China.

Differencing Relative strengths India i) Agriculture reforms ii) Industrial growth iii) FDI IV) Open to external trade v) National market vi) Service sector vii) Infrastructure viii) Capital efficiency viii) Corporate governance ix) Democratic accountability x) Foreign portfolio capital China √ √ √

Two divergent development Paths: India China i) Increasingly building ground up ii) Service sector led growth Manufacturing sector and foreign trade iii) Private sector led growth (early nineties) State led modernization (late 1970’s) iv) Consumption driven v) Knowledge based sector-labor vi) World’s back office Top down approach Investment driven Cheap- assembly line workers Factory of the world

India vii) Domestic Private Companies VIII) Young work force VIII) Cheaper labour China FDI inflow State owned enterprises Aging workforce Rural reform

India’s hope!!!! No Trade off to democracy for 2% higher growth! Accumulated diversity not assimilated. Both India and China have accepted the capitalist road to prosperity but capitalism is more comfortable in democracy which fosters entrepreneurs. India’s growth may be more enduring as people have scripted its growth whereas in China it is state crafted. India- A country with Potentials for ‘sustaining’ development!!

“Because the Indian state is inefficient, millions of entrepreneurs have stepped in to vacuum. When government schools fail, people start private schools in the slums, and the result is millions of ‘slumdog millionaires’. ” You cannot do this in China!! Gurucharandas Times of India, 10 May 2009

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