Economic Development of India and China

Economic growth of India and mainland ChinaABSTRACTThis study get a lines at the factors that seduce shaped the frugal information of India and China. get-go in the 1990s, a first step emergedin the economic learning between the comparable countries. This rift can beattri entirelyed to many factors including Chinas haughty government andfocus on al-Qaida, Indias focus on the service sector rather thanmanufacturing, and Indias late embrace of the market economy. Although this breach has been self-consistent since the 1990s, there is a possibility to close the economicdevelopmental gap between the two Asian countries.INTRODUCTIONIndia and China argon some(prenominal) leadership in Asias emerging market. However, currently, China gets ten times more contradictory direct entrustment than India. This paradox is so intriguing because up until the 1990s, Indias highway and railway home system was far beyond that of China, and until 1993, the two countries had similar GDPs. However, beginning in the 1990s, a gap emerged in the economic development between the two countries. This study will look at the economic performance, path to modernization, and governmental similarities and differences. All of these factors play a role in the gap that has emerged. The globalization process has played a large role in the development of countries worldwide. Firstly, this study will delve into globalization and how the process has impacted severally country differently. Secondly, we will look at what factors indicate why China has developed at a oftentimes quicker pace than India. Finally, it will look at the possibility of bridging the gap. THEORETICAL FRAMEWORKAssumption1 The transformation of development haschanged delinquent to globalization. Less developed countries do not have to investtime and capital in research and development borrowing technology createsfaster development.Hypothesis1 China and India have vastly differentmarkets and political strategies . globalization had led to massive economic increase in both, however, the different economic and political choices made byboth countries have impacted their speeds of development TheoreticalLens This study will utilize the liberalisttheoretical lens to analyze this study. This theoretical flak abides by theassumption that the driving force prat economic integration is globalization.Therefore, implemented it will lead to change magnitude trade and investment. Globalizationhas played a heavy role in the development of both India and China, and canassist in the explanation of the gap that has gored. Globalization issupported by classical economic liberals because they adhere to whatglobalization essentially stands for. Because this study focuses primarily oneconomic development, this study will utilize the focus that the liberal schoolof international relations has on the economic benefits of globalization. Globalization has assisted in the worldwidespread of large companies, demo cratic values (India), and skill sets. China isa perfect example of the benefits globalization can offer. Their branch can beattributed to their large manufacturing export sector and the market incentivesthat came when they opened their economy. METHODOLOGYResearchQuestionHoware China and Indias different choices responsible for Indias put away behindChina?ThesisStatement The gap that has occurred between Indiaand China can be attributed to various factors including Indias focus on theservice sector, the pretermit of government cohesiveness, and their late opening tothe global market. DataCollectionI chose these two specific countries for afew reasons. These neighboring countries share a 2000-kilometer border. They each(prenominal) have a large population and similar objectives. Their relationship hastransformed in many ways in modern history transitioning from ally to tallyand back to allies again. They both endured devastating famines and they areboth historically very similar . One of the biggest gaps that I noticed is thattheir pace to development differs greatly. This gap began to occur in the1990s, therefore my study will focus on 1990-now.This paper will rely primarily onqualitative research found in scholarly journal articles and books. The sourcesare available on the internet. TheJournals utilized includes Journal of Indian Business Research, Modern AsianStudies, The China Quarterly, Asian Survey, Comparative Politics, and internationalist Affairs. This study likewise used data from the demesne Bank, theOrganization for Economic Cooperation and Development (OECD), and the UnitedNations Educational, Scientific and Cultural Organization (UNESCO).BACKGROUNDWhen looking at each countries currentstate, it is important to acknowledge their respective histories and the rolethat they played. Both China and India have a long history, however, theirhistories vary. Both were major exporters of textiles and largely prevail theseas until 1500. Both countries have vast territories and utilized this in theagricultural sector. However, Chinas history drove it towards massindustrialization. China is a large, centrally order state and has a history ofstability and single authority. Their country views itself as a unitary, hardstate. This allows them to pursue single goals with ease and mobilize resourceseffectively. India endured inappropriate come up from the British until their Independencein 1947. India struggled to find unity within diversity and articulating an amalgamated vision of Indian nationhood. They had issues because they weretrying to accommodate different languages and religions within a democraticframework. However, the average Indian was slightly better off than the averageChinese the first few years after Indias independency. These historicallegacies have greatly influenced the political and economics of China andIndia. CHAPTER I GLOBALIZATION IN DEVELOPING COUNTRIESThe globalization process has introducednumerous oppor tunities and threats to India and China. Both countries haveextensively liberalized their economies in recent years and they have seenspeedy economic growth in the past two decades. However, these two countrieshave benefited from these opportunities at very different pass judgment and respondedto the process in different ways. This is where our studys first questions isintroducedTheglobalization has effected developing countries differently, why?The ambassador to the Geneva Center forSecurity insurance defines globalization as, A complex process that involveseconomic integration, transfer of policies across borders, and the transmissionof knowledge. 1 Itis a process that encompasses the causes, course, and consequences oftransitional and transcultural integration of human and non-human activities.Therefore, it is explicit that this concept plays an integral role in thisstudy.Global integration has decreased poverty in China more so than in India. However, there has been an boilers uit decline in poverty for both countries. The main difference between China and India is the inequality that has developed in India due to the change in economic status within the society. Overall, globalization and economic integration has increased the number of people living in extreme poverty in the worlds richest and poorest countries. IndiaIndia is still in the ongoing process ofglobalization and economic integration into the world economy. Most scholars believe that the starting pointfor economic liberalization in India is began in 1991.2This is when the government openly sought integration into the economy andtheir orientation shifted. This included the removal of tariffs and restrictionson foreign trade. The Indian government also liberalized their foreign directinvestment and cut taxes during this time. Although there was an orientationshift in 1991, regions within India experienced very different growth rates.This is virtuallyly a upshot of the differences in foreign d irect investment flow.During this time, only 4 regions accounted for 43.74% of FDI in the country.3 Globalization caused uneven growthregionally as well as in different sectors. Growth in the agriculture sectordeclined significantly in relation to the manufacturing and service sectors.If growth would have been spread more evenly passim the various sectors,inequality and poverty would decrease across the country. ChinaChinas speedy growth is associated withthem being angiotensin-converting enzyme of the first Asian countries to integrate the globalizationprocess and open up to the world economy. In the past 40 years, Chinasapproach to development has been so successful that they are now ranked as thesecond most important economy. They began their economic reform in 1970s whichgave them a head start in growth rate in comparison to other countries in theregion. Currently Chinas service sector is much broader than Indias. Thisincludes tourism, business, and transport services. Global ization has led to rapid economicdevelopment within China. In the 1990s,China focused on being labor intensive. They diversified their export sector toinclude computer equipment and telecommunications. Their manufacturingincreased from 72% of merchandise exports to 91%.4This demonstrated Chinas importance in the world economy and the manufacturingsector. Overall, the globalization process sped up the GDP growth rate inChina. It also decreased their vulnerability to economic crises. It actuallyprotected them from the Asian financial crisis in the 1990s. Different choices in history by China andIndia have resulted in China being a leader in economic development. This isbecause China opened up their markets earlier and India started in 1991. Indiaalso did not focus on industrialization. They specialized in services and IT.Unfortunately, the IT-sector does not contribute a large benefit to GDP,therefore, this growth did not result in significant growth within India. CHAPTER 2 FACTORS TH AT STIMULATE DEVELOPMENT INEQUALITYThis chapter will look factors that haveencouraged the rise of China and lag of India. This set out is specificallyintriguing because the countries GDPs were so similar up until the 1990s. Thisis where the second question within this study is introducedWhyhas China developed so much faster?Below are the main reasons why China is so far aheadof IndiaChinais an Autocracy. The Chinese authoritarian governmentowns all of the land. Chinas government allows for quick land acquisition fordevelopment of foundation projects and to restore and rehabilitate thedis dappled people. This leads to faster decision making and fasterimplementation. In the 1990s China hada rapid infrastructure push and roads, railways, and airports were built. Ratherthan waiting for the need to arise, Chinas government built for theircountrys projected needs. For the most part, the policy decisions decided onare not altered by different party politics, ideology or leadership change . Thisallows the government to stay committed to a focus on their economic growth. Oneof the most successful government implemented policies is the encouragement ofresource mobilization.Chinahas an extremely significant savings culture.There are four large state banks that citizens deposit their money into.Overall, China has a faster growth of capital stock which results in rapidgrowth of capital intensity. This high savings rate has transformed intoavailable capital. This capital is directed by the leadership into various keyprojects. This correlates to Chinas focus on infrastructure projects. Thiscapital has financed the majority of the government infrastructure projects inChina. China embraced a market economy early.China experienced one of the greatest comparative advantages in economicshistory. In the 1990s, China began to focus more on their relations with secure global powers like the United States, Russia, Japan, and Europeancountries. They embraced market economy in 1992 and utilized their massiveamounts of land. Land reform led to equitable distribution of income and wealththroughout the country. Chinahas a strong manufacturing base. When Chinainvaded the world market, they focused on labor-intensive manufacturing sectorslike textile and apparel. They successfully transitioned from agriculture intohigh productivity sectors. They began to focus their orientation largely onexporting manufacturing goods. China successfully became the worldsmanufacturing hub by creating low-cost electronic and hardware products. Thisprovided a much needed boost to their economy and a substantial amount of jobswere provided. Chinahas favorable demographics. Chinas populationprovides them with a massive market making their current demographics favorablefor a strong economy. China currently has more people in works age whichleads to higher productivity and a higher GDP. However, due to the One ChildPolicy, this is pass judgment to decline in the future. That being said, Chinaspopulation has been one of their best selling points. Chinese leaders organizeddelegations, hosted conferences, and successfully convinced foreign investorsthat China was stable and committed to an open-door policy. They essentiallyused their massive size as a selling point to increase foreign investment. Additionally,Chinas population has a high literacy rate compared to India. Mao rapidlyincreased literacy rates within China, particularly in women. In 2012, theadult literacy rate was 96.4% in China and 71.2% in India.5 Chinahas a hidden source of income the tourism industry.They host almost 6 times more tourists every year in comparison to India. Thisindustry creates over 60 million jobs in China. This hidden source of incomedominates their service sector.China has a flexible investment zone.They have a highly developed bond market where investors can easily hedge theirrisks against deviations. They also have the China Development Bank whichheavily finances their infrastruct ure development. Their government hassuccessfully created flexible investment zones, and export processing zonesthat are combined with tax incentives and strong infrastructure. China has amuch higher FDI from OECD countries due to its large domestic market.6They also have stronger international trade ties with these countries. Below are the main reasons why Indias growth has been scrawny in comparison to Chinas Indiasgrowth model India has focused predominately onan idiosyncratic pattern of development. However, they have emphasized servicesand skill-intensive manufacturing rather than labor- intensive manufacturing.7Indiais a democracy. Indias government politicians policydecision are often driven by what will get them the most votes rather than whatis necessarily right for the country. winsome elections is prioritized, andthings like subsidies take precedence over large infrastructure projects. Thiscauses delays and the result is ineffective decision making. They have multiplepol itical parties with no coherent approach to development. Additionally, thegovernment has not provided a stable macro-economic environment.Indiasmain focus is on the service sector.India never experienced mass industrialization or a boost in the manufacturingsector. They still currently focus on the service sector which includes skilland knowledge. The service IT-sectorwhich India has focused on does not contribute a large benefit to GDP. Indiaseconomy opened up much later than China.The economy is currently largely closed and trade is a much smaller part of itseconomy. Their country fosters a sense of protectionism that prohibitscompanies from owning a majority of a company within India. The intention ofthis policy was to foster native companies, however, it has strangled theirgrowth and economy. However, in 1991, roseola Minister Narasimha Rao implementedreforms to accelerate Indian economic growth.8These results were short lived, and due to political paralysis of policies,econom ic growth was stunted once again. Indiahas a poor methodology towards infrastructure. Indiasapproach to infrastructure is to wait for the demand to arise before building.China is the opposite. Indias mall infrastructure projects have been funded byprivate companies. India is in dire need of a development finance institution(a lender solely for long-term infrastructure projects).Indialacks the business-above-all attitude. remote China, India has extremely stringent environmental protection laws. Thisoften leads to cost escalation. It has been referenced as a third world countrywith first world ambitions and resources but outrageous environmental ethics.9Trade and economic growth have not been paramount in India. Their focus onnative companies and local industry has curbed and restricted foreigninvestment. CHAPTER 3 LESSONS TO BE LEARNED AND PROSPECTS FOR THE FUTUREWhatare some policy lessons to be learned?The education system needs to be at theforefront. It is important for India to maintain the current comparativeadvantage over China within the IT-sector. In order to do that, India mustcontinue to reform the educational system and promote education throughout thecountry. Overall, the average level of education needs to increase.Additionally, specialized training can further strengthen their labor force.Finally, Indias government needs to realize that industrialization rather thanservice specialization is needed to reach high growth rates.Isit possible to bridge the gap?Demographically, Indias population andmarket will soon be the size of Chinas. By 2020, Indias working agepopulation is projected to overtake China. This is partly a result ofChinas One Child Policy. The UN projected that India will have more than 1billion people in working age by 2050. As of 2012, Indias fertility rate wasat 2.5 compared to Chinas 1.7.10 Indiaalso offers cheaper labor costs, geographic closeness to many OECD investorcountries, and dispirit country risk. This can increase thei r prospects forincreased FDI investment. In efforts to boost tourism, India isimplemented a new policy that allows for visa on arrival without the need to run into an Indian consulate or visa center. This policy has the opportunity toincrease country revenue and support job growth within the service industry.Since the election of undercoat MinisterNarendra Modi in 2014, foreign investment has been increasing in India. PM Mobihas pledged to banish Indias reputation as a hard place to invest and dobusiness. He also plans to invest heavily in rail, roadway and energyinfrastructures. He promises to create efficient bureaucracy, develop thenecessary infrastructure to support profitable industries, and work side byside with foreign and domestic investors to efficiently implement theirprojects.11CONCLUSIONThere are various economic and politicalchoices made by both countries in the past that have largely effected theirdevelopmental success today. This study identifies these reasons as spe cificpieces to the gap puzzle. When we look at these as a whole we can see why thereis such a large gap in the economic development of India and China. Chinas began their orientation towardsthe world economy in 1978, while India did not shift their orientation until1991. It is possible to successfully bridge the gap between the two countries.However, considering the 15 year head start that China has on India, thisprocess will take time. That being said, Indias new Prime Minister NarendraModi offers a glimmer of consistency and productive policies to ensure Indiascontinued development. REFERENCESDeLong, J.B. (2003). India since independence An analytic growth narrative.Insearch of prosperity analytic narratives on economic growth, 184-204.G.K. Kalyanaram,(2009) Indias economic growth and market effectiveness benchmarked againstChina,Journal of Indian Business Research, Vol. 1 Issue 1,pp.57-65,https//doi.org/10.1108/17554190910963208Fravel, M. (2010). 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Environmental Policy in India.PolicyStudies Journal,20(4), 643-66110 The World Bank, World Development Indicators(2012). Fertility rate, total (births perwoman). Retrieved from http//data.worldbank.org/indicator/SP.DYN.TFRT.IN. 11Hall, I. (2017). Narendra Modi andIndias normative power.International Affairs,93(1),113-131.