There is a large debate going on in policy circles about whether India or China will pull ahead in the coming decades. I’ve been meaning to write something comprehensive about this, but quite frankly, it’s an extensive task which will have to wait. For now, I simply give you some observations by Shankar Acharya, a former Chief Economic Adviser to the Government of India, who says:
Let me put this bluntly: as an economy, we are simply not in China’s league. [Link]
His table summarizes the reasons why, more text from his argument follows after the fold.
To read the table, look at the last column, which indicates how far ahead China is compared to India.
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Population |
Million |
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GDP (PPP) |
$ billion |
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Per capita GDP growth |
% |
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Share of manufacturing in GDP |
% |
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Living standards |
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Per capita GNP (PPP) |
$ |
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Life expectancy |
Years |
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Female adult literacy rate |
% |
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Under 5 mortality |
Per 1000 |
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Under 5 malnutrition |
% |
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Poverty ratio (% below $1 a day) |
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INFRASTRUCTURE |
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Electricity production |
Billion kwh |
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Goods hauled (Railways) |
Ton-km billions |
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Container traffic (ports) |
Millions |
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Air freight |
Ton-km millions |
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Telephones (land + Mobile) |
Per 1000 |
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EXTERNAL SECTOR |
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Merchandise exports |
$ billion |
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Service exports |
$ billion |
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FDI inflow |
$ billion |
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Tourist arrivals |
Millions |
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Forex reserves |
$ billion |
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Sources: World Development Indicators (2005); Institute of International Finance, RBI and CSO. 2004 data for India refer to the fiscal year 2004-05. [Link]
In the 1950s, India was significantly richer, per person, than China. But India lost that lead somewhere between 1975 and 1985, when the Indian economy was stagnating under Indira Gandhi. The license raj gave her extensive political control, since it was hard to act autonomously in any part of India without requiring some government permit. She seemed unconcerned with the fact that she was strangling the economy with red tape. By 2003, China’s economy was twice as large as that of India, and 70% larger on a per capita basis.
Much of China’s growth was powered by labour-intensive manufactured exports, which took the share of manufacturing in GDP to nearly 40 per cent, compared to a paltry 16 per cent in India. [Link]
The labor intensive nature of the wealth created in China meant that it trickled down to the people, reducing poverty levels:
Other indicators of living standards were just as decisively in China’s favour by the turn of the millennium. China’s poverty ratio (as estimated by the World Bank’s dollar-a-day income criterion) was less than half India’s 35 per cent. Female adult literacy was nearly double India’s pathetic 45 per cent. Life expectancy in China was a solid 8 years higher that in India. Perhaps most telling, the rate of malnutrition in children under five years in China was only about a quarter of the shamefully high 46 per cent level in India. [Link]
Acharya argues that China is even further ahead of India in terms of domestic infrastructure, which is important since it forms the basis for future economic growth:
- “Electricity production in China is nearly three times higher than in India.”
- “Ton-kilometres of freight hauled on railways is about 4.5 times greater.”
- “Air-freight ton-kilometres flown in China is nearly 10 times higher.”
- “Container traffic shipped through ports is an astonishing 16 times more in China (admittedly inclusive of Hong Kong’s shipping prowess).” [Link]
Even in telecom, where India thinks of itself as having done well, it lags behind China:
In India we take great pride in the telecom ‘revolution’ of the past decade. Despite that, in 2003 the number of landlines and mobiles in India was only one-sixth the number in China. [Link]
Acharya believes this gap will simply continue to widen since China’s annual increases in capacity are so large:
Looking to the future, it is easier to foresee a widening of the existing economic disparities between China and India than a reduction. Just consider that in the decade between 1992 and 2002 China increased her railway freight traffic by an amount greater than India’s total rail freight in 2002.Even more remarkable, the increase in China’s merchandise exports in each of the last three years was greater than total Indian exports for that year! At a more qualitative level, you have only to compare the hundreds of cranes deployed in adding to the thousands of gleaming skyscrapers in Shanghai with the handful dotting Mumbai’s skyline. [Link]
I’ll try to post more on the overall debate in the near future. Here are some links to explore
- Previous posts in the New Economist 1, 2
- Can India Overtake China (Foreign Policy Magazine, PDF)
- India vs. China
Via the New Economist




