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Mainstream, VOL L, No 17, April 14, 2012

China and India — A Comparative Study of Economic Growth

Saturday 14 April 2012, by P R Dubhashi



Awakening Giants – Feet of Clay: Assessing the Economic Rise of China and India by Pranab Bardhan; Princeton University Press; 2010; cloth: $ 25.95 (£17.95).

The rapid rate of economic growth in the two large countries of Asia – China and India – stands in striking contrast to the Western world’s developed countries’ feeble growth rate. The dis-appointing growth rate was compounded by recession which struck in the USA in 2008 and spread to the countries of Europe. They are still struggling to overcome the effects of recession. Hence the two countries have become the engine of growth. India was slightly ahead of China in the 1970s but since the 1990s China has surged well ahead of India. Both have embarked on economic reforms from the eighties onward.

But China’s growth rate has been much faster than India’s It is spectacular in respect of infra-structural development—highways, railways, airports, power and apartment buildings in cities.

The growth in both the countries is attributed to economic reforms. At the core of economic reforms in both the countries is liberalisation. But the nature and processes of liberalisation have been very different as only to be expected since the reforms were introduced in an exciting economic structure which was very different in the two countries.

The Chinese economy under communist rule, which abolished capitalism, was owned and run solely by the state authorities at various levels. On the other hand, India had a mixed economy with central planning. The private sector, the newly augmented public sector and the cooperative sector particularly in the rural areas constituted the mixed economy. The state authorities planned, controlled and regulated the economy.

Different economic systems in the two countries meant different types of reforms towards liberalisation of the economy. In China it meant giving freedom to growers of agricultural produce to sell their output in the market after a certain prescribed quota was delivered to the state authorities. The market incentive gave economic boost to agricultural production and augmented the income of the agricultural community. A similar incentive to state enterprises increased industrial production. They almost started working as private enterprises run on commercial lines.

A unique phenomenon in the Chinese economic reforms was the establishment of a large number of village and town enterprises set up by local authorities. This brought about massive expansion of labour intensive manufacturing enterprises. The local Communist Party bosses acted like private entrepreneurs. They made deals with private capitalists and gave generous concession to their enterprises by way of land and other natural resources. These enterprises made a significant contribution in increasing the Gross National Income. The local party bosses were often accused of nepotism and corruption but frequently proved too powerful to be curbed by the central leader-ship.

As in India, in China too the foundations for growth were down in the pre-reform era (that is, before the Deng revolution of 1979). The foundations were much stronger in China than in India because of much better spread of educational facilities and health services.

Another plus factor was the nature of the political system. With the firm grip of the Communist Party, the authoritarian government could take firm collective decisions and carry them out resolutely.

India, on the other hand, has been a democracy since independence. And democracy has become more and more messy over the years. The unquestioned authority of the Congress under the leader-ship of first Prime Minister, Jawaharlal Nehru, both at the Centre and in the States, facilitated unity of approach both at the Centre and in the States. But slowly, since 1967, the hegemony of the Congress party eroded and gave way to a multiplicity of parties, some purely regional parties, that came to power in the States and shared power at the Centre. The 1991 government of the Congress party at the Centre under Prime Minister Narasimha Rao was a minority government but took a bold initiative to introduce the policy of marketisation, liberalisation, privatisa-tion and globalisation, no doubt, under the pressure of the World Bank and International Monetary Fund. It was a reversal of the Nehruvian policy of a planned mixed economy, but Narasimha Rao deliberately avoided saying so publicly. Yet the policy had all-round approval and was continued under non-Congress governments from 1996 to 2004. In 2004 the Congress came back to power although forming a coalition government with smaller parties including the Communist Parties. This naturally put brakes on “economic reforms”, specially disinvestment of the public sector. The Communists withdrew support on the issue of the nuclear agreement with the US but the Congress managed to get the vote of confidence and again came back to power in 2009. Throughout the government followed a timid half-hearted policy of liberalisation but the first initiatives of delicensing industry and business, and opening the economy to foreign investment and multinationals continued. However, decline in public investment in the agricultural and rural areas meant slower agricultural growth rate. Hence the pace of poverty reduction is much less in India than in China.

But that does not mean that a democracy such as India has only negative points. It is much better in accommodating diverse options and resolving differences. It does not use brute force to supress dissent but tries to win it over. Besides it has given greater freedom for India’s dynamic private enterprises to flourish. The success may be limited but is likely to be more sustainable. Also India has a more diversified financial system in terms of banking and equity market. In the long run therefore India may well have a more enduring success.

Despite talk of local democracy in the shape of Panchayati Raj Institutions in rural areas and municipalities in urban areas which were given constitutional status in 1993 through the 73rd and 74th Amendments of the Constitution, local democracy in India continues to be weak and has neither the resources nor the leadership to contribute to the kind of dynamic economic growth that the local governments in China have done through the setting up of town and village enterprises.
But apart from the nature of economic reforms and the political system in which they are given shape, there are significant differences in the general tenor of the societies. Indian society is diverse, more heterogeneous and even divisive, torn apart by caste and religious tensions. Collective decisions are difficult to take and once taken are questioned by different sections of the society. Chinese society, on other hand, has the tradition of ‘social harmony’; thus the society prefers to cooperate with the authorities once the decisions are taken. India may well learn to adopt the ethos of social harmony.

Corruption has been the concomitant of growth in both the countries. In India, thanks to poor record of the investigative agencies, political interference, and long winding judicial procedures giving ample scope to the influential to find loopholes, the corrupt are seldom given exemp-lary punishment. On the other hand, China is ruthless in punishing the corrupt by sending them to the gallows. But despite the ruthless punishment meted out to the guilty, corruption is still flourishing there!

Formerly Secretary to the Government of India and Vice-Chancellor, Goa University, Dr P.R. Dubhashi, IAS (Retd.), is currently the Chairman, Bharatiya Vidya Bhavan, Pune Kendra. He can be contacted at e-mail: dubhashi@giaspn01.vsnl.net.in

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