Economic Growth for Development: China and India

1 Economic Growth for Development: China and India Introduction China and India have experienced booming economic times in the past 20 years. Their economic growth stands as the most impressive recorded all over the world and form unique models that are hard to apply elsewhere, especially developing countries that may be in the quest to ‘copy paste’ their strategies. It is of note that the Gross Domestic Product (GDP) have steadied over the preceding years at an impressive 8-10 percent, and at peak points surpassing those levels. Intense assessments show that major investments have been made in education, therefore a high caliber of elite engineers and researchers are available to drive industrialization in the economy. Many goods that flood the world markets today bear the tags that show they originate from China. In comparison to China’s case, a big percentage of the world’s call centers today are located in India. These two countries have had tremendous impacts on the world economy and they have in the recent past lead to price increase in energy due to the high demand they provide.

The steady growths exhibited by the economies of India and China will evidently continue in the future.

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The integration of China and India into global economics has had different implications for their economic growth structural patterns. The service industry fueled growth in India’s economy, whereas China’s case is credited to industrial revolution and manufacturing industry long term developments are still to be anticipated if the economic growth patterns that have been witnessed in the past decade will persist. There are more than debatable chances that this is what will take place. The effects of this growth in the economy have had the same implications in terms of growing labour market, an upsurge of skilled labour in their local market from outside countries. A huge dip in employment statistics in the mainstream formal sector and a reduced pace of widening of regular wage employment due to people venturing into entrepreneurship have been recorded. This is in sharp contrast to the smaller economies where regular wage employment increases with increase in Gross Domestic Product (GDP), the economies of China and India had the opposite scenario because a large portion of the populace went into the informal trade industry (Fao of Un, 2006). If smaller economies were to follow this model employed by the Asian countries, chances are that it may not work out the same way for them The economies of China and India have become the two most phenomenal as the world’s fastest growing economies. Both of these economies have seen dramatic growths in the agricultural sector aptly referred to in the economic circles as, “The Green Revolution”. They have also been characterized by immense growth in industrialization and widely felt decreases in the levels of poverty. Sharp rises in the GDP of China from the growth of agriculture led to higher incomes of the populace; this, in turn, stimulated a preference for domestic consumption.

Most people were able to save and invest in non-agriculture ventures, hence bringing a spiral effect. This came to being where growth in the agriculture sector ultimately provided the drive

3 for increase in trade and rapid development of industry. China’s jewel came in the form of a unique self driven institution called ‘township and village enterprises’ (TVEs) (Eichengreen & Gupta 2010). The foundation principles and policy of this institution were collective action and self-sustenance. This has been found to be almost impossible of replication elsewhere in the world.

Reforms for the period of the 1990s gave ground for the liberalization of trade and market, fiscal and financial growth, exchange rate depreciation, and increase in the impetus to attract foreign direct investment (FDI). This culminated in China surpassing the US as the leading recipient of foreign direct investment (Chai & Roy 2006) India is the other economy whose growth path bears unique features that may not be replicated in smaller economies in the third world (de la Cruz Gallegos & Brando 2012). Since the 1990s, the service sector has been the core building block of rapid economic growth. This encompasses communication sub-sector, hotel industry, tourism, and real estate. Many countries have found it prudent to outsource information communication technology services from Indian corporations due to their effectiveness and cost efficiency. The success recorded in the information industry has had dramatic impacts on the growth of India’s GDP (Lederman, Olarreaga, & Perry 2009). India embraced technology in rice farming by using quality seed and new methods of farming. These new and innovative methods of farming were executed as pilot projects and they were adopted in other states across India upon realization that they were the secret to a success story. Among the beneficiaries of the new technologies were areas previously termed as unproductive but ended up being contributors to one-third of the national grain basket with irrigation.

4 The Green Revolution period in India had major positive implications through the attainment of food security throughout the country. There was a general increase in the per capita income of the people and the availability of food also increased. The agriculture sector became more protected and shielded from the ravaging effects of drought through new irrigation technologies. To a larger extent, there were commercialization and diversity in planting patterns to switch from growing food grains to crops of commercial value. There were major advancements in the livestock and fisheries industries. Even among the lower class of citizens, consumption patterns underwent changes. There has been registered increase in consumption of non-cereal food products like fruit and vegetables. However, food security together with problems of hunger have continued to become a problem, especially in rural areas and in states that are not developed. A big percentage of the people of India live below poverty lines and cannot, therefore, afford to sustain meaningful consumption of goods. However, the economic growth in the past 20 years has increased the purchasing power of the middle class and higher income earning brackets in urban areas. This has provided a market for durable goods produced by the growing industries that produce light motor vehicles and electronics. Over the years, the net annual income of this class of the populace has increased by almost double (Sáez 2004) Phenomenal reforms have been undertaken in China in the past decade, while the collectivization in sectors like education and rural infrastructure development, coupled with advancement in technology provided the platform for fast growth in agriculture. Collectivization of agriculture itself has not been considered as worthwhile. China received positive growth in the economy to surpass the growth in population, with an exception of the periods when there was widespread famine that affected the agricultural sector. China's cereal production had been in the ranges oscillating from 1.2 to 2.8 tonnes/ha. In the past 20 years, the yields have had a steady rise

5 to range in the scales of 2.8 to 5.4 tonnes/ha. A policy aptly referred to as Household Responsibility System (HRS) was adopted. There was a subsequent growth in agriculture at the exceptional rate of 7 percent (Taylor 2008). This is the policy that led to tremendous economic growth because it empowered farmers to control the use of their land and the incomes that are proceeds of their agricultural activities. These reforms were democratic and each household received an equal share of land. This ensured that the benefits that were derived from the growing rural economy were equally shared. The annual growth in GDP from agriculture has tremendously increased over the years. The fundamental driving force of the agricultural sector growth has largely been labour intensive changes in technology (Mahatma Gandhi-Daisaku Ikeda Peace Research Conference, Lam & Lim 2009). This was characterized by the use of new varieties and inputs such as fertilizer and irrigation. This growth owes its achievements to investments dedicated by the public.

China’s economy has had significant structural economic changes that have resulted in rapid growth in the agricultural economy. In 2004, the GDP portion accounted for by the agricultural sector fell by 15 percent from the previous standings of 35 percent. Changes in the food consumption patterns and levels have been driven by rising incomes and fast spreading urbanization. The changing food demands have necessitated diversification in production in the farming sector. The demand for grain foods like maize and beans went up alongside the increase in consumption of meat in both pork and poultry. Seafood businesses also witnessed an increase in demand for their products (Lal 2006) There has been a slow and steady general shift to products of high value that are generally labour intensive like horticultural crops, fisheries, as well as livestock and their products from the traditional commodities that are land intensive. This has been primarily due to

6 liberalization of the markets and trade. Production of agriculture outputs for export has been boosted by reforms in exchange rate and trade policy. Between the late 1980s and 2004, there was noted an increase in the ratio of cumulative exports of Gross Domestic product (GDP) from 6 percent to a sharp high of 36 percent. On the other hand, agriculture's share of the total exports reduced from 3 to 2.5 percent as the value of agricultural exports in US dollars increased by 100 percent (Taylor & Weerapana 2010).

China has undertaken market-focused reforms and opening up of trade in the past decades. This may not be viewed as a strategy that in world history is unique to this country only. China’s success story lies in the fact that there has been a perfect blend between its large Gross Domestic Product (GDP) per capita and widespread industrial advancements (O’Neill 2008). This has been made possible due to and controlled by fast changing technological innovations, and the fact that China invested heavily in physical infrastructure. China has concentrated on closing development gaps to catch up with advanced technologies. It has also made up for the under developments by instituting dedicated years of economic reforms (Fravel 2011). The country’s liberalized policies have given it a competitive edge in the global arena in replicating knowledge in the technology sector as far as software and hardware innovations are concerned.

China’s entry into the World Trade organization (WTO) shows the effectiveness of its competition in the market and the comparative advantages derived thereof. The basic driving force for faster economic growth in China in the past decades has been the development of highly knowledgeable workers and the focus on competition with advanced technologies in all sectors of the economy. This is in contrast to smaller economies whereby most economic strategies are formed on the basis of economic resuscitation, rather than technologies that are

7 aimed at competing with leading world economies. China’s success in the past years has also been credited to ambitious fiscal plans. This success is anticipated to continue for the foreseeable future if this country focuses on ever changing strategies. This is because what has worked for them in the past 20 years or so is bound to face redundancy due to the dynamics and competition in the world economy (Yanqing 2011).

India has made phenomenal strides in business-focused education and technological training in the past decades. China has also paced up recently and increased its investment in education and training. Although these countries may be viewed as twins in terms of development and economic growth, their approaches largely differ. India has grown economically by utilizing its internal resources and developing structures of its own. China, on the other hand, has become the world’s “copycat”. The Chinese have always had a reply to any new invention in the world, especially when it comes to electronics. They have always had a way of cleverly basing their innovations on previous ones without infringing patents and copyrights.

Although China has faced criticism for copying the innovations of other nations, this has not stopped them from using this to reach the heights and status of developed countries to the extent that today, the largest composition of US debt is from China. In addition, the increase of finest practices has had an impact on a very wide array of economic sectors.

The main focal point of the “Indian phenomenon” has been on technological advancements in engineering. As a result, India’s information technology and software products have been able to compete very effectively internationally (Elder et al. 2008). This has built the general impression that India is technologically advanced in terms of information technology. In a surprising contradiction, a large section of the Indian industry is yet to embrace technology and is characterized by far reaching bureaucracies that have outdated systems of management. This,

8 however, has not prevented information communication and technology from being the driving force behind the Indian success story. Perhaps the reason the economy still registers tremendous growth is because the costs of labour are very low, largely because there is low competition in the management structures approaches throughout all sectors of the economy. In addition, there is a large population of people who are ready to work at lower rates of remuneration. In the long run, the inefficiencies of the management systems are covered up for to an impressive extent by the low cost of labour.

As India’s economy rises, a great challenge will be faced because the price of labour will ultimately increase and if the inefficiencies in the system are not corrected, and then the economy will stall because the makeup effect of low labour costs will be cancelled. The Indian case is largely a case driven by electronic products rather than physical products. The fact that India is home to the world’s most call centers means that it is the service industry that provides the most felt boost to the economy. Non-physical products have a disadvantage in the sense that they experience problems in the form of bureaucracies. The low cost of labour is easily outweighed by the fact that extra costs will be incurred in the form of delays in transactions and unwarranted administrative costs (Parikshit 2007).

Conclusion China and India have very large populations. This, together with widespread advancements in the education sector, provide a huge base for easily available and cheap labour, which is a huge asset in economic growth. The agricultural sectors in both countries have embraced technology and are accounting for a large proportion of the GDPs of the two countries.

It is also important to note that each country had very different unique approaches to ensuring economic growth. While China is typically a ‘copy cat’ of technologies from other countries,

9 especially western countries, India is largely self-inspired, more so in the information technology sector. It is, nonetheless, unfortunate that most of the Industries have not adopted IT, making the gains made in this sector counts less. The uniqueness in the growth of the two economies and the prevailing business environments, for example cheap and sufficient labor, is enough evidence that China and India’s experiences cannot be replicated in smaller economies.

10 List of References Chai, JCH, & Roy, KC 2006, Economic reform in China and India: development experience in a comparative perspective, Elgar Publishers, Cheltenham de la Cruz Gallegos, J & Brando, D 2012, 'The effects of China performance on world economic growth, an empirical approach', International Journal of Business, Humanities & Technology, vol. 2, no. 2, pp. 199-211, Academic Search Premier, EBSCOhost, viewed 22 November 2012.

Eichengreen, B, & Gupta, P 2010, Emerging giants China and India in the world economy, Oxford University Press, Oxford Elder, M, Leahy, J, Rumsey, & Anderlini, J 2008, 'Who's who: BRIC leaders take their place at the top table', Financial Times, viewed Nov. 2012, http://www.ft.com/intl/cms/s/0/d31392b2-89ca-11dd-8371-0000779fd18c.html Fao of Un 2006, Rapid growth of selected Asian economies: Lessons and implications for agriculture and food, viewed Nov 22, 2012, http://www.fao.org/docrep/009/ag088e/ag088e00.htm Lal, R 2006, Understanding China and India security implications for the United States and the world, Praeger Security International, Westport, CT Lederman, D, Olarreaga, M, & Perry, G 2009, China's and India's challenge to Latin America: opportunity or threat? World Bank, Washington, D.C. Mahatma Gandhi-Daisaku Ikeda Peace Research Conference, Lam, PE, & Lim, TW 2009, The rise of China and India: A new Asian drama, World Scientific, Singapore

11 O'Neill, J, 2008, 'BRICs could point the way out of the economic mire', Financial Times, viewed Nov. 22, 2012, http://www.ft.com/cms/s/0/0dcb6f1c-8906-11dd-a1790000779fd18c.html Parikshit, K, 2007, ‘Critical evaluation of growth strategies: India and China’, International Journal of Social Economics, vol. 34, no. 9, pp. 664–677 Sáez, L 2004, Banking reform in India and China, Palgrave Macmillan, New York, NY Taylor, J B 2008, Economics, Houghton Mifflin, Boston, MA Taylor, JB, & Weerapana, A 2010, Principles of macroeconomics: Global financial crisis edition, South-Western Cengage Learning, Mason, OH Tellis, AJ, Tanner, T, Keough, J & Fravel, MT 2011, Asia responds to its rising powers: China and India, Seattle, National Bureau of Asian Resesarch.

Winters, LA & Yusuf, S, 2007, Dancing with giants: China, India, and the global economy, part 173, World Bank Publications, Washington, D.C. Yanqing, J 2011, 'Structural change and growth in china under economic reforms: patterns, causes and implications', Review of Urban & Regional Development Studies, vol. 23, no.

1, pp. 48-65, Academic Search Premier, EBSCOhost, viewed 22 November 2012.