Research Question
Despite the fact that China and India are two Asian countries with very big population, one disparity has still remained and it has to do with the economic situation of the two states. The point is that China is currently the largest economy in the world while on the other hand India is not even in the list of the top ten largest economies in the world. Though China and India have some of the largest populations in the world, this similarity does not reflect the same way when it comes to economic status. It, therefore, brings about the question: “Are economic policies more important than other factors that affect the economy when it comes to local economic output and consumption?”
Argument
The major argument that answers the question from above is the fact that the two countries have a number of similarities but all these similarities do not necessarily reflect when it comes to the size of economies. These similarities come in the form of a large population base, large land resources (in which in some both countries have large tracts of derelict land), they are both situated in the same continent, both countries are democracies, and they both enjoy relative peace. All these conditions bring about the question of why the two countries’ economies slight mismatch when comparing them.
Literature Review
China
According to a 2017 report by International Monetary Fund, China stands as the largest economy in regard to purchasing power and also stands as the second largest economy in regard to Gross Domestic Product. It has a purchasing power parity of $25.238 trillion and a nominal GDP of about $14.092 trillion (International Monetary Fund).
Currently China operates a socialist market economy which largely plays the role of resource allocation within the economy (Hsu). This, however, has not always been the case as China’s economy has grown mainly because of the planned and properly structured market policies and systems. This growth has largely been characterized by the ability of the country to successfully achieve nine half decade plans in a period of 47 years (Worden et al. 30). This growth has also seen the transformation of the economy, whereby there have been reforms that have allowed for the opening up of the market. It helped to do away with some of the red tapes that were previously present as government control over the economy greatly hampered maximum utilization of all of the country’s resources. These reforms were rolled out in the rural areas and after successful implementation; they were later introduced to the urban areas (Worden et al. 46).
Hsu states that China is largely a socialist nation which means that the government tends to have control over some aspects of the economy (Hsu). Even as much as most economists are usually against such an approach, it has helped the country’s economy by ensuring that it has remained stable as well as shielding some of the young industries from stiff competition from outside of China. This control has largely to do with the fact that the state has a large stake in most of the industries and it is also in charge of all the economic planning activities (Hsu).
In the work China, a Country Study: General Nature of the Economy by Worden et al., it is stated that the interaction between various regions in China has brought about disparities in regard to development levels. This also has to do with the resources that are available to these areas as some of the most developed regions in China are located in the south coast which has an abundance of different resources. This is especially made clear when arid areas such as Mongolia are put into play and the level of economic disparity is taken into account (Worden et al. 31).
India
India has an economy that is termed to be the twelfth largest economy in the world; this is mainly based on market exchange rates. In regard to purchasing power, the economy stands at number four globally. The country has a Gross Domestic Product of $2.264 trillion and purchasing power parity of $8.703 trillion (“GDP, PPP (Current International $)”).
In the 20th century, the Indian economy was mainly grounded on social democratic policies. Some of the features that characterized these policies were protectionist actions, heavy market regulation as well as the fact that there was heavy and widespread corruption (The Heritage Foundation). This, however, changed just 9 years before the start of the new century as the economy moved to a market-based system which opened up the market and did away with market control by the state (Ganguly and Mukherji 60). By 2000, the economy had grown immensely mainly because of these changes, and by the year 2008 it was ranked as number 2 in the world’s fastest growing economies (The Heritage Foundation).
Considering the fact that the country was once a colonial empire, it has made significant steps in improving its economic situation as most countries that were colonized have not yet fully recovered. Most of the post-independence policies in India were informed by the colonial experience and this thus led the government to take on a more conservative approach (Bosworth and Collins 46). There was heavy control by the state in the markets and five-year economic plans that were very much similar to those of the USSR. All these changes were overseen by the then Prime Minister Jawaharlal Nehru, and they led to large strides, especially in the economic sector as they were able to completely do away with some problems such as famine which was common in the country in previous years (Seth).
In the 1980s, the Indian economy was under siege mainly because of a few factors which included the relaxation of some of the restrictions in the economy, the fall of the Soviet Union which happened to be the country’s largest trading partner and also the gulf which resulted in a sharp increase in the price of oil (The Heritage Foundation). There was an economic crisis as the country was not able to pay its loans which led to the Indian government taking out a $1.8 billion loan from the International Monetary Fund.
This forced the Indian government to overhaul the old economic system and come up with a more viable one which led to the introduction of the open market system. This did away with monopolies in the economy and thus allowed the entry of foreign direct investments which allowed for diversification within the economy. The result is that about a decade later, the economy had fully recovered and was so far growing rapidly (Bosworth and Collins 45). Currently it is still doing well and it is projected that in the next 2 decades it will be the world’s third largest economy just behind China and the United States of America.
A report by Salvatore Babones states that in 2018, India is set to have an economic growth rate that is far greater than that of China. This is basing on IMF’s report that India’s growth rate is expected to increase by around 7% and this are numbers that the Chinese may not be able to match for quite a number of years to come. This increased growth is attributed to the attitudes by the Indian citizens and the ruling party where the author states that “there is an impatience for quicker growth” (Babones). The only dark shadow cast upon this projection is the fact that India is surrounded by neighbors who are poor and even in some instances some of its neighbors are nations which are in conflict. This means that it has to settle for foreign direct investment mainly centered on service provision and construction rather than manufacturing (Babones).
According to Bosworth and Collins (46), China and India have three economic sectors that have been either instrumental or semi-instrumental in ensuring the growth of their economies. These sectors are industry, agriculture, and also the service industry. In almost all phases of growth highlighted by different sources, the three sectors have dominantly come out as some of the yard sticks that were used to measure progress as well as some of the success factors of the efforts by the governments (Bosworth and Collins 45-46). The ability by both countries to produce surplus agricultural produce was for instance seen as a milestone especially considering the fact the nations have previously affected by food shortages in more than one occasion.
A research report done by Huang and Tarun on whether India can overtake China takes a look at some of the factors that have led to the success of the two nations and further goes on to look at how sustainable some of these developments are. The author accepts the fact that the level of foreign direct investment in India is nothing close to what China enjoys. This is attributable to the wealthy Chinese citizens living abroad who are willing to invest back home. In India, on the other hand, the diaspora community has been greatly resented for the level of success it has achieved and this attitude has only started changing in the recent years which has paved way for big Indian companies to emerge and compete effectively.
The fact that India’s growth is largely organic implies that it is more sustainable as it focuses on maximum utilization of the resources locally available rather than foreign direct investments (Huang and Tarun). India also has capital share markets that run far more smoothly than the Chinese ones and also the fact that the legal system in India is greatly advanced means that there is far better legalization on a wide allay of economic issues. This places India on an upward projectile in regard to economic growth over the next few years with it being expected to retain a steady and greater growth rate than that of China for a long time to come.
Evidence for the Argument
The main piece of evidence that serves to show that political decisions and policies are one of the major attributable factors lies in the fact that the two countries have made the same decisions at different times in history and this has translated to the same results at different times. China, for example, decided to make their economy open where the level of government control was reduced in the late 1970s (Xinhua). This phased approach which began in the rural areas was over time introduced to the urban areas due to its success rates. India on the hand took up this system one decade later after the economy started failing in a bid to stabilize it (Ganguly and Mukherji 71). The results in both instances were prosperous only that China was already ahead by around ten years. As such, the right politically decisions in both instances led to the thriving of the Chinese economy while on the other hand it led to the resuscitation of the failing Indian economy.
Proper governance by Chinese political leaders was also one of the reasons the country was able to successfully accomplish 9 economic plans in a period of four decades. This system was introduced in China in the early 1950s and stretched all the way to 2000 and the country was able to hit all the targets set in the 5 year economic plans that it had laid out all through this time (Worden et al. 25). India was relatively successful in regard to this criteria, but it was also heavily set back by the rampant corruption which was encouraged by the previous economic system (The Heritage Foundation). Corruption hampered progress by means of rent seeking where the people making the policies made them in favor of their interests or the interests of parties affiliated to them.
India’s economy has in the recent times been steadily growing mainly because of the fact that the world has become a global village due to information interchange. This has allowed for the nation to make better economic policies which in as much as they may not enable it to surpass China anytime in the future, will ensure India retains its position as the fastest growing large economy for a long time to come. This further adds to reinforce the statement that economic policies by governments tend to outweigh other factors when it comes to economic decision making. This is simply because the political decisions on the economic issues have the capacity to change other aspects to fall in line with the proposed directives.
Evidence against the Argument
The major evidence against the argument on superiority of policies against the argument is the fact as much as India has the largest population in the world, China still outranks it when it comes to purchasing power parity which is more inclined to numbers and income per capita (International Monetary Fund). China enjoys larger purchasing power parity and is considered the largest economy based on this criterion while India ranks at number four globally.
India has also enjoyed a more democratic mode of governance as compared to China and yet the country is not ahead of China yet democracy is closely linked with good policies. Such postulations can be backed by the example of the United States of America which termed as the father of democracy and this goes hand in hand with strong economic policies. India has had some great democratic leaders with the likes of Mahatma Gandhi and Jawaharlal Nehru yet at some point the country’s economy came to its knees. China has been known to hold anti-democracy perspectives for quite some time, and even as late as the late 1980s, there were pushes by student leaders for democracy in the country (Macartney). Despite the fact that India is largely democratic, the good tidings that come with democracy have not helped it topple China as world super power in regard to economic prowess.
Conclusion
Based on the above stated evidence, it is clear that economic policies have a large role to play in shaping a country’s economy and economic situation. This is mainly because of the fact that there are trickle down effects that touch on other areas which affect the economy. For example, a ban in the importation of specific products may lead to the uptake of local goods and this in turn leads to the uptake of locally manufactured products and thus the growth of the local sector.
Even as much as the two countries have made almost similar economic decisions, timing and variance has been key in establishing the gap that is currently present. This has to cope with the fact that decisions that India has been making such as market liberalization had already been put into practice ten years earlier by China. The fact that China’s transition to a liberal market system also meant that the economy was protect from any shocks that may come as an after effect of the abandonment of the previous economic structure.
Since India had been colonized by Britain, the people in government understood the challenges they had gone through, and they were not willing to readily open up the market for foreign investors to operate in. this protectionism approach at first looked promising but when the market started adapting to changes and the largest trading partner fell, the carefully built house of cards started crumbling. The only way out was for the country to take out a loan and to also opens itself up to foreign investors.
The decision made by India was, therefore, a push coming to shove scenario as compared to China’s situation, whereby the transition was made after self analysis and the leaders saw the added benefit to open up the market. India’s move was therefore a desperate move to save its economy which would turn out like clutching on straws by drowning man in case the new system failed as this would the nation in even deeper crisis where there was an IMF loan and a failing economy. China, on the other hand, was at its comfort zone as the transition was implemented in a sector of the economy that was not very risky and even in the event that it failed, the country would just revert to the old system.
Future Research
Further research on this topic of economic comparison of India and China can be based on the near similarities in populations as well as land sizes and the inverse relationship in regard to size of economies as well as the income inequalities among the citizens of the two nations. This research will thus aim at looking at how resource distribution is a major player when it comes to bridging inequality gaps and also in increasing GDP. This research can further delve in the regional inequalities in areas within the countries and then take a look at how these disparities form a complex chain of activities that affect the overall output by the country.
Works Cited
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Babones, Salvatore. “India Will Outgrow China in 2018, but Must Invest in Next Generation Value Chains to Succeed.” Forbes, 2 Jan. 2018, https://www.forbes.com/sites/salvatorebabones/2018/01/02/india-will-outgrow-china-in-2018-but-must-invest-in-next-generation-value-chains/#6b9289eb44d8. Accessed26 Apr. 2018.
Bosworth, Barry, and Susan M. Collins. “Accounting for Growth: Comparing China and India.” Journal of Economic Perspectives, 22.1, 2008, pp.45-46.
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Hsu, Sara. “Why ‘Strong Government’ is Expected to be Key to China’s Economy in 2018.” Forbes, 2018, https://www.forbes.com/sites/sarahsu/2018/01/07/continued-strong-government-expected-in-chinas-economy-this-year/#1c1e47a4351b. Accessed 26 Apr. 2018.
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International Monetary Fund. Global Financial Stability Report October 2017: Is Growth at Risk? International Monetary Fund, Publications Services, 2017.
Macartney, Jane. “Leading Chinese Dissident, Liu Xiaobo, Arrested over Freedom Charter.” Times, 2008, http://www.vachss.com/support/times_online_xiaobo_arrested_freedom_charter.html. Accessed 26 Apr. 2018.
Seth, Tushar. “India - A Mixed Economy – Explained!” Economic Discussions, n.d., http://www.economicsdiscussion.net/articles/india-a-mixed-economy-explained/2072. Accessed 26 Apr. 2018.
The Heritage Foundation. “India.” Heritage.org, 2018, https://www.heritage.org/index/pdf/2018/countries/india.pdf. Accessed 26 Apr. 2018.
Worden, Robert L., Andrea Matles Savada, and Ronald E. Dolan. China, a Country Study: General Nature of the Economy. Washington GPO for the Library of the Congress, 1987.
Xinhua. “IMF ups China 2018 Economic Growth Forecast.” Chinadaily.com.cn, 23 Jan. 2018, http://www.chinadaily.com.cn/a/201801/23/WS5a66ea17a3106e7dcc13610d.html
