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7/28/2019 India & China-Final
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INDIA & CHINAThe Battle between Soft and Hard Power
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Contents
Introduction
Growth Theory andDevelopment Policy
Chinas Economy-1949
Indias Economy-1947
Socio Economic Factors Possible Hindrances Of
India & China Contacting
Industry
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Introduction
The rise of two huge Asian
countries
Chinese Communist Party (CCP) rise
in 1949
Indian independence in 1947
China replicated the soviet model
India followed democratic and
decentralized model
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Similarities between two countries
Population spurt
Socialism as economic characteristics
Plus point of State as a promoter
Agriculture and rural demand by the governments Internal conflicts and external pressure
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Underperformance and Comeback
Since 1950 till 1980 growth rate of China was 2.3% whereas
India stood between 1.3 to1.5%.
Growth of the entire World was 2.9%.
China faced internal economic instability.
India faced external political problems
Voluntary economic isolation
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Growth Theory and Development Policy
The economic growth sources were:
The economy depended on the inputs like Capital and labor to
produce the outputs called goods and services.
Aggregated production functionY=A.F(K,L)
where Y = GDP, A = Joint productivity of factors,
K =capital, L = labor.
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Growth Dynamics
Neoclassical Model
The relationships between the growth rate of a country, the size of
its saving rate, its labor force growth rate and the growth rate of
joint productivity were established by this model
An economy will always converge towards a steady state rate of
growth, which depends only on the rate of technologicalprogress and the rate of labour force growth are the common
prediction of these models
The economy will reach the steady state equilibrium in the very
long run if there is no productivity growth.
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Growth Dynamics (Contd.)
Determinants of Long run living standards
Savings rate rises
Growth rate of labor force falls
Joint productivity rises
Policies to step-up living standards Improve infrastructure
Building up human capital
Remove barriers to entrepreneurial activities
Encourage research and development
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Endogenous Growth Theory
This theory holds that economic growth is primarily the
result of endogenous and not external forces. It tries to
explain the foundations of the evolution of the joint
productivity of factors endogenously
Growth rate in the long run per worker will depend on its
rates of saving and investment but not on growth of
productivity:
Y=AK
The 2 main reasons: Role of human capital growth
Research and development activities
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Growth and structural change
If the income per-worker grows then the income fraction
devoted to food expenditure will be less. Demand for
food will grow less compared to production in other
sectors.
Agriculture tends to progress more quickly compared to
other sectors and hence the number of workers required
reduces.
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Chinese Economy-1949
The Cultural Revolution and the
effects by Great Leap
Forward(1958-1960)
Around 80% rise in GDP
Maddison suggested 4economic targets:
Radical reform of property rights
Achievement of sufficient public
revenues
Substitution of former price system
Monopolization by the state of all
external economic relations of
China
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Agricultural Policy:
1st Stage was confiscation of half the cultivated land
2nd Stage was that the peasants lost their property rights
Communes were created In 1958
led to shift of 30 million Chinese workers
caused a dip in the agricultural per capita production
created famine.
New Agricultural Policy:
Death of Mao, new politicians redistributed the land with
responsibility contracts to families.
Rural land was still not tradable
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Industrial Policy:
Fast industrialization was prioritized by Chinese Communist
Party
Industrial production increased by 43 times between 1952-1995
Agricultural output increased by 4 times
Size of industrial public firms remained small.
Employment was stabilized
Foreign firms were confiscated
Workers were returned
Joint productivity was 0.5%
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Financial Sector:
The Shanghai Stock Exchange was started in 1990
Post reform, Peoples Bank changed into a Central Bank
Income distribution:
Gini Index rose to 0.45 in 2001 from 0.4-0.41 in 1996 Gross national savings reached 43.7 percent in GDP terms.
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International Economic Relations:
UN & Security Council: 1971
WB & IMF: 1980
ADB & GAT: 1982
WTO: 2003 Creation of SEZ
Chinese exports =29% of their GDP
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Issues
Problems and issues:
Public firms faced huge loses and turned into burden for
Economy.
Re-allocation human resources.
Under valuation of the Yuan.
Negative distribution of Income.
Urbanization.
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Indian Economy-1947
At the time of independence there
was Crippled Economy with a
scant Industry & a stagnant
Agriculture
Effects of Swadeshi Movement,
1st&2nd World War
Effects of Industrial Revolution in
England
Financial Mistreatment of India Colonial Mistreatment of Indian
Commerce
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Evolution of Agriculture
Agriculture Contribution to Population & GDP
Contribution towards Industry and Exports
Green Revolution and Land Productivity
Land Reformation and its flaws
Types of Rural Financing
PDS and Subsidies
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Indian Industrial Policy
The industrial Policy in 1956
There was quick Industrialization, Encouraged Small ScaleIndustries
Disparities of per capita income was removed
Negative Industrial Policy (1977)
Support Small and Medium Industry and Large Scale Industry
sector redefined Significant part of banking redirected to Small Scale Industry
Restated in 1980
Automatic Expansion of Large Scale Industry
Private formal manufacturing sector flourished
Joint Productivity of Factors jumped to 3.7%
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New Industrial Policy(1991)
License Permit Raj was removed
Some public sectors were opened to private
MNCs were encouraged to invest in the economy
Resulted in High Economic Growth
Liberalized Import & Export duties
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Population Growth & Employment
Current Growth Rate - 1.9%
Population Policy aim TFR to 2.1
Labor force increases to 1.8-2%
Only 8% are working in Organized Sector
Rising Female Education
Jobs would be raised to 8 million
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Financial Capacity
Rising Indian Internal Savings
Evaluation of Indian External Debt
External & Internal Financing in India
The Indian Financial System
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Socio Economic Factors
Poverty
Per capita
consumption of
electric power
Population growth Per capita GDP IGPs
PovertyAlleviation
Equity &social justice
Changingemployment
patterns
Nationaleconomicprosperity
Growingliteracy
Increasingaspirations
Urbanmigration
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Structure of GDP
China
Agriculture constituted of 15%
Industries constituted of 51%
Services constituted of 34%
India
Agriculture constituted of 23%
Industries constituted of 26%
Services constituted of 51%
23
26
51
India
Agriculture
Industries
Services
15
51
34
China
Agriculture
Industries
Services
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Internal Obstacles
Economic problems
Political problems
The banking system
Income distribution
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Possible Hindrances Of India & China
More factors hindering the convergence:
Current trend in international trade have been conducive dueto the defective access of agricultural and service productscoming from the developing countries
IMF forced the developing countries of the region to practise
a beggar-thyself policy. Inaccurate thinking and biased behaviour of international
economic institutions.
Rich countries have for years put pressure on developingcountries on certain matters, such as competition, labour-
social developments, environment matters, etc.
Adjustment Programmes devised by the World Bank havealso been accused to increase inequality.
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Asias Growth
Essential factors:
The continuation or not of the same behaviour of the west in thetreatment of imports of goods coming from developing countries.
The continuation of the current relative divergent trends in GDP
growth rates of these regions in comparison to those of western
countries.
In 2015, 23-24% of total exports, instead of 13-14%
Now 2015 2020
High Income 75% 65% 60%
Low & Middle
Income
25% 35% 40%
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Conclusion
The main conditioning variable for rapid growth will be
the total available savings in terms of GDP
Chinas Domestic rate of invest of 40% should be
decreased to 32-34% alleviate problems like income
distribution, internal consumption, super growing
industrial export
The domestic investments ratio in GDP terms is the
main variable for growth rate of nations according to the
neo-classical model of growth and the endogenous
growth theory
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Advantages of India & China in todays world
Rapid economic progress.
The commercial success of China and India will befacilitated by the rapid growth rates of neighbouringcountries, some of them much more developed than thetwo Asian giants
As a consequence of past rapid population rise, bothcountries will have, ceteris paribus, higher growth rate oftheir labour force.
Huge deposits of transferable people attached to
agricultural activities with nil marginal productivity will beadditional support.
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