India & China-Final

7/28/2019 India & China-Final

1/30

SDMIMD

PGDM-2012-14-

26-Ju

n-13

INDIA & CHINAThe Battle between Soft and Hard Power


2/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

Contents

Introduction

Growth Theory andDevelopment Policy

Chinas Economy-1949

Indias Economy-1947

Socio Economic Factors Possible Hindrances Of

India & China Contacting

Industry


3/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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


4/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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


5/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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


6/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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.


7/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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.


8/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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


9/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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


10/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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.


11/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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


12/30

SDMIM

D

PGDM-2012-14-

26-Jun-13

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


13/30

SDMIM

D

PGDM-2012-14-

26-Ju

n-13

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%


14/30

SDMIM

D

PGDM-2012-14-

26-Ju

n-13

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.


15/30SDMIM

D

PGDM-2012-14-

26-Ju

n-13

International Economic Relations:

UN & Security Council: 1971

WB & IMF: 1980

ADB & GAT: 1982

WTO: 2003 Creation of SEZ

Chinese exports =29% of their GDP


16/30SDMIM

D

PGDM-2012-14-

26-Ju

n-13

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.


17/30SDMIM

D

PGDM-2012-14-

26-Ju

n-13

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


18/30SDMIMD

PGDM-2012-14-

26-Ju

n-13

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


19/30SDMIMD

PGDM-2012-14-

26-Ju

n-13

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%


20/30SDMIMD

PGDM-2012-14-

26-Ju

n-13

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


21/30SDMIMD

PGDM-2012-14-

26-Ju

n-13

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


22/30SDMIMD

PGDM-2012-14-

26-Ju

n-13

Financial Capacity

Rising Indian Internal Savings

Evaluation of Indian External Debt

External & Internal Financing in India

The Indian Financial System


23/30SDMIMD

PGDM-2012-14-

26-Ju

n-13

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


24/30

SDMIMD

PGDM-2012-14-

26-Ju

n-13

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


25/30

SDMIMD

PGDM-2012-14-

26-Ju

n-13

Internal Obstacles

Economic problems

Political problems

The banking system

Income distribution


26/30

SDMIMD

PGDM-2012-14-

26-Ju

n-13

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.


27/30

SDMIMD

PGDM-2012-14-

26-Ju

n-13

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%


28/30

SDMIMD

PGDM-2012-14-

26-Ju

n-13

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


29/30

SDMIMD

PGDM-2012-14-

26-Ju

n-13

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.


30/30

DMIMD

PGDM-2012-14-

6-Ju

n-13

Documents

India & China-Final