India’s Highs and Lows in Economic Growth

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Table of Contents

Introduction
India’s Advantages
India’s Disadvantages
Discussion
Conclusion
Bibliography

Introduction

China and India are recognized as the world’s most important developing countries. While the per-capita incomes for citizens of both countries still remains quite low, the two countries have risen considerably with rapid economic growth in recent decades. India, in particular, has become one of the fastest growing countries in the world after China and the country shows signs of maintaining the growth momentum in a sustainable manner.

The fact that India’s economy continued to grow even during the global financial meltdown of 2008-2009 has led many to favorably compare this growing economy with rising china. A number of advantages unique to India have positively affected its economic growth.

Even so, India has some disadvantages which impede on its economic well being. This paper will set out to articulate India’s advantages and disadvantages in the economic growth context. Suggestion of how the country can achieve a balance of these factors so as to continue enjoying sustained economic growth will also be made.

India’s Advantages

Arguably the greatest advantage that has contributed to India’s economic prosperity is its democratic political system. The democratic system has had and promises to have a stabilizing effect on the country. As a result of the economic growth experienced by the country, there have emerged some inequalities between the rich and the poor.

Communities have also begun making increasing demands for a share in the country’s prosperity. Democracy in India has acted as a mechanism for diffusing the smoldering tensions among the country’s disparate population groups. This is in sharp contrast to the communist rule in china where the government is increasingly finding it hard to politically manage conflicts. As a result of the political system adopted by China, the gap between the rich and the poor has in the past three decades grown excessively.

Income distribution in china is unequal which has led to high social discontent especially among villagers from central China. Academic analysts assert that this rural discontent threatens Chinese stability and hence Future Chinese prosperity is not guaranteed.

In India, the poorest people are the strongest supporters of the country’s democratic process. India therefore has a diverse source of stabilizing legitimization of its political system hence guaranteeing the countries future. The economic growth experienced in India has been fairly uniform compared to that of China’s. While the Chinese government has made monumental investments in infrastructure, its economic development has been mostly focused on coastal areas.

Other regions have therefore suffered from budget cuts as more money is channeled to these high priority areas. India’s investments have been uniformly distributed among all states since there is representation by the state members in the parliament. India therefore has an advantage since the entire country is experiencing growth while China’s growth is only concentrated in a few key cities.

The entrepreneurial instincts of Indian business and the support of the government for entrepreneurs have led to India’s growth. While the Chinese economy is largely propelled by government-owned companies, the Indian economy is driven primarily by its domestic private sector.

The government of India gives the private sector a relatively free hand which has led to economic growth. The period from 1969 and 1974 was characterized by stringent regulation by the government of private and foreign companies which led to low levels of growth and productivity.

Private sector oriented liberalization in India comprised of gradually removing the controls that the state had previously had over private enterprise. The gradual liberalization of the economy favoring the private sector between 1975 and 1990 resulted in a significant change in this trend.

India’s private sector was freed from significant state control and the subsequent boom by this sector is associated with high levels of economic growth in India. In addition to this, the political structure of India has encouraged people to work hard so as to amass wealth. The democratically inspired economic policies of India encourage competition and individual enterprise as individuals pursue their self-interest of survival and wealth accumulation. This eventually leads to increased profits for the businesses and overall economic development for the country.

The political freedom afforded to the people of India has resulted in huge gains in the information age. India has emerged as a world leader in information technology software while China has continued to lag behind in this ever increasing key aspect of any modern economy. In China, the fear by the Communist Party of its own people has resulted in tight controls over Web access; a factor that has constrained information technology growth. Indians have the economic opportunities that the Chinese people are denied by the dictatorial system.

India’s young population is also an advantage in the country’s economic prosperity. Compared to China, India’s population is younger while china is an ageing country with big cities like Beijing having a significant population of old people. An older population means that China will have a decreasing labor force in the near future. Contrary to this, India will still have an increase in their labor force due to its rising population. Studies document that by 2045, India will have the world’s largest population.

India’s Disadvantages

In spite of all of India’s advantages, China has emerged as the power to reckon with in the recent India. Some researchers of comparative studies of the world’s two most populous nations have even concluded that china is a success and India is a failure.

India has been unable to banish illiteracy among its people with a 2001 census noting that illiteracy levels were as high as 40%. This has been blamed on many factors one of which is that the social elite governing the Indian state have tolerated child labor which has fueled factories at the cost of depriving millions of children an education or a decent living. While steps have been made to increase literally levels in the country, India continues to lag behind in secondary school enrolment when compared to other in East and South East Asia countries.

Research further indicates that human development in areas such as primary education and health have not been impressive. Without investing in its human capital, India will not be able to sustain its economic growth which relies heavily on the county’s labor force.

India’s poor infrastructure is one of the significant setbacks faced by the country since infrastructure plays a major role in a country’s economic growth. Infrastructure development contributes to overall economic development by; creating production facilities and stimulating economic activities, reducing transaction and trade costs hence improving competitiveness, and providing employment opportunities and physical and social infrastructure to the poor.

India and China both suffered from poor infrastructure for decades but there has been increased government investment in infrastructure so as to fuel development. While India has done a spectacular job in reforming its telecommunications sector, airlines, and banks, it has failed to achieve the same levels of success in its ports, airports, and highways.

The Chinese government has made significant efforts by investing huge amounts of money to transport and communication infrastructure in the country. To be globally competitive with developed countries such as the US, India must improve on its infrastructure and especially its transportation facilities.

India’s considerable population growth in recent years may prove to be a setback to its economic development. While both China and India have experienced population increases in the past two decades, India’s growth has been more pronounced.

The United Nations reported that between 1989 and 2005, India’s population grew at almost twice the average annual rate of China’s. China’s relatively lower growth rate is attributed to its strict family planning policies which limit a couple to only one child.

Studies indicate that India is yet to solve the many social problems that are associated with its rapidly growing population. High population has meant that a significant portion of Indians still live in absolute poverty. In spite of India’s democratic stance, the country has adopted nationalism which has been a hindrance to its economic growth. Indian nationalism has traditionally been based on the rejection of openness which was seen as a dependency on imperialism. India therefore sought to be self reliance; producing shoddy goods and rejecting an opening to world markets that rapidly expanded wealth in East and Southeast Asia.

Nationalism has also resulted in patronage and a tradition of corruption especially within government offices. India’s corruption levels especially in the government are still significantly high. The Global Corruption Report 2006 fixed India’s Corruption Perception Index at 2.9 which made it position 97 of the 159 countries surveyed. China performed better with a Corruption Perception Index of 3.2 and ranking at 78. Corruption deters investors from coming into the country and it is also detrimental to the country’s economic well being.

India’s manufacturing industry faces major regulatory bottlenecks which impede on the ability of this sector to perform optimally. This is especially the case in the domestic market where Indian companies are unable to function with efficiency due to bureaucracy and stringent regulations.

In spite of the progress made by private Indian firms as a result of liberalization, there is still strong state and central control of firms and Indian firms need to get the government’s permission before making investments. Such regulations act as bottlenecks for firms that seek a speedy and judicious clearance of their investment proposals. A report by the World Business Environment Survey in 2004 indicated that management in India spends about 16 percent of its time dealing with public officials on regulations and administration.

China, on the other hand, has removed most logistical and regulatory bottlenecks for her domestic industries to as to make them competitive both locally and on an international platform.

India has not promoted a developmental, transparent, and investment friendly democracy. As it currently stands, there are many regulations that deter foreign investors from making investments in India since the country is not an easy place to begin business especially in manufacturing. China has managed to attract foreign investment to the country by setting up laws that are favorable to investors. China has also adopted a policy of attracting expatriates to return home and invest in the country.

India has been unable to do the same with its vast number of expatriates who could improve the country’s economy significantly if they decided to invest in it. India needs to improve its investment climate so as to drive growth by creating an attractive business environment.

Discussion

The rapid economic growth experienced by India has been the result of the various advantages articulated in this paper. The shift of the Indian economy from being under a government-controlled environment to responding to a market-based environment led to significant economic growth for the country.

While economic change in India has been more difficult in India than in China, it is more stable since it has been the result of a social and political consensus that favored change. This is in contrast to the authoritarian political system in China which is predicted to lead to destabilization.

The impressive growth records of China compared to India have been used to argue that authoritarian forms of government are more efficient at achieving economic growth, welfare, and equality than democratic forms of government.

As it currently stands, China has been able to achieve high rates of economic growth despite the absence of democracy. However, this paper has suggested that this growth may not be sustainable due to the tension building up among Chinese citizens and the prospects of future instability. India on the other hand is certain to enjoy future growth due to its democratic form of governance.

Even so, there are some disadvantages that pose a threat to India’s future growth and therefore reduce the chances of India reaching and even exceeding the level of China. Slow progress in human development in areas such as education will make it more difficult for India to grow in the long run.

Growth in human capital results in an improvement of the ability of workmanship as well as productivity; both of which result in economic growth. Massive improvements in public health and education are therefore required to give India a competitive edge over China.

In order for India to maintain its growth momentum, it is imperative that the infrastructure facilities be strengthened. Investment climate surveys on doing business in India repeatedly show that poor quality of infrastructure facilities act as a major hindrance to business growth in India.

Conclusion

This paper set out to highlight India’s advantages and disadvantages in the economic growth context in comparison to China. From the arguments presented, it is clear that India can compete favorably with China due to the many advantages that are as a result of the country’s political system, government policy, and population.

Even so, there are a number of major hindrances to economic growth that must be addressed if India is to keep up its impressive economic growth. As it currently stands, Chinese economy has been more successful at providing for the needs of the population. If India can overcome the negative factors highlighted in this paper, her economic growth can rise to levels equaling and even rivaling those currently enjoyed by china.

Bibliography

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