India China GDP
by Guruprasad
<Prev | Gallery | Index | Next>
We always read about reports saying that Indian & China are going to be the World Superpowers. It brings a smile on our face and a bit of complacency. But lets face the hard reality.
Here is a graph showing the GDP of both the countries over the years.
Notice how India and China were both at the same level at 1990. During 1991, the Indian GDP started dipping due to the verge of Indian Bankrupcy. Only due to liberalization, the Indian GDP started improving again and has been growing gradually. But at the same time look at China’s GDP growth. It is light years ahead of us and the growth from 2000 has been a typical exponential graph like e^x, which every Math professor would love to use in his graph lectures as a practical example..
Now think about why such a difference. We Indians have always thought that our standard of living has grown tremendously over past 10-15 years. in 1990, most of the managers could not afford a car. But today, even freshers can afford. Then whats wrong in the graph? If both India and China are growing, how can India grow relatively so slowly?
I think its because of the improper distribution of the incoming wealth in India compared to China. No doubt, the standard of living (i.e per capita income) for urban ppl has increased tremendously but they constitute less than 10% of the population of India. We look at malls, coffee shops & fast cars in cities and think “India Shining”. But the reality is that only top 10-15% is shining while the rest is getting rusted.. So this graph being the overall GDP comprising of urban and rural, the growth seems slow.
Whereas in China, the wealth distribution is pretty uniform. If the country prospers incrementally, every section of the population also would have prospered.
Now another big question. Why is the wealth distribution in China uniform but not in India? For that we might have to see what is the reason for prosperity of the 2 nations.
India is basically a Knowledge hub while China is a manufacture hub.
Knowledge is something which comes through good education whereas anybody can do manufacturing irrespective of their education. That is why China is making merry now.
Lets not shy away from the fact that elementary education is in a pathetic condition in India. The conditions of govt schools is unpardonable. Unless we have revolutionay policies which can ensure 100% literacy, our graph is going to be like this only. Another fact is that not all the jobs in India are going to be knowledge jobs. We need to have a good balance of knowledge jobs as well as manufacturing jobs. So unless we have revolutionary policies which can ensure jobs in rural with the help of agressive vocational training etc, our graph is going to be like this.
I want to add more, but before that, please give your opinion as to why do you think there is such a difference in graph.
Google has an economic indicator tool which can be used to analyze and compare historical data.
Try playing with the tool here:
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_cd&tdim=true&dl=en&hl=en&q=gdp+world#met=ny_gdp_mktp_cd&idim=country:CHN:IND
Hi Guruprasad,
This is a wonderful effort and contribution. Thank you.
Here is a small observation: as you would know, per capita income is GDP divided by population. It is not incomes of all the people added together, as I somehow feel your comment suggests. Therefore, while problems associated with wealth distribution is a huge matter of grave concern, I am afraid the vast difference in the GDPs of India and China seen in the graph has nothing to do with that.
You have rightly pointed out the pathetic condition of government schools. You have also mentioned how owning a car is not a big deal post 1991. I think the answer to why we are not earning more lies between these two statements. School education is still under the license raj while the auto industry is not (except 3 wheeled autos, which command more price than some cars even because of the license raj system). The biggest problem plaguing our economy at present is the discontinuation of the reforms and lack of transparency in sectors where some amount of reforms has taken place.
Am I making sense to you?
Bala
Hi Bala. Yes, Per capita is the GDP divided by population. But since India and China have similar population, their per capita are relative to their GDP. In the sense, If China’s GDP is 2 times that of India’s, then due to similar population, their per capita is also 2 times that of India.
And coming to the wealth distribution, there is definitely a vast difference between rich and poor in China as well as India. But the development model of China is such that everyone has a chance to earn 3 meals a day. China has an industrial labour model which can accomodate every citizen including the illiterates. If America invests $1 bn in China to manufacture cellphones, even those with basic school education can join as workers and get the benefit. Whereas India is shaping itself as a knowledge model where only the urban ppl are benefitting. If America invests $1 bn in India to develop software, only those with higher educational degrees can join the bandwagon while the rural masses are left out.
That is what I meant by difference in incoming wealth distribution..
more sensible approach at deciphering what went wrong would be three things put together
1 – Natural resource
2 – Population
3 – Growth
Possibly corruption levels over the same timelines are also likely to add texture to the overall picture
Two things that jump out at me about the graphs:
First, the graphs chart GDP not corrected for inflation. Now, I am not at all familiar with what India is doing with regard to monetary inflation and how that affects price inflation, but China has been inflating their money supply significantly for decades. I would expect correcting for inflation to offer some correction of the charts (Chart “real GDP” vs. “GDP”). If prices were continuously increasing, this would make the GDP rise, even if the national production wasn’t increasing. Of course, this wouldn’t make India and China a match, but will bring it into better perspective.
Second, a significant contributor to the GDP number is government expenditures (Y=Consumption+Investment+Government). China has been inflating and injecting massive amounts of money into their system, funding public works projects and financing investment and other loans. This has been occurring at the local as well as the national level. This injection greatly exaggerates the GDP numbers. It makes the national output look great, but the real private output may actually be falling. Also, China is currently suffering from massive surpluses in many areas (steel, cotton, textiles, etc.). This overproduction is probably figured into the GDP numbers, again making the government look great, but at the expense of unstable markets and crashing industries.
Again, I don’t know India’s monetary policies. I bet that they are following an inflationary policy, just like every other nation, but I bet they are doing it at a lower rate than others. The phrase “slow and steady wins the race” is applicable in economics. India is likely building a better and more stable economy than China. It is not as impressive as China’s, but will likely be less plagued by the problems affecting Europe, the US, and China.