AMITY BUSINESS SCHOOL

ECONOMICS ASSIGNMENT

SUBMITTED BY:
 GDP(USD Inflation Rate Unemployment Balance of Forex
BILLION) (%) (%) Payment Exchange Rate
BRAZIL 2056 4.53 11.9 4971 USD 1 Brazilian
MILLION Real=
19.79 INR
0.24 EURO
0.27 USD
RUSSIA 1578 3.4 4.5 15797 USD 1 Russian
MILLION Ruble=
1.11 INR
0.013 EURO
0.015 USD
CHINA 12238 2.5 3.83 317 USD HML 1 Chinese
Yuan=
10.59 INR
0.13 EURO
0.14 USD
SOUTH AFRICA 355 5.3 27.5 -2950 ZAR 1 South
MILLION African Rand=
5.05 INR
0.060 EURO
0.069 USD
INDIA 2597 4.96 3.53 -13980 USD 1 Indian
MILLION Rupee=
0.012 EURO
0.014 USD

CHINA VS INDIA: ECONOMIES COMPARISON

While the average income in China and India remains low, their impressive economic growth
and enormous populations have made them two world powers of extraordinary importance,
whose economies are surpassed only by that of the United States. Therefore, even if a large slice
of their population remains in poverty, the economies of China and India are completely
integrated into the world markets and financial exchanges, making the development of these two
key countries important to maintaining a peaceful international scene during the 21st Century.

Following the financial crisis of 2008 and the difficulty faced by the main world powers in
maintaining a sustainable economic growth, China and India are among the few economies to
record a positive rate of growth. Many hope that a closer collaboration among these two colossus
may lead the rest of the world to break the negative trend of the worldwide economy.

Nevertheless, when China and India are more closely and meticulously compared, the profound
difference in development between the dragon and the elephant is immediately noticeable, with
the former having a decisive advantage over the latter.
The situation in China

Since the beginning of the Chinese economic reform launched by Deng Xiaoping in 1978, China
has passed from a closed, centralized economic system to a market economy. The reforms began
with the dismantling of the communal systems in the countryside, moving on to the liberating of
prices, to fiscal decentralization, to greater autonomy of state companies, to the development of
the private sector, to the development of a financial market and to a modern banking system, up
to the opening of business abroad and the Direct Foreign Investments (IDE).

In 2010 China became the largest exporter of essential goods and surpassed Japan in terms gross
internal production (PIL). The restructuring of the Chinese economy has increased the PIL
tenfold since 1978. Measured in terms of buying power equivalent (PPA), in 2015 China became
the largest economy in the world, passing the United States for the first time in history.

Nevertheless the per capita income of Chinese residents remains below the world average.
Moreover the Chinese government has numerous difficult challenges to face, among which are:

 Reducing the enormous savings rate for families and promoting domestic consumption;
 Increasing work opportunities in sectors with high paying salaries and promoting the
hiring of newly-graduated students;
 Reducing the level of corruption and other economic crimes;
 Reducing environmental pollution;
 Reversing the aging process of the population.

In response to these problems in 2015 the Chinese government, during the Thirteenth Five-Year
Plan, emphasized the need for new and effective economic reforms to increase innovation and
domestic consumption so that the Chinese economy is less dependent on fixed investments,
exports, and heavy industry.

The situation in India

India is slowly becoming a market economy. In the Nineties, the government promoted
economic freedom measures, such as the deregulation of the industrial sector, privatization of
principal state agencies (SOEs), and a reductions on controls on commerce and direct foreign
investment. These politics allowed India to reach an annual growth of 7% per year from 1997 to
2011.

Almost half of the workforce is engaged in the agricultural sector, but the real backbone of
Indian economic growth is in the service sector. In 2011, the Indian economy slowed due to high
interest rates, growing inflation and investors’ pessimism regarding the will of the central
government to promote greater economic freedoms.

Nevertheless, starting in 2012, the Indian economy has recovered and grows thanks to
government investments, measures introduced to reduce the deficit, and also thanks to greater
participation on the part of foreign firms. The latest growth was in 2014 and 2015, during which
period PIL growth equal to 7% was recorded. India, like China, has to face a series of challenges
in order to maintain and sustain current economic growth, such as:

 Lowering the poverty rate;

 Curb endemic corruption;
 Eliminate violence and discrimination against women and children;
 Implement a more efficient distribution system throughout the territory;
 Promote intellectual property rights;
 Improve transport systems and infrastructure for agriculture;
 Create greater job opportunities in sectors other than agriculture;
 Control migration between the countryside and cities;
 Reform and improve the scholastic system.

Level of development in China and India

After having briefly discussed the principal historical factors that have brought China and India
such exceptional economic growth, and having set out the challenges that the two countries must
face in the future, the second part is dedicated to a deeper analysis on the different level of
development of China and India so as to understand the reasons why the differences between the
two countries are so large and unable to be remedied in a short period of time. We will analyze
the PIL growth rate, the infrastructure, the level of foreign investments attracted (IDE), the total
volume of imports and exports, as well as the national savings rate.

In the Fifties, the national economies of China and India were at the same level. The Indian
economy during that same period recorded better performance both in terms of gross national
product (PNL) and PNL per capita. Nevertheless, following the opening of foreign investments
and the reforms promoted during the Seventies, the Chinese economy recorded enormous
progress and has surpassed the Indian economy in every category.

These extraordinary results have been called the “Chinese Miracle”. The development of the
manufacturing industry has transformed China into the “factory of the world” and has created an
industrial substrate sustainable in the long term. In 2015 foreign investments (IDE) in China
amounted to 1.723 trillion USD, while in India that number is decidedly less, equal to some
297.1 billion USD.

In addition Chinese foreign investments have maintained constant growth: in 2015 it was equal
to 1.1 trillion USD (in 2014 it was 792 billion USD). The Indian IDE were worth 129 billion
USD in 2014 and reached the sum of 137 billion USD in 2015. Even Chinese foreign commerce
has maintained a high growth rate, recording a positive balance of 700 billion USD; on the other
hand, India recorded a negative commercial balance of 144 billion USD.

In terms of PIL, if China has recorded an exceptional growth in the last ten years, only recently
has it begun to slow, recording a general growth of 6.9% in 2015. Conversely India, with a PIL
growth of 7.5% in 2015, has surpassed China in terms of speed of growth of their own economy.
In terms of national income per capita, China with 14.300 USD per citizen in 2015 completely
blew India away, in which during that same period they registered an average of 6.300 USD a
person.

In conclusion, as Martin Jacques said, even if the Indian economy were to grow faster than the
Chinese, India would need an enormous period of time before reaching a level of development
and complexity on scale with the Chinese economy.

India’s economic growth began with its gaining independence from Great Britain in 1947, and
has accelerated noticeably after the inauguration of political reforms promised by Nehru in the
Eighties. The reforms concentrated on three main aspects: encouraging the importation of goods
and products, a light easing of control on industry on the part of the state, and an initial reform
on the system of taxation.

Moreover, Indian economical development was led by active industry in the technological
sector; having a poor infrastructure and without a trustworthy manufacturing sector, India has
based its economic growth on its service industries. The percentage of its PIL occupied by the
service sector in India is 54%, greater than China by 6%. The main reason why the service
industry has had a better performance than the Chinese is found in state investments; in the
Eighties, the government of Rajiv Gandhi openly declared that India would be led into the future
through a technological revolution.

Lately both China and India are facing the same difficulties in terms of economic growth,
namely the impossibility to depend entirely on the industrial and service sectors. Both countries
need to reduce their dependence on foreign commerce and promote a more far-reaching
economy, extended into the highest number of sectors possible so as to avoid being trapped in
the chain of international production. The Indian industrial sector is very weak and even if it had
access to a numerous, young work force, it would still be at a deficit of minimum education and
training. In addition, even if the national savings rate is rather high, worth 29.3% of the PIL, the
majority of savers could see their assets be used to repair the enormous public debt.

Many academics say that having the better financial system, the Indian economy will surpass the
Chinese in the long term, but it’s also important to remember that the efficiency of the financial
sector doesn’t translate into greater general economic efficiency. In fact the economic growth of
a country is considered efficient when it allows the majority of the population to see the benefits
of development, more specifically, an economy is efficient when it promotes new jobs and a
higher employment rate.

Presently, the Chinese unemployment rate is 4.7% of the population, while in India its 3.6%, but
let’s not forget that the work force in China is 800 million while in India it’s about 500 million.
Also, following the expansion of the technological industry, there’s been the formation of “two
Indias”: one in the north, poor and underdeveloped with a high unemployment rate; and one in
the south, developed and built around Bangalore, where the economy is led by the technological,
real estate and financial sectors.
We can find a similar situation in China, where the coastal ares have been the subject of massive
investments to the detriment of the internal regions since the period of reforms in the Seventies.
Still, the Chinese government has for some time begun investing massively to promote the
development in interior areas through the construction of infrastructure, promoting urbanization
and through the relocation of parts of the population into areas less densely populated.

Lastly, since economic development is a typically political process, the role the government
plays is fundamental in providing sustainable development. An analysis of the growth of the
Indian economy since its independence shows how the poor administrative ability of the Indian
government has been a key factor in the slowing of the socioeconomic development of the
country.

India enjoys an advantage compared to China in terms of economic reliability and fairness, as
well a a greater efficiency in fighting corruption and an administration that observes the laws.
However, when taking into account indications of government efficiency and quality of
legislation, China has better results than India. The Chinese government is extremely competent
in directing resources and reaching agreements, allowing it to promote an effective and efficient
socioeconomic development.

Conclusion

In conclusion, even if the Indian PIL growth is faster than the Chinese, the Indian economy and
its process of development are far from passing their Chinese counterparts. Indian development
is constantly slowed by insufficient infrastructure, stagnation of the agricultural sector, internal
conflicts, social instability, and political division at the heart of the government.

On the other hand, the main role of the Chinese government is to avoid the “trap of median
income”, better the quality of economic growth, promote greater scientific development, and
increase the efficiency of the economy in general.

One last difference between the development models of China and India is that whereas the
former has based its growth on labor-intensive sectors, the latter tends to promote sectors with
high levels of competency.

Both countries should concentrate on the importation of advanced technologies and managerial
experience, and eventually reduce their dependency on foreign investments and promote internal
growth based on domestic consumption and government investments.

GDP (purchasing $23.12 trillion (2017 est.) $9.447 trillion (2017 est.)
power parity) $21.66 trillion (2016 est.) $8.852 trillion (2016 est.)
$20.3 trillion (2015 est.) $8.265 trillion (2015 est.)
note: data are in 2017 dollars note: data are in 2017 dollars
GDP - real 6.8% (2017 est.) 6.7% (2017 est.)
growth rate 6.7% (2016 est.) 7.1% (2016 est.)
 6.9% (2015 est.) 8% (2015 est.)
GDP - per capita $16,600 (2017 est.) $7,200 (2017 est.)
(PPP) $15,700 (2016 est.) $6,800 (2016 est.)
$14,800 (2015 est.) $6,400 (2015 est.)
note: data are in 2017 dollars note: data are in 2017 dollars
GDP - agriculture: 8.2% agriculture: 16.8%
composition by industry: 39.5% industry: 28.9%
sector services: 52.2% services: 46.6% (2017 est.)
(2017 est.)
Population below 3.3% 21.9% (2011 est.)
poverty line note: in 2011, China set a new poverty
line at RMB 2300 (approximately US
$400)
(2016 est.)
Household lowest 10%: 2.1% lowest 10%: 3.6%
income or highest 10%: 31.4% highest 10%: 29.8% (2011)
consumption by note: data are for urban households only
percentage share (2012)
Inflation rate 1.8% (2017 est.) 3.8% (2017 est.)
(consumer prices) 2% (2016 est.) 4.5% (2016 est.)
Labor force 806.7 million 521.9 million (2017 est.)
note: by the end of 2012, China's
population at working age (15-64 years)
was 1.004 billion (2017 est.)
Labor force - by agriculture: 28.3% agriculture: 47%
occupation industry: 29.3% industry: 22%
services: 42.4% services: 31% (FY 2014 est.)
(2015 est.)
Unemployment 4% (2017 est.) 8.8% (2017 est.)
rate 4% (2016 est.) 8% (2016 est.)
note: data are for registered urban
unemployment, which excludes private
enterprises and migrants
Distribution of 46.5 (2016 est.) 35.2 (2011)
family income - 46.2 (2015 est.) 37.8 (1997)
Gini index
Budget revenues: $2.672 trillion revenues: $248.7 billion
expenditures: $3.146 trillion (2017 expenditures: $330.3 billion (2017
est.) est.)
Industries world leader in gross value of industrial textiles, chemicals, food processing,
output; mining and ore processing, iron, steel, transportation equipment,
steel, aluminum, and other metals, coal; cement, mining, petroleum,
machine building; armaments; textiles machinery, software,
and apparel; petroleum; cement; pharmaceuticals
 chemicals; fertilizer; consumer products
(including footwear, toys, and
electronics); food processing;
transportation equipment, including
automobiles, railcars and locomotives,
ships, aircraft; telecommunications
equipment, commercial space launch
vehicles, satellites
Industrial 6.2% (2017 est.)
production
growth rate
Agriculture - world leader in gross value of
products agricultural output; rice, wheat,
potatoes, corn, tobacco, peanuts, tea,
apples, cotton, pork, mutton, eggs; fish,
shrimp
Exports $2.157 trillion (2017 est.)
$1.99 trillion (2016 est.)
Exports - electrical and other machinery,
commodities including computers and
telecommunications equipment, apparel,
furniture, textiles
Exports - partners US 18.2%, Hong Kong 13.8%, Japan
6.1%, South Korea 4.5% (2016)
Imports $1.731 trillion (2017 est.)
$1.495 trillion (2016 est.)
Imports - electrical and other machinery,
commodities including integrated circuits and other
computer components, oil and mineral
fuels; optical and medical equipment,
metal ores, motor vehicles; soybeans
Imports - partners South Korea 10%, Japan 9.2%, US
8.5%, Germany 5.4%, Australia 4.4%
(2016)
Debt - external $1.649 trillion (31 December 2017 est.)
$1.467 trillion (31 December 2016 est.)
Exchange rates Renminbi yuan (RMB) per US dollar -
6.7588 (2017 est.)
6.6445 (2016 est.)
6.2275 (2015 est.)
6.1434 (2014 est.)
6.1958 (2013 est.)
7.5% (2017 est.)
rice, wheat, oilseed, cotton, jute, tea,
sugarcane, lentils, onions, potatoes;
dairy products, sheep, goats, poultry;
fish
$299.3 billion (2017 est.)
$268.6 billion (2016 est.)
petroleum products, precious stones,
vehicles, machinery, iron and steel,
chemicals, pharmaceutical products,
cereals, apparel
US 16%, UAE 11.7%, Hong Kong
5.1% (2016)
$426.8 billion (2017 est.)
$376.1 billion (2016 est.)
crude oil, precious stones,
machinery, chemicals, fertilizer,
plastics, iron and steel
China 17%, US 5.8%, UAE 5.4%,
Saudi Arabia 5.2%, Switzerland
4.2% (2016)
$483.4 billion (31 December 2017
est.)
$456.4 billion (31 December 2016
est.)
Indian rupees (INR) per US dollar -
65.17 (2017 est.)
67.195 (2016 est.)
67.195 (2015 est.)
64.152 (2014 est.)
61.03 (2013 est.)
Fiscal year calendar year 1 April - 31 March
Public debt 18.6% of GDP (2017 est.) 50.1% of GDP (2017 est.)
16.1% of GDP (2016 est.) 50.3% of GDP (2016 est.)
note: official data; data cover both note: data cover central government
central government debt and local debt, and exclude debt instruments
government debt, including debt issued (or owned) by government
officially recognized by China's entities other than the treasury; the
National Audit Office report in 2011; data include treasury debt held by
data exclude policy bank bonds, foreign entities; the data exclude
Ministry of Railway debt, and China debt issued by subnational entities,
Asset Management Company debt as well as intra-governmental debt;
intra-governmental debt consists of
treasury borrowings from surpluses
in the social funds, such as for
retirement, medical care, and
unemployment; debt instruments for
the social funds are not sold at
public auctions
Reserves of $3.194 trillion (31 December 2017 est.) $407.2 billion (31 December 2017
foreign exchange $3.098 trillion (31 December 2016 est.) est.)
and gold $359.7 billion (31 December 2016
est.)
Current Account $162.5 billion (2017 est.) -$33.68 billion (2017 est.)
Balance $196.4 billion (2016 est.) -$15.23 billion (2016 est.)
GDP (official $11.94 trillion (2016 est.) $2.439 trillion (2016 est.)
exchange rate) note: because China's exchange rate is
determined by fiat rather than by market
forces, the official exchange rate
measure of GDP is not an accurate
measure of China's output; GDP at the
official exchange rate substantially
understates the actual level of China's
output vis-a-vis the rest of the world; in
China's situation, GDP at purchasing
power parity provides the best measure
for comparing output across countries
Stock of direct $1.514 trillion (31 December 2017 est.) $367.5 billion (31 December 2017
foreign $1.391 trillion (31 December 2016 est.) est.)
investment - at $318.5 billion (31 December 2016
home est.)
Stock of direct $1.342 trillion (31 December 2017 est.) $156.1 billion (31 December 2017
foreign $1.227 trillion (31 December 2016 est.) est.)
investment - $144.1 billion (31 December 2016
abroad est.)
Market value of $7.321 trillion (31 December 2016 est.) $1.516 trillion (31 December 2015
publicly traded $8.188 trillion (31 December 2015 est.) est.)
shares $6.005 trillion (31 December 2014 est.) $1.558 trillion (31 December 2014
est.)
$1.139 trillion (31 December 2013
est.)
Central bank 2.25% (31 December 2016 est.) 6.25% (31 December 2016)
discount rate 2.25% (31 December 2015 est.) 7.75% (31 December 2014)
note: this is the Indian central bank's
policy rate - the repurchase rate
Commercial bank 4.4% (31 December 2017 est.) 9.6% (31 December 2017 est.)
prime lending 4.35% (31 December 2016 est.) 9.67% (31 December 2016 est.)
rate
Stock of domestic $26.87 trillion (31 December 2017 est.) $1.795 trillion (31 December 2017
credit $23.02 trillion (31 December 2016 est.) est.)
$1.622 trillion (31 December 2016
est.)
Stock of narrow $8.16 trillion (31 December 2017 est.) $429.3 billion (31 December 2017
money $7.001 trillion (31 December 2016 est.) est.)
$294.4 billion (31 December 2016
est.)
Stock of broad $25.24 trillion (31 December 2017 est.) $2.063 trillion (31 December 2017
money $22.3 trillion (31 December 2016 est.) est.)
$1.773 trillion (31 December 2016
est.)
Taxes and other 22.4% of GDP (2017 est.) 10.2% of GDP (2017 est.)
revenues
Budget surplus -4% of GDP (2017 est.) -3.3% of GDP (2017 est.)
(+) or deficit (-)
GDP - household consumption: 39.1% household consumption: 58.7%
composition, by government consumption: 14.6% government consumption: 11.6%
end use investment in fixed capital: 43.3% investment in fixed capital: 27.5%
investment in inventories: 1.1% investment in inventories: 4%
exports of goods and services: 19.6% exports of goods and services:
imports of goods and services: -17.7% 18.4%
(2017 est.) imports of goods and services: -
20.2% (2017 est.)
Gross national 45.4% of GDP (2017 est.) 28.6% of GDP (2017 est.)
saving 45.9% of GDP (2016 est.) 29.7% of GDP (2016 est.)
47.5% of GDP (2015 est.) 31.8% of GDP (2015 est.)

5 FACTORS
1. income levels. One can use GDP per capita in dollar terms to compare incomes across countries.
However, the comparison may be somewhat misleading because consumers face different
prices in various countries. One thousand U.S. dollars can buy much more in Mexico compared
to the U.S. since prices in Mexico are lower. To account for the differences in prices, one should
look at the GDP per capita in Purchasing Power Parity terms. In that way, one compares
countries in term of real income (what can be purchased) as opposed to the dollar income.
2. level of development. The most basic comparison is between GDP per capita levels or the levels
of GDP per capita in terms of Purchasing Power Parity. However, GDP can be a misleading
measure as it may not capture other aspects of the quality of life such as crime, education,
environmental quality, etc. The Human Development Index published by the UN is a composite
measure that accounts for a broader set of development factors.
3. economic structure. One should look at the shares of Agriculture, Industry, and Services in the
overall value added of the economy. Generally, lower income countries have a larger share of
agriculture and the share of services expands as they develop.
4. unemployment. The unemployment rate is the standard variable used to compare countries.
However, one may want to look at youth and long-term unemployment as well. Both indicators
suggest deeper, longer-term problems in the labor market.
5. corruption. There are two indexes that can be used. One is the Corruption Perceptions Index
from Transparency International and the other is the Corruption index from the World Bank.
The two institutions apply different methodologies to measure corruption and while the results
are similar, they are not the same.
6. rule of law and governance. The best data to look at are the World Bank governance indicators.
They can be used to compare countries in terms of the quality of the bureaucracy, the efficiency
of the public administration, and more.
7. financial development. One can chart the level of private credit as percent of GDP and stock
market capitalization as percent of GDP. The first measure shows the development of credit
markets while the second one is a measure of stock market development.