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By Swati Gupta Under the guidance of (Prof. A.V.K Murthy)
ENTREPRENEURSHIP AND MANAGEMENT PROCESSES INTERNATIONAL NEW DELHI-74 MARCH 2010
I hereby declare that the work carried out by me and presented in this project is solely my efforts. The matter presented in this institution in this project has not been submitted for the award of any other Post Graduate Course, degree, diploma or certificate.
Swati Gupta PGDM (BM)
This dissertation is about the insight of economic history of both China and India, which is not a comparison of the two, but rather study of them. As we can see in the study carried out that their Economic history is closely entwined with their Political history. I have collected information on the topic by way of secondary research. I would like to thank the Dean of PGDM (BM) department, Col. Arun Dhongde for giving me the opportunity to work on this project. This Dissertation Project was one more chance to know how supporting our faculties are. I would like to say my sincere thanks to Murthy Sir for his great support and encouragement to take up such a vast topic and then write a report on it after considerable readings and research. It has been a great learning experience, which provided me a great insight of issue and helped me understanding why China and India are in the position they are presently in.
6 A.Content Executive Summary………………………………………. China (1949-1978) 8 2.. India’s Neighbor: Pakistan 32 7. Environmental Stress: Another Hurdle in Growth 4. 8 1. Post-Liberalization India 15 B.5 Introduction………………………………………………. Globalization: How It Impacted India And China C. Post-Mao China 9 3. Food Price Inflation 17 2. Bibliography 36 4 22 26 29 33 . Indian Democracy: All that Glitter Is Not Gold 6. China: In Two-Boat Ride 27 5. History Of China and India: Reason For Economic Success. Energy Demands 3. Future Challenges And Opportunities for both Countries 1. India (1947-1991) 12 4..
Executive Summary This report is a comprehensive study of the history of both China and India for the factors that contributed in what India and China are today. 5 . Along with this I have also took time to see what are the factors which may pose great challenge and make available great opportunities in present day situation from the position both stand today and looking towards their awaiting future. The Historic study is basically taken from post independence for India and post-war time of China with comparison from post liberalization in both countries which came after the death Of Mao in China and postrecession in India.
452 in 2005. In both countries. and endowed with a GDP of US$1. Although not as spectacular as China’s. For India. in China. the People’s Republic of China (PRC) and the Republic of India.S. If China maintains its current level of growth.Introduction The two Asian giants.732 in 2003 and US$3. India’s average annual growth in GDP reached 7.3 percent in 2003 and fluctuated between 8. it skyrocketedfromUS$1.071 6 . it could overtake the U.5 to 9 percent since 2004. as expected. it will propel the country’s US$800 billion economy (the world’s tenth largest and third largest in Asia in 2006) into the ranks of the world’s five largest economies. economy as early as 2025.3 billion people or two-fifths of humanity and are currently the world’s fastest-growing economies. placing it among the world’s fastest-growing economies. India maintains this growth momentum over the next several years. such sustained levels of economic growth have translated into significant increases in per capita GDP. China is now the fourth largest economy in the world in terms of GDP at the current exchange rate.65 trillion. India’s post-1991 economic reforms and global integration have helped the economy grow at more than 6 percent per year (on average) since 1992.255 (in PPP terms) increased toUS$2. are home to some 2. With a gross domestic product (GDP) growth rate averaging 9.5 percent per year between 1980 and 2004 and 9 percent between 2005 and mid-2007. the 1978 per capita GDP of US$1. If.
making both countries veritable poster children for globalization. not long ago. The message is powerfully simple and also suggestive: the universalizing impulse of globalization and its inexorable ability to “lift all boats” finally freed China and India – both of which were. Hence we also delve in to the factors that led these two giants in to globalization. 7 . And we would also see the risks and challenges posed by global economic integration and what each country must do to strike the proper balance between the opportunities and the vagaries and uncertainties of globalization.” trapped in an extravagantly wasteful and coercive Oriental despotism of their own making.757 in 2005 (World Bank 2007).726 in 2003 andUS$6.in 1978 toUS$4. pejoratively dismissed as either chronic basket cases doomed forever to depend on the generosity of others or as the “sick men of Asia. The extraordinary economic transformation of these two Asian giants has captured the imagination of our times.
the undisputed leader of the Chinese Communist Party (CCP). Both nations faced formidable challenges to economic development and nation-building. China (1949-1978) On 1 October 1949. more than 90 percent of the total population of approximately 360 million lived in the countryside.History Of China and India: Reasons for Economic Success When the Chinese Communist Party took control of the Chinese mainland in 1949 after a protracted civil war. Chairman Mao Zedong. some 85 percent of China’s population out of an estimated 540 million was classified as rural. Both countries had roughly the same level of GNP per capita income ($50 for China and $60 for India in 1952 U. 1. dollars). it was among the poorest nations on earth along with India. and in India.S. proclaimed the founding of the 8 . In 1951.
People’s Republic of China (PRC). they revised the Constitution to align it with the political and ideological changes then under way.” 2. including long prison sentences and capital punishment. they were to be fully supported by all members – including those who may have initially opposed them. In 1982. Since the Constitution of 9 . Similarly. the Constitution quietly removed the lavish praise for Mao and amended references to the “superiority of state ownership” and “central planning” with terms more in keeping with China’s “open-door policy” such as “creating a socialist market economy. In practice.” This meant that although the party could arrive at all major decisions “democratically” through consultation. and discussions with members at all levels of the party’s organs. Post-Mao China The post-Mao leadership has shown greater commitment to what it calls “socialist legality” in an effort to expunge the legacy of arbitrariness. which had to abide strictly by the organizational rules of “democratic centralism. vigilante justice. And he saw Communism as the salvation of post war China. all nonparty social and mass organizations had to accept the CCP’s exclusive leadership to function openly. And hence violators for any decision taken by the party at higher level of hierarchy were subjected to harsh discipline. it also demanded complete allegiance from all government and institutions – including from the party itself. So born China’s Communist Party. Specifically. when Deng Xiaoping and his followers were firmly in power. once decisions were reached. and lawlessness unleashed by Mao during the Cultural Revolution (1966–76). China’s communist party-state not only gave itself exclusive monopoly over political power. deliberation.
Such improvements include transparent rules regarding enforcement of contracts and copyright and intellectual property protection. and law schools has increased to facilitate the judicial process. has been given to promoting legal and procedural standards to advance China’s integration in the global economy. the rate of growth of agricultural output increased to an unprecedented 7.5 percent per year over the period 1979 to 1984 – from 220 yuan in 1978 to 522 yuan in 1984 (at 1990 prices) – a sharp contrast from the 2. and the availability of legal resources in terms of the number and quality of judges. 10 . however. more than one-third higher than in 1978” “China experienced grain surpluses of 300–350 million tons a year in the early 1980s” From a stagnant agricultural growth rate from 1957 to 1977. Post-Mao Era is marked by tremendous economic growth that is symbolic by the facts given below: Agriculture supported by Government resulted in to the “surge to 407 million metric tons. a number of statutory and administrative laws have been enacted. The greatest priority. This growth also translated into increases in real per capita rural income by about 15. Equally significant. That facilitated domestic industrial and commercial development and foster international trade and investment. the People’s Procuracies were restored to make government officials more accountable by allowing citizens to sue administrative agencies and hold public officials accountable for their actions.3 percent per annum in the pre-reform period. and in 1989. the jurisdiction of the courts has been expanded to allow them to settle private litigation.6 per year from 1978 to 1988. lawyers. The criminal code has been strengthened to provide a much-needed due process.1982 recognized the principle of popular sovereignty and the supremacy of the rule of law.
By the mid-1990s. China’s revenue collection system(modeled after the Soviet Union) was highly centralized. agricultural machinery. increases in the cost of living. during 1988–92. followed by FTZs (free trade zones). SOEs were free to sell the rest at a free market price. Before the reforms. Economic And 11 . and textiles to garments. Township and village enterprise Remarkably. and beverages. processed foods.52 million enterprises in 1978 to roughly 23 million enterprises in 1996. TVEs grew from 1. a fixed price for products allocated by the central government was to coexist with a market-based price for out-of-plan output. what began as modest small-scale rural factories producing labor-intensive products quickly became the engine of economic expansion. including growing unemployment. the central government extended farmers land-use rights to continuous thirtyyear terms. New revenue sharing arrangement called the “fiscal contracting system” was decentralized SEZs in China: 1978. Nevertheless. SOE reforms slowed down markedly because of concerns about the negative social and economic cost of plant closure. absorbing millions of surplus agricultural workers in its labor-intensive industries. State Owned Enterprise Implementation of “dual-track” price system to revitalize SOEs Under this system. TVEs were producing everything from building materials. After fulfilling their planallocated production quota. and civil and political unrest. rising poverty. rural poverty declined from 33 percent to 15 percent between 1978 and 1984 – or from260 million people to 128 million people In 1993. with some even manufacturing high-value electronics and telecom equipment.According to official estimates.
The Constitution of India. Industrial and Commercial Bank of China. after taking up as Prime Minister Of India . and the number of people living in poverty declined substantially. because it helped keep the exchange rate relatively stable at 8. the commercial banking functions of the PBC were split into four “independent” state-owned banks known collectively as the “Big Four”: the Bank of China. By the late-1990s. Per capita income increased sharply (the total household bank deposits measured against the GDP increased from less than 6 percent in 1978 to more than 40 percent in 1993). Between 1978 and 1993 China’s GDP grew at an average annual rate of about 9 percent. India (1947-1991) Jwaharlal Nehru. the plan allocation of foreign exchange was abolished and the dual track merged into a single market system. China was the largest recipient of FDI in the developing world. decided that India will be better off dealing its problems and needs by its own hence entering into Closed Economy. has helped to increase FDI flows into China – in part. accounting for about 30 percent of total FDI flows.4 billion in 1991 to US$11 billion in 1992 and US$28 billion in 1993. China Construction Bank. FDI increased from US$4. and the Agricultural Bank of China.Technological zones in 1984 and onwards. Beginning 1 January 1 1994. coupled with the decision (in December 1996) to make its currency (the yuan) convertible on the current account. 3.3 yuan per US$1 between 1994 and 1998. In 1983–84. The Fundamental Rights guarantee basic substantive and procedural protection to all 12 . proclaimed India as a federal democratic republic. adopted in 1950 following three years of spirited debates and discussion in the Constituent Assembly (elected indirectly from the various provinces or state governments in 1946).7 yuan per US$1 to 8. This unification of the foreign exchange rate.
As the highest legal tribunal. the Supreme Court is the ultimate interpreter and guardian of the Constitution and the laws of the land. The development of the rural sector has depended in large measure on the actions of the state governments. as well as several regional parties. To provide more channels of political and economic participation. 13 . neither is it a rubber stamp. the executive branch of government has often prevailed in limiting the Supreme Court’s powers of judicial review. a situation which has posed a threat of instability ever since. it is a remarkable achievement that for more than six decades. India’s party system has evolved from a “one dominant party system. In practice.” led by the Congress Party (or the Congress). for a country lacking many of the so-called prerequisites of democracy. however.citizens. the avowedly Hindu-nationalist Bharatiya Janata Party (BJP) and the Janata Party(JP). into a competitive. Yet. India has remained a generally vibrant constitutional democracy. Although India’s Supreme Court is not as independent an institution as the framers of the Constitution intended it to be. multiparty system with the emergence of two significant national parties. With It emerged the trend of “Coalition” Government because no single party was able to form majority in the parliament. an independent judiciary is at the heart of India’s legal system. These civil rights take precedence over any other law of the land and include individual rights common in most liberal democracies. Article 40 of the Constitution directs all levels of government to engage in “democratic decentralization of Indian administration” by reviving and creating “traditional village council for self-government” or panchayati raj and to “endow them with powers and authority as may be necessary to enable them to function as units of self-government” Since independence.
But these reforms could 14 . Also. To Nehru. Low levels of capital formation in the public sector. and salt stood as a major obstacle to national economic growth and development. matches. a technologically backward industrial sector barely sufficient in the production of basic goods such as cotton textiles.More than two centuries of colonial rule had severely distorted agricultural production in favor of commercial and export crops. the government not only doubled the defense budget but reaffirmed its commitment to Nehru’s industrialization strategy. Despite the fiscal stress (India’s foreign exchange reserves became perilously low to pay the import bills) and crisis in the agricultural sector following two successive drought years (1965–67) due to poor monsoons. soap. This made India a mixed economy. “planned industrialization” was the responsibility of the state. But gradually Agriculture lost its importance in the Five-Year Plans as well as budget to the Industrialization. sugar. Dependence on foreign capital other than grants and concessional aid was to be kept at a minimum. There was a broad consensus among the country’s political and economic elites that the quest for national self-reliance could best be achieved through “planned” economic modernization centered on import-substitution industrialization (ISI). which resulted in great famine of Bengal. As a result. But then this draught gave way to what we known as Green Revolution with the policies molded in the favor of Agriculture and Zamindari system was abolished. food output was not only negligible but declining. In 1955. the central government established the State Bank of India (SBI) to serve the financial needs of the agricultural sector and the Community Development Programs (CDPs). And Indira Gandhi taking over as Prime Minister after Lal Bahadur Shashtri gave way to what Nehru had dreamt.
and after it the reign of Rajiv Gandhi could not take up the task well forward but it helped in realizing that what India needed is Globalization and hence liberalization in 1991.5 rupees to the dollar. However. liberalizing foreign exchange controls and devaluing the rupee by more than 40 percent: from 4. and the foreign exchange reserves had declined 15 . 500 million. and. By the end of 1973. Eventually. the OPEC oil shock. India’s external debt stood at around US$71 billion. widespread shortages of essential commodities. These banks comprised roughly 54 percent of the bank branches in India. which lasted for 21 months. the central government nationalized fourteen of largest private banks with deposits over Rs. pushed the economy into a steep decline. But Economic growth could not be sustained under such circumstances even after the resolution of Democracy.7 rupees to 7. By early June 1991. Which resulted in to riots and “bandhs” (strikes) everywhere. soaring inflation (which exceeded 23 percent during 1973–74). liberalizing investment policies such as reduction in import duties and export subsidies. fueling unemployment. Janta Party Coalition. In April 1969. by the late 1960s. coupled with poor economic policies. Indira Gandhi coerced nation in to “Emergency” in June 25. 4. Indira Gandhi led to abrupt policy changes which also included reducing some government controls. and a thriving black market. the situation worsened because of a sharp decline in remittances from Indian workers in the Persian Gulf in the wake of the impending Gulf War. 1975. the most controversial.not be continued due to increased bureaucracy and other factors such as lion share of budget going to Industrialization. there was a sharp shift toward the left in policy orientation. Post Liberalization India In early 1991.
And then finance minister Manmohan Singh carried out all the required reforms. India’s traditionally high custom duties were systematically lowered. and the trade monopolies of the state trading agencies were eliminated. V. the Indian government had to ship part of the country’s gold reserves and pledge it as collateral to access the international overnight market and avoid a loan default. the government (under Prime Minister P.3 billion over 20 months) came with the usual IMF conditionality. Emergency assistance from the International Monetary Fund (IMF. Export incentives were broadened and simplified. deregulating the financial sector. The foremost goal of the NEP was to expeditiously convert India from a regulated control-bound. and removing quantitative restrictions through industrial and trade liberalization. The government was particularly successful in reducing 16 . in the form of standby credit of US$2. cutting tariffs. The NEP also committed to implementing policies conducive to privatization and foreign direct investment. Import control through licensing was quickly and effectively eliminated for raw materials. outward-looking one. the era of economic liberalization had begun. In effect. including abolishing state monopoly in all core economic sectors and improving the supervisory and regulatory systems to promote transparency and genuine competition. Namely. inwardlooking economy into a market-friendly. Faced with a severe balance of payments crisis and on the verge of defaulting on its foreign debt. He devised and implemented New Economic Policy.to about US$975 million – barely sufficient for two weeks of import coverage. Narashima Rao) quickly had to implement a wide-ranging economic reform program approved by the IMF. Efforts have been made to encourage private investment and participation in the economy such as liberalizing access to foreign capital.
17 . But reform steps showed their results in years that followed. dollar in July 1991. The heavily protected industrial sector witnessed the virtual abolition of the industrial licensing system and other regulatory impediments. Such a huge fiscal deficit placed tremendous upward pressure on interest rates. Once situations led to rise of general government debt to almost 65 percent of GDP. (c) reduce rates of direct taxes for both individuals and corporations. the exchange rate system was overhauled from a discretionary basketpegged system to a largely market-determined unified exchange rate. plan grants through the Planning Commission. it was allowed to float. and the so-called discretionary matching grants through central ministries primarily for centrally sponsored schemes such as public works. Tax reform was also an important component of the NEP. (e) provide tax incentives for infrastructure and the export-oriented sectors. There also exist indirect channels such as loans from the central government and the allocation of credit by financial institutions controlled by the Center.S. poverty-alleviation schemes. Fiscal Reforms are carried out on the recommendations of two central bodies – the Finance Commission and the PlanningCommission. and (f) simplify taxation procedures and improve the efficiency of tax administration. (d) reduce the cascading effect of the central and state government’s indirect taxes. and in March. and child nutrition programs.tariffs. The reduction in tariffs and non-tariff barriers to trade was also accompanied by a 20 percent devaluation of the Indian rupee against the U. In mid-1993. albeit under a managed floating system. besides discouraging private investment. (b) expand the tax base. The core aim of the NEP was to (a) rationalize the tax laws. The rupee was further devalued in February 1992. There are basically three direct channels: statutory transfers (comprising tax and grants-in-aid) through the Finance Commission.
Under the NEP. The government also created the Foreign Investment Promotion Board (FIPB) as a one-stop “fast-track” shopping arena for foreign investors in obtaining all necessary approvals and to approve foreign direct investment proposals not covered under the automatic approval. required dilution to 40 percent in the existing companies that were not operating in the high-tech and strategic sectors. and imposed limitations on royalty payments. By the end of 1991. as part of the liberalization program. telecommunications. Prudential regulation and supervision of the banking system have been strengthened as the Board for Financial Supervision (BFS) 18 . Several sectors that were previously kept public made open for private investment including power. Reducing the barriers to capital flows lowered the cost of capital and helped Indian businesses benefit from the transfer of skills and technology. portfolio investment was allowed for registered foreign institutional investors such as pension funds. the Reserve Bank of India (RBI). the approvals process for FDI was greatly simplified because it became eligible for automatic approval by the country’s central bank.The Monopolies And Restrictive Trade Policies Act was amended to eliminate the need for prior approval for capacity diversification and expansion. mining. the central government appointed a high-level committee on the “Financial System” (the Narasimha Committee) to review all aspects of the financial system and to make comprehensive recommendations for reform. and banking. ports. controls on foreign direct and portfolio investment were significantly relaxed. in August 1991. and investment trusts. Finally. The restrictive Foreign Exchange Regulation Act (FERA) of 1973 imposed a ceiling of 40 percent on equity shareholding of foreign companies. in both the primary and secondary markets for corporate securities. mutual funds. Asset management companies were allowed unrestricted entry (in terms of volume). transport. In September 1992.
four new institutions – the National Stock Exchange of India (NSE). A series of measures have been implemented. Public sector banks have been given greater independence. Improvements and reforms in corporate governance have made India better equipped to deal with the forces of competition and globalization. which regulates the banking sector. and the National Securities Depository – were created.established in 1994 (within the Reserve Bank) has the authority to supervise and inspect banks. the National Securities Clearing Corporation (NSCC). 19 . Soon after the implementation of the economic reforms. financial institutions and other non-bank financial companies. especially in public sector banks. has also strengthened prudential requirements and introduced a capital risk-asset ratio system as a measure of capital adequacy. The SEBI was designed to improve corporate governance and enhance investor protection. the RBI. raising minimum capital and capital adequacy ratios to conform to international standards. Equally important. including allocation of funds for bank recapitalization to reduce the level of nonperforming loans. the Securities and Exchanges Board of India (SEBI). and overall restructuring of public sector banks.
The per capita consumption of meat and eggs in China and India has more than doubled over the past decade. Demand for food grain and fiber has increased faster than supply primarily because of 20 . But it is not the only reason. more and more grain is demanded for the same number of calories for human consumption. One of the many cause may be the concurrent rise of China and India. as caloric intake shifts to more protein. While China and India have not experienced the large-scale and often violent protest and riots over rising food prices that have hit several countries. Food Inflation In April 2008. This has increased consumption of grain for feed. Hence.Challenges And Opportunity 1. The problem then– and now– is access to food at affordable prices. there is worry that inflation has the potential to reverse dramatically the gains in poverty reduction in both countries. the sharp increases in global prices (overall global food prices increased by 83 percent over the 36 months leading up to February 2008) are expected to remain high throughout 2008–09. the World Bank issued a public statement warning that skyrocketing food and fuel prices were threatening recent hard-won gains in overcoming poverty and malnutrition throughout the world. And also. Growing incomes in China and India – has led to a growing demand for grains.
the dollar has weakened against the currencies of its major trading partners. Compounding this problem are international prices that are denominated in U. Also. Of course. drought in Australia’s grain belt has reduced the country’s historically large volumes of wheat and rice exports. it would only slightly reduce this dependence.S. Specifically. climate change will pose growing challenges to agricultural production. it remains unclear if biofuel is any answer to Air Pollution. Moreover. and vegetable oil from traditional export markets (both as food and feed) to the production of ethanol and biodiesel. it is estimated that even if the United States devoted its entire corn acreage to ethanol production. when the dollar falls. generous biofuel subsidies have encouraged farmers to divert huge volumes of crops such as corn (or maize). while oil prices have been rising on supply-and-demand fundamentals. the United States.S. and seasonal lags have slowed producers’ responses to the higher prices. as most regional currencies have appreciated against the dollar during 2007–2008 it has reduced people’s purchasing power. No doubt. Erratic weather. diverted roughly one third of it to ethanol production. every time the dollar has weakened. Ironically. dollar is only part of the story. However. 21 . The sharp rise in oil and natural gas prices has also had a negative impact on food prices because fertilizer and pesticide prices are highly dependent on petroleum and natural gas prices and often move in tandem with energy prices. With petroleum prices at an all-time high. which produced a record maize harvest in 2007. trade policies. but also in Brazil. Adding to the price is the cost of trucking food from farms to local markets and shipping it abroad. For example. dollars.biofuel policies in countries like the United States. sugar. As a result. producers outside the United States raise prices to compensate. For example. soybean. given the high volume of hydrocarbon fuel used in biofuel production. this will only make food shortages more acute. In recent years. hedge funds have bought commodities – because commodities are priced in dollars. Thus. there is every reason to believe that farmers in rich countries will continue to divert more of their acreage to crops that produce the highly profitable biofuel. the precipitous decline in the value of the U.
over the longer term. Because demand has outpaced supply. secure property rights for peasants. export bans can result in the formation of cartels and revive protectionism. Although these measures. overall productivity growth in agriculture is simply too low to cope with the increase in global demand. However. governments must expand investment in the agricultural sector. especially biotechnology. over time. Also. 22 . In the case of China. including improving rural infrastructure and domestic and foreign market access to farm products – and in the case of China. prices have inevitably increased. In India it has been exacerbated by poor farm output. and investment in agricultural research and development has fallen. increased demand for meat and dairy products has put intense pressure on food supply and prices. Finally. For the immediate task i.e. which in turn can lead to further increases in food prices and overall inflation. in the case of both China and India. has grown by barely 2. neglect and complacency set in.Although a modest recovery in production was expected for 2008. New technologies. and the rate of growth is even lower if the past decade and a half is considered. with the consequence of further increasing world food prices. in contrast to other sectors. the current food crisis has paradoxical roots. rich countries should provide the necessary food aid to the hard-hit nations to prevent mass starvation and malnutrition. For farmers. Finally. Agriculture. higher food prices present an opportunity to increase food production and benefit from the high prices. after decades of growth in agricultural production and productivity and falling food costs.5 percent over the past five years. But for both. can aggravate the problem because measures such as export bans or high export tariffs can also make the international market in food supplies smaller and more volatile. the Organization for Economic Co-operation and Development (OECD) nations must take the lead in implementing policies to revive global agricultural growth. the huge demand is simply outstripping domestic supply. Export restrictions are bad for poor food-importing countries. Cumulatively. Series of measures such as export restrictions and price controls has already been taken. were set aside for mostly political reasons. in the short term. To help them. feeding the growing ranks of the hungry. Countries must work cooperatively to limit the negative effects.
China’s National Offshore Oil Corporation’s (CNOOC) is making aggressive efforts to secure oil and natural gas supplies around the world 23 . China is the world’s leading consumer of coal.Specifically. Also. and China is now second largest consumer of oil after the United States. In fact. India’s energy requirements have doubled over the past decade and only growth (and worsening of situation) is expected. India’s net oil imports are also increasing rapidly. It is projected to import 80 percent of its energy needs by 2025. and copper and is second only to the United States in oil and electricity consumption.S. These steps may reduce the impact for years to come. China’s oil demand will double in the next twenty years. Energy Information Administration (EIA). The EIA predicts that India’s consumption will grow from 2. if not sooner. This represents a 75 percent increase in fifteen years. Commodity prices are greatly impacted by the imports of China and India in World Market. According to the U.2 million bbl/d in 2003 to 2.6 million bbl/d. In 1995. the large-scale subsidization of agriculture in OECD countries has prevented developing countries in particular. Energy Demands Due to their growing economies. steel. India’s oil consumption was roughly 1. 2. India currently imports 70 percent of its oil and 50 percent of its gas. both China and India will continue to put enormous pressure on a variety of global markets in regard of energy. Coal supplies twothirds of its total energy needs and fuels 80 percent of its electric power generation. For China. the least-developed countries – from further expanding their agricultural sectors. oil and petroleum use are growing exponentially. It is essential to eliminate these agricultural trade barriers. Also. China is currently responsible for one-quarter of the world’s carbon emissions.8 million bbl/d by 2010. its huge coal reserves are the spine of its power industry. they must eliminate the generous biofuel subsidies. India has also increased its oil consumption. To meet growing demand.
Beijing had concluded such “strategic energy alliances” with at least eight countries. since the early 1990s. the impact on global climate change would be hugely negative. The United States has been concerned about aggressive Chinese and. If China succeeds in the attempt to meet its energy needs by turning certain countries into its own exclusive suppliers. they may revert back to using coal.-owned Unocal in 2005). Similarly.(including its bid on U. However.S. However. administrations are opposed to both the onshore and offshore pipeline between India and Iran. more recently. Myanmar. the successive U. Indeed.600-mile natural gas pipeline between the two countries. Sudan. Indian efforts to “lock up” long-term energy deals with nations ranging from Iran to Venezuela. Venezuela. concerns over the impact of China’s and India’s outward reach for energy resources. India and Iran have been discussing the building of a 2.S. the capacity of the world oil market to respond flexibly to sudden shortages or increased demand will be significantly reduced. Fighting with these kinds of energy crisis. By end-2006.S. 24 . and Syria are adding to U. growing Chinese and Indian energy investments in “problem states” such as Iran.
Similarly. China’s vehicle fleet is projected to rise from about 30 million to some 120 to 150 million by 2020. the pollution problem will only get worse 25 . which is caused by sulfur dioxide emissions.3. Heavy reliance on coal in both countries has exacerbated pollution levels because the coal used has very high sulfur content. China and India are the second and third largest polluters or emitters of carbon (behind the United States) in the world. In 2000. China anticipated doubling its coal consumption by 2020. Currently. as much as 90 percent of China’s sulfur dioxide emissions and 50 percent of its particulate emissions are the result of coal use. is expected to see similar growth. This will put additional pressure on energy demands and exacerbate pollution problems. and India. and two-thirds of the world’s fifty most polluted mega-cities are in either China or India. coal is the backbone of India’s energy base. Currently. which produces its own fleet of vehicles. Coal provides about 70 percent of China’s energy needs: the country consumed some 2. Growing Environmental Stress: Another Hurdle in Growth The push for rapid economic growth in both China and India has come at a price: it has resulted in tremendous environmental stress. and the United Kingdom combined. Particulates are responsible for respiratory problems among the population. it is now expected to have done so by the end of this year . .4 billion tons in 2006 – more than the United States. Japan. . Moreover. and acid rain. it meets more than twothirds of the nation’s energy needs.
In both China and India the growing demand and overuse of groundwater for both personal and agricultural use have stretched these finite resources to near exhaustion.. The situation in India is hardly any better. once the non-health impacts of pollution are added. in India. the aquifers in 90 percent of Chinese cities are polluted.in the course of time. . nearly 700 million people drink water contaminated with animal and human waste. As a result. almost a quarter of the people regularly drink water that is heavily polluted. the total cost of air and water pollution in China is equivalent to more than 5 percent of GDP. it finds that the health costs of air and water pollution are equivalent to about 4 percent of GDP in China. the Yamuna River is so polluted that its level of fecal bacteria is 10. which provides 70 percent of the country’s total drinking water.” Similarly. Also. and pesticides and fertilizers . hazardous waste sites. However. Agricultural runoff from pesticides and fertilizer and the widespread use of waterways such as rivers and lakes as a dumping ground for industrial waste and sewage have severely contaminated fresh water supplies. especially during the summer months. The report says that in China. is under threat from a variety of sources. China’s ground water. Recent World Bank studies (World Bank 2008) note that water shortage in China and India has become a grave threat to human security. . This in turn has led to serious water shortages. such as polluted surface water. 26 .000 times higher than what is deemed safe for bathing and drinking.
including the right to hold political leaders accountable for their actions.4. State-society relations have greatly improved in post-Mao China. China: In a two-boat ride? As we have already discussed in the above topics that China is witnessing an unprecedented growth in all the sectors that too under the communist regime which was thought to be impossible just before China actually did it with the proof like Soviet Union. Citizens now enjoy greater personal freedoms. 27 . The individuals and groups are now demanding not only the rights that are in the Chinese Constitution but also the rights and freedoms associated with democratic citizenship. people have begun to abandon their roles as comrades and demand rights that are congruent with democratic citizenship. This is what is the basis of discussion under this heading. and daily life has been liberalized allowing certain adherence (such as western culture) that were once frowned on and often prohibited. The harsh controls regarding moral and religious of the Mao era have disappeared. Over the past two decades.
the CCP is firmly in control. it is not surprising that some two decades since the authorities brutally suppressed the short-lived pro-democracy movement. the CCP. by generating robust growth. ii. China remains a one-party state in which formal authority is highly centralized and no organized political opposition is tolerated.” or the right to rule.Yet despite such changes. i. iii. As in the past. and professional associations must be sanctioned by the government and their leadership subject to official approval. China’s so-called authoritarian developmental state has refurbished its image and earned that elusive “mandate from heaven. Given such tight controls. In being “proactive. Like the “developmental states” of East Asia. An independent civil society (or the existence of a social arena independent of the state) does not exist in contemporary China. Ability to Reinvent The CCP can be quite objective in assessing its own strengths and weaknesses and learning from the mistakes of other Communist countries as well as from the successes of single-party system such as the People’s Action Party in Singapore. Zealously monitors and manages socioeconomic and political trends CCP has taken stringent measures to monitor and control on whatever sector they introduced reform whether it is there Finance sector where earlier only one Bank i. 28 . Successful blending authoritarian rule with pro-market economic policies China’s party-state has enhanced its legitimacy in the eyes of the masses. All organizations. carefully monitor compliance with party policies. interest groups.e. Reason for the existence of this anomaly.” the CCP has not only reinvented itself but also strengthened its grip on power.
After all these things. Therefore. we still have to debate over the long-term sustainability of China’s growth under this transition. After all. FDI has served to strengthen the regime because by fundamentally restructuring labor relations.People’s Bank Of China to look after every thing including both foreign exchange.” The informal mechanisms may be sufficient in the early phases of economic development. there are limits to the expedient management of the economy under the conditions of “trapped transition. The problem of political transition underscores that China still lacks the institutional foundations of a market economy. it has fragmented workers’ ability to resist reform and thereby delay political liberalization. This is only one such example. But after recognizing the amount of pressure the bank was accommodating Party decided to allocate different work to different bank by adding four banks under the earlier Bank. FDI Liberation FDI liberation helped state owned firms to become more efficient due to increased competition from those foreign firms and the improved technology brought by them hence allowed to practice their kind of experiments to strengthen their capabilities along with the already available large pool of labor resulting in reduced cost. 29 . treasure transaction or deposits etc related with the citizens. iv. but they are unlikely to sustain growth and promote democratization if the formal institutions of a market economy are not strengthened.
India’s Democratic: All That Glitters Is Not Gold As it has been seen that India has been growing ever since it has taken up its freedom along with certain hiccups and hurdles but nonetheless growing and one of the many reasons that has been stated is Indian democracy. But this very fact has been a hurdle for many good things that could have been done if it was to be taken care properly. Various analysts and academic elites have cued to this problem that Indian people are becoming more and more disengaged in their political rights and try to 30 . There are been many proof of this growth and is relation with being the democratic country with the proud of being world’s largest democratic country.5.
Despite the fact that caste and communal loyalties are significant determinants of electoral outcomes. This has also led to states like Bihar where lawlessness has reached its limits and armed men can wreck havoc on whom so ever they want to harass. In all these atrocities only poor and middle class people are suffering. of voters with every term election and increased population. The very proof of this fact is reducing no. caste and other negatives of Indian Society. India’s democratic order also has significant strengths. Also people who are poor are diving in more poverty and rich is getting richer. Voices of weaker are hard to reach those ears and sometimes it seems that they listen only to the music of money. Government official tend to go corrupt and bureaucratic. the proliferation of political parties has also given the Indian voter a wide menu of choices. More important. illiterates. especially the redistributive efforts. But we have seen it violating in many cases and lakhs of cases lying pending in the sessional courts with few cases lasting from years and sometimes decades. Poors do not involve themselves at all. And Middle class try to avoid and when caught seem to be fighting to endless time or getting rid of them by way of corruption or suppression. And such rift is expanding with every passing year. on the ground of religion. India’s Judiciary is also said to be constitutionally unbiased and placed above everything including government. Political people are seemed to be taking advantage of weak.remain far behind the scene until it is the need of the hour. the 31 . The multi party system has lead to the coalition Governments which are bound to be very weak and founded on the interests of every party involved not on the interests of people for whom they are meant. Institutional decline has also negatively affected economic growth. Voter turnout in India has stabilized at around 60 percent. Yet for all its challenges. which by international standards is quite impressive.
Lalu Prasad Yadav). Equally impressive. Diversity in Parties has made sure that no monopoly can live. but facilitated decentralization. it is the very deepening of democracy that has made the national Parliament and state assemblies more representative of India’s society. including civil and criminal cases involving several former ministers in the central government and in the states (including former Prime Minister Narasimha Rao and the former chief minister of Bihar. the fears of a “takeover” by right-wing Hindu fanatics or left-wing fanatics (Maoist-inspired Naxalism) is exaggerated. India’s once compliant Election Commission has undertaken an energetic and unprecedented campaign to make political parties and their leaders accountable. not even religiously biased. the coalition governments have not necessarily worsened governability. Although Indians recurring instability associated with coalition governments has been seen occurring but it is important to recognize that India’s mind-boggling diversity can be effectively reflected in a broad-based coalition government. The courts have come forward to eradicate corruption at all levels. Also. Indeed. So it is suffice to say to wait and watch will be the best policy to undertake for years to come.electorate takes its responsibilities seriously. 32 . As electoral success depends on a party’s ability to reach out to individuals and groups in diverse social settings while conveying a political agenda with generalized rather than narrow sectoral appeal.
India’s Neighbor A great threat comes from Pakistan who stands on the opposite footing as that of India and the constant atavistic feud-type situation due to which neither of the country stays in relieving “Peace”. with deeply felt anxiety on both sides. India and Pakistan have remained in a constant state of hostility since independence. In fact. 33 .6. even periods of peace between these neighbors have been uneasy.
miscalculations and brinkmanship. and several other shadowy jihadi groups. Dawat-ul-Irshad. economies are now 34 . The successive Pakistani governments (both civilian and military). the Pakistani military’s penchant for clumsy adventurism. the militarization and nuclearization of the sub-continent remains a grave threat to peace and stability in a region long characterized by mutual misunderstandings. Jaish-e-Muhammed. weak diplomatic and security institutionalization. 7. Yet it can be hoped that the integrative forces of globalization have the potential to change India. Harkat-ul-Mujahideen. the Taliban. including Lashkare-Toiba. Markazdawa.4 trillion in 20 06.Pakistan relations for the better. perhaps most important. despite attempts by governments to control and regulate their movement. Kargil War was also the result of same rivalry. Al-Qaeda’s International Islamic Front. misperceptions. which decades of diplomacy and negotiations could not do.This is because of several interrelated factors: low levels of intraregional economic interdependence. by creating and supporting atavistic terrorists groups. and. These funds now cross national borders. contentious territorial disputes. often at will. Today. have literally unleashed the “dogs of war” to wage proxy wars against India. Thus. Globalization: How It Impacted China and India The volume of international capital flows have surged from just under US$2 trillion in 2000 to US$6.
a global slowdown in demand is beginning to have a negative impact on them. This is particularly the case in China. Consequently. The exponential growth of its massive foreign exchange reserves has been the result of trying to sustain a stable exchange rate between the renminbi and the dollar 35 . which is more export-dependent than India – the economic performance of which is also driven by domestic consumption. For example. some of which are large by global standards on the basis of market capitalization and the size of their balance sheets. because external trade in merchandise and services accounts for a significant portion of their economies. India’s outsourcing industry and export-dependent information technology (IT) sector is already feeling the pain of declining revenues – due not only to a slowdown in global demand but also to the rise in the value of the rupee against the U. capital markets in both countries are small relative to the size of the domestic economy. In the case of both China and India. and both rely heavily on foreign direct investment rather than securities investment and other forms of capital flows to access international capital markets. Chinese and Indian banks. both are subject to the vagaries of economic globalization. Specifically.deeply interwoven into the fabric of the global economy as never before.S. China and India are both integrated into the global economy and yet seemingly not fully integrated? This is because both countries are still minor players in the global financial system. as the current subprime-induced financial crisis illustrates. For China. dollar. China and India are feeling the effects in their export markets. In both countries. have only modest international presence. the challenges are more complex. what were minor ripples when the subprime crisis broke in mid-2007 have become more significant waves. However. In fact. with continuing declines in consumer spending and the rise of unemployment in the United States.
concentration on exchange rate stabilization has meant that Beijing has largely ceded the ability to use monetary policy to target domestic objectives such as controlling inflation.even in the face of strong economic pressures for appreciation (given China’s strong productivity growth. the People’s Bank of China has been aggressively buying dollars and selling renminbi. No doubt. it is natural for the renminbi to appreciate). as the world’s largest holder of foreign currency (and as the World’s largest creditor) to play a more pro-active role in combating the global 36 . dollar has increased uncertainties associated with capital movement. the continuous depreciation of the U. such requests will continue to mount on China (and to a much lesser extent India). India) to play a more significant role in the emerging international economic order. this strategy has not been without costs for China. Both Chinese President Hu Jintao and Indian Prime Minister Manmohan Singh pledged that their countries will do everything in their powers to help stabilize the global economy. China and India have so far fared better than most during the current financial crisis. There is great expectation for China (and to a lesser extent. Besides making domestic macroeconomic management difficult (China’s controls on private exchanges of renminbi for other currencies are not always effective). while Thailand has asked China to ease its currency-conversion restrictions to facilitate pooling of reserves to create a $350 billion fund to protect the region’s currencies. To prevent this appreciation and to avoid loss of export competitiveness. the weaker dollar is also exerting the pressure of imported inflation on China. by driving up commodities prices in dollar terms. The European Commission has urged Beijing to support new financial rules. This poses a real threat because global external shocks can generate runaway inflation. Consequently. However. Specifically. both agreed that they could make a positive contribution by maintaining stable growth and resisting the rising protectionism in the United States and Europe.S.
Rather. if the rising tide of globalization is to “lift all boats. 37 .” there is no trade-off between inequality and growth. environmental degradation. growth must be sustainable. Because a country’s most valuable resource is its people. Despite their achievements. With impressive growth behind them. and the exploitation of scarce natural resources. Finally. both countries face significant challenges in the years and decades ahead. Second. dependence on hydrocarbons. growth must be inclusive.financial crisis. despite all their accomplishments. Contrary to the “trickledown theory. it is time that both India and China rethink how growth itself is conceived. it is imperative that policy makers promote strategies that allow the fruits of economic development to be shared equitably by all citizens. For China and India. Perhaps the greatest challenge is making economic growth sustainable and inclusive. is not sustainable. without reinvesting the proceeds.” it will require an unprecedented degree of national and global cooperation. it remains to be seen if they can finally rise above the burdens of history. each country must come to terms with the fact that growth is not just a matter of increasing GDP. This means that growth based on a consumption binge by the few. Most fundamentally.
search.uk) 38 . Economic Growth: India And China by Leena Mary Epan Vol I. Librarything.com 5.ac. www. Wikipedia 4. India And China: Age Of Globalization by Shailendra d.Bibliography 1. II and III 3. 6.ise.com “Economic History Of India” Chinese Economic History: a Critical Review (www. www. Sharma 2.
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